A recall of peanut butter made by a small Virginia company has
ballooned into a withdrawal of related products nationwide,
highlighting the challenges large food makers face in policing
their supply chains.
Large manufacturers already have controls in place to ensure
food safety, although the most recent recalls could push some of
them to review those systems yet again. Analysts say the recent
product recalls may have only a limited financial impact on the
largest food makers, but they could face added pressure to reassure
nervous consumers about the safety of their offerings.
Large packaged-food makers who have had to issue recalls "could
incur some [financial] charges in the near term, but longer term it
shouldn't plague them," said Erin Swanson, an analyst at
Morningstar.
Still, some industry watchers also point to the hidden costs of
recalls.
"The soft costs are with respect to their brand, which is ever
more important as consumers have the ability to differentiate
[between] products more than they used to," said Pat Conroy,
national consumer products leader at Deloitte LLP.
Deloitte's recent Food & Product Safety survey found that
about 58% of consumers who heard about product safety or quality
problems then changed their buying habits, turning away from such
products for more than nine months on average.
The most recent recalls are connected to peanut butter or peanut
paste supplied by a privately held Virginia company called Peanut
Corp. of America, which is being investigated in connection with a
salmonella outbreak. Product samples from the company have tested
positive for the bacteria that have sickened at least 474 people in
43 states and may have contributed to six deaths, federal health
officials said.
General Mills (GIS) recently announced a voluntary recall of
Larabar and JamFrakas peanut-butter snack bars because their peanut
butter came from Peanut Corp., although no illnesses have been
reported in connection with the two General Mills products.
The FDA also confirmed to Kellogg Co. (K) that salmonella was
found in one package of its Austin Quality Foods Toasty Crackers
with peanut butter. This product had previously been recalled by
Kellogg as Peanut Corp. was one of its peanut paste suppliers.
Ralcorp Holdings (RAH), maker of private-label and branded
foods, has announced that it has voluntarily recalled certain
Wal-Mart (WMT) bakery brands of peanut butter cookies as they
contained peanut butter supplied by Peanut Corp. and could be
contaminated.
Limited Damage
For the largest companies with broad product portfolios, the
impact may be limited.
"You don't want to see any company associated with this, but
consumers tend to shake this news off when it's involved with brand
names they can trust. Kellogg and General Mills fall into that
category," said Edward Jones analyst Jack Russo. "The big issue is
that [because] both have such broad product portfolios, I don't
think it will have much impact."
Still, consumers have had to deal with a spate of safety issues
recently, ranging from contaminated baby food to vegetables. The
Deloitte study found consumers becoming less tolerant of
recalls.
Roughly half of the respondents in the study said they now
gather more information, buy more U.S. products, and read product
information more carefully as a result of problems with fresh food.
Safety or quality problems with packaged food or beverages led half
of respondents to pay more attention to company reputations.
Food companies are already doing a lot to ensure safety, said
Russo. "When you are in the food business or the restaurant
[industry], that is your biggest concern. It is probably the kind
of thing that keeps executives up at night because some of these
things could destroy brand equity overnight," he said.
A Kellogg spokeswoman said the company already has stringent
food safety programs in place, which include tests for pathogens in
its plants and using a third-party lab to provide certification
that components being supplied to Kellogg are also free of
pathogens. The business in which the recalls took place represents
less than 1% of the company's total sales, she said.
A General Mills spokeswoman said the recalled products had been
tested extensively. The financial impact of the recalls have not
yet been determined and involves just two products on a relatively
new product line, she said. Shares of both cereal makers showed
little impact to news of the recalls.
But in the past, not all companies have been as lucky. The
Deloitte study pointed out that when mad cow disease was reported
in the U.S. on Dec. 24, 2003, shares of many restaurants and food
companies - including McDonald's Corp. (MCD) and Tyson Foods Inc.
(TSN) - saw declines for a while. When consumers get spooked, the
overall category can be affected, said Conroy.
Companies that make or use peanut butter - but aren't involved
in the recent recalls - have been quick to distance themselves.
ConAgra Foods (CAG), which sells Peter Pan peanut butter and
other lines, said none of its products was involved in the recalls.
A ConAgra spokeswoman said the company has detailed processes in
place to know exactly where its ingredients and products come from,
even if made by another supplier and even if that supplier sources
from someone else. The company enhanced those procedures after a
2007 recall of certain products, with a complete rebuilding of the
Peter Pan facility, additional testing protocols, and increased
quality training for its employees, she said. ConAgra does not get
any product from Peanut Corp.
"There could be some perception issues on the part of consumers.
That is why you are seeing other companies come out and say, 'We
are safe,'" said Morningstar analyst Swanson. ConAgra said it does
not know yet if there is any impact on its sales or overall
category sales as a result of the recalls by other companies.
Deloitte's Conroy believes there is more that food companies can
do on the subject of safety. For one thing, he said, they should
put more effort into policing not just their direct suppliers but
also "suppliers of suppliers." He says food makers could also
benefit from doing a better job of educating consumers on all the
steps they are taking to ensure safety.
-Anjali Cordeiro; Dow Jones Newswires; 201-938-2408;
anjali.cordeiro@dowjones.com
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