Monday, September 28, 2015

The Cost of Foodborne Outbreaks - And Blue Bell as an Example of Mishandling an Outbreak

Foodborne outbreaks can have a devastating effect on those who become ill, but also will huge financial impact on those companies in terms of lawsuits, recall, and loss in sales.  Mishandling an outbreak can magnify those costs.

Fortune Magazine published two articles on the topic (links and excerpts below).  One looked at how Blue Bell was slow to act after their product was linked to Listeria...both knowing they had an issue and not solving it, and then with the recall in terms of performing 'recall creep' - where a series of recalls are issued where each subsequent recall entails increasing scope of products.  Recall creep has occurred often because companies fail to understand the extent of the risk.  The downside is that it drags out the recall and gives a worse perception of the company.  Comes back to the old saying - 'the first loss is your best loss'.

The other Fortune article looks the total cost of a foodborne outbreaks, which they estimated at $55.5 billion.  Recalls can cost companies from $30 million to $99 million, and in 5% of the cases, greater than $100 million.

Fortune Magazine
How ice cream maker Blue Bell blew it - Excerpts

by Peter Elkind @peterelkind September 25, 2015, 12:00 PM EDT

"The episode reveals not only how difficult it is to trace the source of food-borne illness but also what happens when a company is slow to tackle the causes—and doesn’t come clean with its customers. Experts say Blue Bell’s responses this year were an example of “recall creep.” That occurs when executives hope that taking limited action—as the company did five times when informed of findings of listeria—will solve the problem and minimize commercial damage, only to find themselves forced to expand the recall repeatedly. It’s the opposite of Johnson & Johnson’s actions in the 1982 Tylenol-tampering episode, when the brand famously saved its reputation by swiftly recalling every bottle of the medication."

"In fact, Blue Bell knew it had a listeria problem two years earlier. The FDA released inspection reports showing that the company had found the bacteria in its Oklahoma plant, on surfaces such as floors and catwalks, on 17 occasions beginning in March 2013. Despite this, the FDA found, Blue Bell hadn’t followed up “to identify sanitation failures and possible food contamination,” taken proper steps to root out the problem, or informed the agency of its findings. FDA inspections of multiple plants, starting in March, found not only listeria but also condensation dripping from machinery into ice cream and ingredient tanks; poor storage and food-handling practices; and failures to clean equipment thoroughly."

"Immediately after its national recall, Blue Bell spoke of cleaning up in a few weeks, then resuming sales. It soon became clear that was wildly optimistic: Blue Bell’s plants and practices required a massive and expensive overhaul. Kruse announced drastic measures. Blue Bell would lay off 1,450 of its 3,900 employees and furlough 1,400 more. Even this wasn’t enough. Only a $125 million loan commitment from billionaire Sid Bass kept it from going under, according to a letter Kruse wrote to the private company’s shareholders, first reported by the Wall Street Journal. "

Fortune Magazine
The food industry's $55.5 billion safety problem - Excerpts
by Beth Kowitt @bethkowitt
September 25, 2015, 11:30 AM EDT.

[Foodborne outbreaks/recalls can cause a] "costly wound, at the very least. When the Grocery Manufacturers Association surveyed three dozen international companies in 2011, more than half reported being impacted by a food recall during the previous five years. Eighteen percent of those said the hit from the recall and lost sales was between $30 million and $99 million; 5% said the financial impact was $100 million or more. The long-term reputational damage to companies can have an even steeper price tag."

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