Recall Strategy Crucial As Broader Awareness Leaves Firms Vulnerable

As consumer awareness and media attention to food and drug recalls grow, so does the threat recalls pose to firms' bottom lines and the need for companies to build their reputations before problems happen and communicate effectively with the public.

Nearly three-quarters of consumers polled in the Food Marketing Institute's 2009 U.S. Grocery Shoppers Trends report say they are more aware of product recalls and food safety issues now than five years ago, noted Gale Prince, a food safety coach and former corporate director of regulatory affairs for Kroger. Almost a third say they stopped buying a product because of safety concerns, compared to only 11 percent five years ago, he added.

Prince spoke at an FDA Risk Communication Advisory Committee meeting Aug.13 in Washington. The agency convened the session to brainstorm ways to improve food safety and recall communication.

Prince explained the heightened recall awareness is due in part to the well-publicized recalls of melamine-tainted infant formula and pet food in 2008, which raised questions about the safety of other human food ingredients and questions about where the ingredients originated (¹ (Also see "Melamine In U.S. Could Pose More Risk To Food Safety Regime Than Infants" - Pink Sheet, 1 Dec, 2008.)).

Increased media attention to recalls overall - a trend that 81 percent of the survey respondents say they noticed - further fuels consumer concern, Prince added.

Because of the increased attention, "companies are much more vulnerable now than any other time in history," said Gene Grabowski, senior VP and head of the crisis and litigation practice at Levick Strategic Communications. Recalls negatively impact stock prices, orders and relationships with customers, he noted.

For example, Matrixx Initiatives' stock fell 70 percent within hours of FDA warning earlier this summer that two of the firm's Zicam OTC homeopathic intransal zinc-containing cold products were unsafe.

In addition, following a recall of the products, the Scottsdale, Ariz.-based company's net sales dropped 18.7 percent during the first quarter of its fiscal 2010. Executives said Matrixx paid $9 million in recall costs and incurred an additional $23.9 million in recall-related costs, such as impairment of goodwill (² (Also see "Matrixx Launches Zicam Products To Rebound During Cold Season" - Pink Sheet, 17 Aug, 2009.)).

Beyond specific recalls, 29 percent of consumers polled by Harris Interactive Research in April 2007 say food recalls in general are a "serious concern," 55 percent say they would switch brands temporarily and 15 percent say they would never purchase the recalled product again, Prince added.

A whopping 21 percent of respondents say they would avoid buying any brand from the manufacturer of the recalled brand.

On top of this, the current bad economy makes it more difficult for firms to absorb and recover from recall losses, which can reach upward of $103 million, according to firms' preliminary cost reports for recent recalls, said Prince, who noted some firms never recover from recalls.

Potential Increased FDA Recall Activity

Publicity of recalls could increase further if FDA follows the Risk Communication Advisory Committee's recommendations to hone the agency's communication strategy to inform more people about recalls.

The panel recommended at the Aug. 13-14 meeting that FDA increase awareness about recalls by designating a single spokesperson who could command more attention than a mere press release.

FDA also should notify consumers of all recalls, including class II and class III recalls, the panel told the agency's transparency task force representative Afia Asamoah, a special assistant to principal deputy commissioner Josh Sharfstein.

Asamoah explained FDA currently publicizes only class I recalls because they pose a more immediate public health risk than class II and class III recalls.

However, committee member Christine Bruhn, the consumer marketing specialist director in the Center for Consumer Research at the University of California, said FDA should apply the "personal test" to determine whether to notify the public of a class II or III recall. She explained FDA staff should ask themselves if they would want to know about the recall if they personally used or had the product.

The panel also recommended FDA use consumer-friendly language in recalls, such as "food poisoning" or "nausea and diarrhea" to describe the threat of recalled products instead of saying a product could cause "food-borne illness," which some consumers do not understand.

The Center for Science in the Public Interest recommended at the meeting that FDA drop the term "voluntary" from recall notices because the qualifier may make a recall seem less important.

Consumers do not know there is no "mandatory" recall, so they assume "voluntary" recalls are not as threatening as a mandatory recall would be, CSPI staff attorney Sarah Klein explained.

She also suggested FDA create a recall notice template and color-code system that retailers can use to remind consumers at stores which products are recalled.

The retailers could hang red signs on shelves where consumers normally find recalled products that say "X product is not on the shelf because of an ongoing recall." Green signs could notify consumers when products are safe, she explained.

Finally, the panel recommended FDA create a more user-friendly, searchable database of recalls. The database should include product categories and a way for people to register for recall notifications that apply to them.

Strategies To Mitigate Recall Damage

While protecting the public is the No. 1 goal of a recall, secondary and tertiary priorities for manufacturers are to protect their brands and execute recalls as quickly as possible, said Mike Rozembajgier, a director with ExpertRECALL, a firm that has handled more than 1,400 recalls for companies.

"Recalls happen all the time," an average of five to 10 daily, he said. "For most companies it is not a matter of 'if' but a matter of 'when' they will need to recall a product, and they need to be prepared to do it right and in rapid fashion" to mitigate damage.

He added that improperly handled recalls can "bring down a full company," as was the case for the Peanut Corporation of America, which failed to fully disclose pertinent recall information quickly (³ (Also see "Whey Recall Grows, But Plainview Approach May Prevent A Peanut Replay" - Pink Sheet, 13 Jul, 2009.)).

"The best way to handle [a recall] is immediately and honestly," said Karen Kreamer with K2 Brand Management Consulting in Leawood, Kan.

Firms should be as accurate as possible in their recall notifications, she added. This means listing on the recall notice the brand name, flavor, size, UPC number, picture, lot code, sell-by date, reason for the recall, distribution information, consumer hotline number, media contact, Web site, customer action, regulatory agency and recall coordinator contact.

Companies should list only products affected by the recall and not mention unaffected or safe products in the announcement. This could confuse retailers and consumers, Rozembajgier said.

He recommended firms build consumer loyalty during and after a recall by offering affected customers a "remedy," such as a replacement product, a coupon or a refund for the recalled product.

If a competitor recalls a product, it could negatively impact sales of all products in that category because consumers often confuse brands or avoid entire segments "to be safe" during a recall, Rozembajgier explained.

In these cases, companies with products in the affected category that are not recalled should consider telling consumers its brand is safe, he said.

Some of the most effective strategies to minimize the negative ramifications of a recall should be implemented before a recall occurs, Grabowski said.

He advocates that firms create a "crisis management plan" that outlines how they will handle a recall, including who will communicate with FDA, the public and retailers, as well as who physically will remove the product from the shelf and other basics.

Rozembajgier suggested firms take it one step further and conduct practice recalls so they can identify areas for improvement.

Finally, once a recall is finished, companies should notify the public its products are safe by sending media kits to blogs, magazines and other outlets that reach its main consumers, Kreamer added.

- Elizabeth Crawford ( ⁴ [email protected] )