Maple Leaf Foods has already shown signs of wilting as it presses on with a major restructuring. And the outlook for the company has not got any brighter amid the ongoing listeria scare in Canada, but could its proactive stance in dealing with the outbreak protect it from the worst of any fall in consumer confidence? Dean Best reports.
Maple Leaf Foods, the Canadian food group, is at the centre of every food manufacturer’s worst nightmare – a food safety scandal, a nationwide recall, illness and death.
The listeria outbreak that has swirled around Maple Leaf in recent days took a fateful twist over the weekend with the confirmation of a link with the company and two products made at a manufacturing site in Toronto.
At the time of writing (26 August), there have been 26 confirmed cases of the outbreak strain. Twelve deaths have been associated with the strain, with six of the fatalities having listeriosis as the underlying cause of death. The contributing cause of death in the other six cases remains under investigation. With, in some instances, symptoms not emerging for up to 70 days, there is the possibility that the number of cases could rise.
For Maple Leaf, it is a time of contrition and action. After news emerged of the confirmed link with the company, it moved to expand its recall to include all products produced at the Toronto site, to delay plans to re-open the facility and to issue a message of regret from CEO and president Michael McCain, which was even posted on YouTube.
“We have an unwavering commitment to keeping your food safe, with standards well beyond regulatory requirements. But this week, our best efforts failed, and we are deeply sorry,” McCain said. “This is the toughest situation we have faced in 100 years as a company. We know this has shaken your confidence in us and commit to you that our actions are guided by putting your interests first.”
There is little doubt that the outbreak will dent the company’s reputation among Canadians but it has been praised for its proactive stance in helping get to the source of the outbreak and communicate the ever-evolving situation to anxious consumers. That praise has even come from Canada’s consumer watchdog.
“They are certainly doing the right thing by assuming responsibility and taking control of the situation. They are visibly on top of it and are not hiding away,” Mel Fruitman, vice president of the Consumers’ Association of Canada tells just-food.
Nevertheless, Fruitman believes the outbreak will shake consumer confidence not just in Maple Leaf products but in the whole deli meat category. “This might make people very conscious about eating luncheon meat,” he says.
For Maple Leaf, the likely consumer anxiety could not have come at a worse time, just as it is undertaking a major restructuring of its business. The overhaul has proved problematic in the face of soaring commodity costs and last month, after a slump in first-half earnings, analysts were speaking of a “very challenging” short-term outlook for the company.
Over the weekend, Maple Leaf added to that gloomy outlook and said its direct costs from the recall and outbreak would likely reach C$20m (US$19.1m). The company also warned investors that costs were likely to rise as it upped its spending on advertising and marketing in a bid to win back consumers.
Cherilyn Radbourne, an analyst at Scotia Capital, says that while the direct costs of the recall are not material, the more significant impact of the outbreak will be on the company’s reputation. “The more relevant cost is the reputational impact, which is difficult, if not impossible, to estimate at this time,” says Radbourne.
Any damage, Radbourne adds, will depend on the final size of the outbreak. “Maple Leaf has responded to this situation promptly and comprehensively, erring on the side of caution with respect to the product recall, which should help to mitigate the impact on brand equity and sales volumes.”
After a frantic few days, Maple Leaf will have its fingers crossed that the outbreak does not spread too much further. The company does, after all, already have a lot on its plate.