Salmonella scare costs Cadbury £20m and loss of market share

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Cadbury Schweppes is spending £5m on marketing to repair its battered image after its UK chocolate sales fell 14 per cent in July, following a salmonella scare that has cost the confectioner £20m.

The group, which resumed its sponsorship of Coronation Street last night, said the full impact of the worst threat to its Dairy Milk brand in its 100-year history would not become clear until the autumn.

The company is trying to head off legal action from consumers who became ill after eating its products. Up to 70 consumers have written complaining of illness. A Sheffield-based law firm is seeking to bring at least three cases against Cadbury. Sally Booth, partner at Irwin Mitchell, said potential compensation would depend on the "severity and duration of the illnesses" and also on any long-term consequences.

The Health Protection Agency has identified 59 cases of Montevideo salmonella, the strain found in Cadbury's factory at Marlbrook, Herefordshire, since 1 March, although no cases have been directly linked to the company.

Todd Stitzer, Cadbury's chief executive, yesterday apologised to all of its customers: "We acted in good faith but have caused concern and for that I sincerely apologise." He said the group had adopted "zero presence testing" for salmonella, promising to destroy all products that show even a trace of the virus.

The group began restocking the seven products potentially exposed to salmonella, including its Dairy Milk eight-chunk and 1kg bars, on Monday. Mr Stitzer said market research data initially showed a dip in consumers' intention to purchase Dairy Milk and their perception of the brand, but that both measures were now improving.

The group's share of the UK chocolate market dipped by 1.6 per cent in July to 36.4 per cent. Its chocolate sales fell 14 per cent in a market that was 9 per cent weaker during the hottest ever July on record. Its share of the confectionery market fell 1.1 per cent. Cadbury is taking a £20m exceptional charge to cover the cost of the debacle, including £5m to destroy stock and £11m to overhaul the affected factory. Its shares rose 16.5p to 537.5p on relief that the profit hit had not been higher.

Unveiling interim results yesterday, Cadbury said it was still monitoring the impact of the recall, implying it could knock its target of growing revenues at the upper end of its 3 to 5 per cent goal off course. It still expects to increase its margin. For the six months to 30 June, underlying group pre-tax profits rose 14 per cent to £402m on a constant currency basis on revenue growth of 4 per cent. Its US gum business was particularly strong.