Kraft, Cadbury's and Britvic in Total Recall: how pulling a product affects profit

What happens to a company’s share price when it has to recall a product?

Although a product recall may affect the public perception of a brand, it does not hurt its prospects with investors (Getty Images)

Metal shards in Mac and Cheese, salmonella in Cadbury’s chocolate, horse meat in turkey burgers. These are familiar stories of big companies recalling products because of new – unintended – changes to the recipe.

Kraft is the latest company to make headlines for recalling a product - 6.5 million of them in fact. It asked customers to return 7.25-ounce packets of its hallmark mac and cheese with a best before in September and October this year in the US, Puerto Rico and the Caribbean after metal bits were discovered in the food by eight separate customers.

Kraft's share price closed down two per cent after the announcement but is since back up to trading at prior levels - suggesting investors were barely alarmed by the news.

History seems to show that though product recall may affect the public perception of a brand, it does not hurt its prospects with investors.

Kraft Singles

Mac and Cheese was not the first Kraft product recall. In August it recalled 7,700 cases of some varieties of Kraft American Singles after a supplier failed to store an ingredient correctly. Back then the share price dipped for two days but was back to pre-recall levels less than a month later.

Cadbury

In 2006 Britain's beloved chocolate-maker Cadbury-Schweppes recalled more that one million chocolate bars after contamination from a leaking pipe at a Cadbury factory resulted in a salmonella outbreak that infected nearly 40 people. That summer, sales of Cadbury's chocolate fell 14 per cent while Cadbury reported the incident would cost them a hefty £20 million in recall costs, advertising and manufacturing improvements.

Fruit Shoot

Britvic recalled Fruit Shoot, a brand of children's fruit drink, after a six-year-old boy nearly choked on a loose cap in 2012. A week after the incident, Britvic's share price had slumped 13.4 per cent. By the end of the year, the recall cost Britvic £16.8 million.

Special K

Some cereal-eaters found their Special K had an extra crunch in February 2013 after glass fragments were found in the Kellogg's cereal. The company pulled 36,000 packets from supermarket shelves as a precaution. Kellogg's shares tanked 13 per cent on the day of the announcement but by the time of the company's third quarter results, profits had gone up because of cost cutting measures that could have resulted in the lax factory standards in the first place.

Horse meat

Irish food inspectors found traces of horse meat in frozen beefburgers made in the UK and Ireland in mid-January 2013, resulting in Tesco, Asda and Nestle products being recalled, among others. Tesco blamed the scandal for a one per cent drop in sales in May, however shares in Sainsbury's, Morrison's and Tesco all rose between nine and 16 per cent in the following weeks, indicating that investors and customers alike had brushed off the risks.