This article was originally published in MSP’s ESG in Private Equity Quarterly newsletter sent July 22nd. To add your email to the contact list, please visit www.malksp.com/contact
Food Safety Exposure Increases After General Mills Recalls 30 Million Pounds of Flour
General Mills Recall
After capping off 2015, a year that saw one of the highest profile food safety issues ever (Chipotle) and struggles with a rush of Listeria, food safety is back on the country’s radar with General Mills’ recall of 30 million pounds of flour. The recall has spread from the company’s branded (and raw) Gold Medal flour to baking mixes and other end products that may contain the flour. It comes as a result of 38 confirmed cases of E. coli, 10 of which were severe enough that victims were admitted to hospitals.
General Mills initially insisted that it had not found any traces of E. coli in its products and that the recall was precautionary. Upon inspection, FDA officials later found evidence of E. coli in a package of General Mills’ flour at the home of one of the victims, clearing up any source of doubt. The recall is reminiscent of Nestlé’s 2009 cookie dough recall, the last major flour-related food safety incident.
What the Recall Means for the Future of Food Safety
General Mills flour (along with its competitors’ product) is normally not heat-treated, pasteurized or otherwise cooked to kill bacteria, like E. coli. These companies to-date have taken the position that the flour is intended for baking and that responsibility rests with consumers to ensure all flour is properly cooked to kill
bacteria. However, in the majority of E. coli cases associated with the recall, flour was being used for ancillary purposes (rolling dough, making homemade ‘play-doh’) or consumed before cooking (cookie dough, cake batter, etc.).
In 2009, when Nestlé was forced to recall cookie dough after a similar E. coli outbreak, it began using pasteurized flour, recognizing that consumers would eat its cookie dough raw, whether or not it told them to do so. It appears that food manufacturing may be entering an era where manufacturers like General Mills need be concerned not only with its advertised use, but how consumers actually consume its product.
The reason? Where a company’s product is implicated (for advertised or nonadvertised uses), it will be recalled and recalls are expensive. Recent research pegs the average direct costs of a recall such as notification, transportation, and disposal at $10M. That doesn’t include indirect costs such as brand damage or lost sales. For small and large brands alike, indirect costs stemming from a lack of consumer confidence can destroy a business.
As food manufacturers and retailers alike plan food safety programs, the recent flour E. coli outbreak shows that a company needs to always consider likely uses of its product, not just those it intends.