Recall Affects Value for Blue Bell

One of the biggest nightmares for a company is a recall—especially when a product causes injury or death to consumers. However, a recall can happen to the best of brands. In fact, it already has for many popular brands. For instance, in 1982 Johnson & Johnson recalled 31 million units of its Extra Strength Tylenol after seven people died from tampered pills laced with cyanide. Firestone recalled more than six milliontires in 2000 due to tire failures, which were linked to 46 deaths. In 2009, the Peanut Corporation of America recalled more than 3,000 products because of salmonella, causing nine deaths and more than 700 infections. This year, Blue Bell recalled all of its products due to listeria cases that caused three deaths.

Recalls create a nightmare for companies, and inevitably cause a loss in value. They are expensive and can ruin the reputation of a company for many years after the recall. Since a company’s value relies upon a company’s reputation, product recalls can damage a company’s reputation enough to cause the business to fold. Companies that have strong brand recognition reap several benefits such as lower sales and marketing costs, greater revenues, and greater market share or faster market adoption. Consumers trust brands. However, when that trust is broken, the brand suffers and loses all the benefits associated with positive brand recognition. Because consumers often associate good products and brand recognition with trust, a recall can damage the trust consumers have for that company and its products.

While recalls can be catastrophic, companies have proven that they can overcome them. For instance, Tylenol experienced two major recalls, one in 1982 and one in 2010. Yet the brand is still being sold today. However, it takes deep pockets and hard work to regain consumer trust. In fact, Ernst & Young reports that recalls due to a threat to health and safety cost at least $30 million. Luckily for Johnson & Johnson, as a $74 billion company, it has the ability to combat expenses associated with negative publicity and recalls. Furthermore, it has other products to fall back on.

Such is not the case for Blue Bell. In March, Blue Bell recalled a number of its 3 oz. ice cream cups due to a positive test for listeria. However, this recall expanded in April when the company recalled all of its products, which is about 8 million gallons. While recalls occur, it’s rare that a company has to recall all of its products. This makes it even tougher for Blue Bell than most companies to recover. The company doesn’t have other products to fall back on that would help it bring in revenue as it tries to fix the issue. But its woes don’t stop there. In May, a government report indicated that Blue Bell’s Oklahoma plant was cited 16 times for positive listeria tests in 2013. The report lists a number of unsanitary conditions that contributed to the listeria outbreak, and implies that the company knew about the issue for quite some time, but took no action to rectify it. This report alone may be more damaging than the recalls.

Consumers may be leery about a company’s products for a while in the event of a recall. But overtime, if the company makes the right moves, consumers may instill trust again. However, Blue Bell may struggle because it went from bad to worse in a few months. The costs keep mounting with each negative public announcement regarding the recall.

For more than a century, Blue Bell maintained a strong reputation and boasted third highest sales among ice cream brands in the nation. Is its reputation enough to overcome one of the biggest recalls in history?