Jif recall may cost Smucker $125M

Dive Brief:

• The Jif peanut butter recall may cost J.M. Smucker $125 million in product recovery, manufacturing downtime and consumer refunds, the company estimated in its most recent quarterly earnings report. 
• The company predicts the recall will subtract about 2% from total sales and eat up about 90 cents in earnings per share. In the most recent quarter, the recall erased 1% of the company’s increase in net sales — which was still up 6%, compared to the year ago period — and caused a 7% decrease in gross profit. This was down 9% compared to a year ago.
• After salmonella infections were linked to Jif peanut butter produced at the company’s Lexington, Kentucky, facility, Smucker issued a voluntary recall of 49 SKUs on May 20. Since then, several other companies that may have used the affected peanut butter as an ingredient have recalled their products.

Dive Insight:

Ever since it was first announced, it was apparent this recall was going to be huge.

Jif is the nation’s biggest peanut butter brand, with 117.3 million people eating it in 2020, according to statistics compiled by Statista, the U.S. Census Bureau and Simmons National Consumers Survey, reported by Eat This, Not That. Nearly three in 10 of those consumers — more than 33.5 million Americans — ate at least one jar of Jif peanut butter that year.

So far, 16 people in 12 states have reported being sickened in this outbreak, according to the FDA. Two have been hospitalized. Potentially affected peanut butter also was exported to Canada, the Dominican Republic, Singapore, Malaysia, Taiwan, Korea, Thailand, Honduras, Spain and Japan.

The plant impacted by the recall is responsible for producing the majority of Jif peanut butter in the world, according to the Lexington Herald-Leader. Smucker has previously reported that it is the world’s largest peanut butter-producing facility. There are no statistics showing how much peanut butter might be involved in the recall, but Smucker is preparing for it to impact the company for the foreseeable future.

The company anticipates its sales to remain flat and earnings to decline 35% in the next quarter because of the recall, CFO Tucker Marshall said in prerecorded remarks that accompanied the company’s earnings release.

“We continue to focus on managing the elements we can control, including taking the necessary steps to minimize the impact of cost inflation, the recall, and any additional business disruption,” Marshall said in the remarks. 

It’s also not clear what the issue might have been at the Kentucky plant, or what needs to be done to remediate it. Company leaders spoke of downtime at the facility, so the issue may be one that will need some serious work to fix.

The plant has operated since 1946, and was the manufacturing center for Big Top Peanut Butter — renamed Jif after the brand’s acquisition by Procter & Gamble in 1955. The plant came to Smucker when the jam maker bought the Jif brand in 2002. Smucker gave the plant a significant upgrade in 2013 for $43 million.

Regardless of what the problems are, it’s clear that it’s going to be a costly fix. Not only are there the lost sales, consumer returns and plant downtime, but such a massive recall could chip away at consumer confidence in the brand. It may only be a short-term dent on Jif’s reputation.

After all, a 2019 study from Category Partners indicated about half of consumers would buy recalled products again shortly after they returned to shelves. However, the manufacturers and bakers who had to recall their products using Jif as an ingredient may find a new supplier they prefer and stick with them.

Smucker has been very forthcoming and transparent about the recall, which is likely to reflect positively on the company and brand. Consumers tend to be more forgiving of companies they think handled recalls well. Still, Smucker may have a difficult time recovering from this recall.

As inflation rages, the company said its sales dollar figure growth mainly came from a 10% increase in average prices. And while Smucker is repurchasing shares, increasing prices and adding capacity for its hugely popular Uncrustables line, price fluctuations and shortages throughout its other products may make it tougher for the company to rebound in the near term.