Recalls Plague Kraft Foods Investor Milieu

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Mar 22, 2015

Kraft Foods Group, Inc. (KRFT, Financial) has voluntarily decided to recall around 242,000 Macaroni and cheese products as these cases may contain small metal pieces. The food giant has decided to leave nothing to chance as a huge lot of American children consume cheese and Macaroni as their staple diet. This issue may not be favorable for the company, given the competition from smaller food brands with higher natural ingredient-content. Joyce Hodel, the company's spokeswoman said that there may be a possibility of a small stainless steel piece getting wedged in the company's metal equipment. Due to continuous friction, small chips must have fallen in the products. The company apologized to their patron consumers.

Recall Woes

The four products which are being recalled are Kraft Macaroni & Cheese-Boxed Dinner, 3-Pack Kraft Macaroni & Cheese-Boxed Dinner-Original Flavor, 4-Pack Kraft Macaroni & Cheese and the five-pack cases. The recalls are being made to the cases sold in Caribbean, Puerto Rico, US and a few South American countries. No injuries have been reported, but 8 complaints have been received so far. The company said in a statement that consumers who have purchased these three-pack, four-pack and five-pack boxes should immediately return it to the store they purchased it from. A full refund will be provided to the grieved consumers. The cases portray the code “C2” just below the date. The code C2 indicates a particular line of production. Also, these boxes have the use-by dates from Sept. 18, 2015, through Oct. 11, 2015.

Controversy catastrophe

The food giant seems to be making news for all the wrong reasons in recent times. Management issues seem to be hitting the company hard. Besides, Kraft Foods is also struggling with sluggish sales in the past months. Not only this, the company's brands Oscar Mayer and Miracle Whip separated from Mondelez International Inc. (MDLZ, Financial), the American food and beverage conglomerate. Now, the recalls have left the company in consumer's bad books. This is not the first case of Kraft recalling their products. Late 2011 saw the company recalling Velveeta Shells & Cheese single-serve cups. It was believed that there were small bristle wire pieces in the single-serve cups. In August 2014, around 7700 cases of Kraft American singles cheese were recalled due to the improper storage of the product's ingredient. The company seems to be making a name in the market for its product recalls. The Kraft Macaroni and cheese products alone have fetched the food giant a whooping $18 billion sales for the full-year 2013. Annual sales from these two products are almost $500 million. In 2013, an activist had put up a petition online, urging the company to remove Tartrazine ( Yellow 5 synthetic dye) from its macaroni and cheese cases.

Investor Take

Not only are parents afraid of the issue, but investors also fear the worst. The issue obviously took a toll on Kraft shares. As soon as the announcement was made public, share value fell by 2%. The question here is: will investors have to worry about falling shares in the long run? Or will Kraft take efficient measures so as to ensure that such a situation does not arise in future. In the past, when Kraft recalled Oscar Mayer strips, share values had fallen for a longer period of time, but regained the original value by summertime. Looking back on this past history, it shouldn't be long that Kraft share value will be back to normal. Though the company has offered full refund, a decrease in stock prices could have a long-lasting effect. Let's wait and watch. All's well that ends well.