Menu Foods is dealing with huge losses, class action lawsuits, and cancelled clients after their massive pet food recalls earlier this year.
Their troubles have been described as “a car crash in slow motion.” The damages continue to pile on, and analysts question if Menu Foods will survive this crash or if it will be fatal.
Some of the “injuries” Menu Foods is dealing with: Procter & Gamble’s announcement that it will no longer buy canned food and wet food sold in pouches from Menu Foods, and Mars Petcare has also decided to cancel their ties with Menu and has bought Menu Food’s production facility in South Dakota. Not only are major clients leaving Menu Foods, their share prices continue to drop. Currently, their shares are trading at just over $2. Their shares used to be around $7. Their second quarter sales of this year were down to $47.2 million, compared to $84.3 million in the same period last year. This reflects a 44% decrease.
What may be even worse for Menu Foods is the crushing blow to the company’s reputation.
“What is most damaging to the company is its ability to do business in the future, not necessarily the cost of the recall itself,” said Niraj Dawar, a marketing professor and brand management expert at the Richard Ivey School of Business.
Dawar said Menu Foods is in a critical situation. When companies have handled massive recalls poorly, it has been known to ruin companies. In 1990, Perrier recalled 200 million bottles of water after a lab found traces of benzene in their product. Due to the recall, San Pellegrino, a competitor, stepped in, and Perrier never recovered and was eventually bought out by Nestle.
In June, Menu Foods put in place a shareholders’ rights plan to prevent the threat of a hostile takeover.
Aleem Israel, an analyst with Cormark Securities, said Menu’s clients are not willing to forgive and forget. Not only is Menu Foods losing large clients, but other smaller companies that contract production to Menu Foods could also cancel their contracts and severe all ties with the company.
Menu Foods has already lost an estimated 80 percent of its contract business, in which it supplies other pet food manufacturers with their food. This represents about 45 percent of the company’s total volume.
Despite all of the company’s troubles, the private label markets for Menu Foods has still remained about the same. Wal-Mart and Canadian Loblaws sell the company’s products under their in-house brands. Loblaws said they will remain committed to Menu Foods.
“We’re still doing business with them and we’re feeling confident and comfortable,” said Loblaws spokesperson Elizabeth Margles.
Menu Foods said most of their private labels will continue to do business with them.
Israel said: “The private label customers and retailers realize that Menu wasn’t at fault.”