They are the brands we trust to treat our kids’ sniffles, our headaches, our allergies. They are what make up the core of our channel’s HBC category.
But when a trusted analgesic is recalled, what is your best course of action? How can you protect your sales, if not actually grow them? The matter has taken on greater urgency as changes in the Food and Drug Administration’s recall rules are keeping products off the shelf longer. Witness Novartis’ Excedrin product line, which was voluntarily—and quietly—recalled early this year, with the promise of reappearing this summer. But the process of fixing the problem and gaining approval from the FDA continues to slow the resolution.
“We’ve resumed production, and we’ve initiated product validation for Excedrin,” Novartis CEO Joseph Jimenez said during a second-quarter earnings call in July. “We expect to begin shipments of limited portfolio in the fourth quarter.”
The tale of the FDA changes and the struggle by Novartis to correct the problem is not an isolated one. New Brunswick, N.J.-based Johnson & Johnson has grappled with a similar recall of its popular Tylenol products, and other manufacturers are dealing with problems of their own.
A second, more costly trend places HBC recalls within a broader perspective, which affects multiple retailing categories. With so much manufacturing overseas combined with the growing financial wherewithal of U.S. retail chains, more and more lawsuits are targeting retailers, according to Steve Burkhart, vice president and general counsel of BIC Corp., Shelton, Conn.
The Consumer Product Safety Commission, Bethesda, Md., has publicly said retailers are responsible for products they sell, even sealed items opened only by the consumer, Burkhart says.
“Ten years ago,” he says, “recalls were a remote possibility. They went from an uncommon occurrence to a common one. And it’s not just about the recall itself, but everything from civil penalties to criminal liability.”
Shifting Blame
Recalls and the associated growing liability has been trickling from manufacturer to retail over the past decade, says Burkhart, who speaks annually on the topic of corporate liability and risk reduction at CSP events.
C-store retailers can also be manufacturers, producing items such as ice cream and milk, operating commissaries or preparing food on site. But, more traditionally, retailers may sell private-label items, hiring a third party to create packaged goods that have the chain’s name or proprietary branding on the product. All these entrepreneurial endeavors, in addition to the core act of retailing, put the channel at risk.
Degrees of liability have expanded over time. As manufacturing has moved abroad, obtaining accountability from companies that made harmful or defective products has become harder. Companies overseas may not abide by the same rules and standards as those here. They may decide not to respond to complaints. They may suddenly close up shop.
At the same time, U.S. retailers have become more formidable, growing to become some of the largest companies in the world. Last year, 10 companies were penalized $4 million due to inadequately reporting product defects, Burkhart says. Of those companies, three were retailers, he says. The associated fines against retailers were also about a third of the total.
Unlike manufacturers, “retailers didn’t go away,” Burkhart says. “They’re innately and uniquely local.”
And penalties have amped up from monetary fines to jail time. “We talk about people who have done nothing more than import product in a sealed container and sold it,” Burkhart says. “They never looked at a blueprint or a recipe or did a product sampling, but because it was delivered tainted and the manufacturer was outside the U.S., it’s easier to go after [the retailer].”
To shield themselves from liability, retailers are adopting a few strategies, Burkhart says. The first is to purchase insurance to protect against lawsuits. While those insurance packages are expensive today, issuers are starting to sense a need.
Other companies have tried to “contract it away,” meaning they have specific language in contracts that place liability squarely on the supplier or manufacturer. But Burkhart says that such contracts don’t prevent consumers from suing or the government from assessing fines or initiating a criminal case.
But retailers are taking action. In his experience, he’s seen retailers change the certificate requirements for all their vendors, building a greater level of assurance and legal footing. He’s seen companies pull together like cooperatives so they can afford certain types of insurance.
“Insurance is a moving target,” he says.
A Retailer’s View
But what do such issues mean to retailers and their daily operations?
“Each one’s different,” says June Connolly, category manager of general merchandise and HBC for Quick Chek. “It hurts the sales because you’re not getting the brand name out there, and the consumer wants that.”
Whitehouse Station, N.J.-based Quick Chek is one of the few c-store retailers that also operate pharmacies, some within its stores. So she has seen the issue from two sides. “We handle recalls at [the pharmacy] stores a little differently than we do in the c-stores because they’re a different distributor,” Connolly says.
The first step, of course, in the event of a recall is getting the offending product off the shelf. On the pharmacy side, “they can return any recalled product right back to the distributor.”
“In the c-stores, we typically hear about a recall through the distributor,” she continues. “They’ll send us an email. Then I’ll give our vice president of sales and marketing all the information about how many SKUs we may have, different sizes, all the pertinent information that he needs to send an email out to the c-stores to say, ‘This is what we’re going to do.’ ”
Disposing of the product is typically outlined in the recall announcement and could mean returning product through the distributor, holding it in a back room or just throwing it away.
“Each recall is handled differently,” she says. “That’s why the communication comes from a vice president.”
While getting the offending products off the shelf is the first order of business in a recall, Connolly then quickly turns to “making the section shoppable so there’s not gaps on the shelf.” Again, the need to attend to that can vary greatly.
“There’s usually only a little bit of a gap because if it’s just one specific lot number for a recall, then … they can just get the product back in within a week or two,” she says. “If it’s a bigger recall that covers the whole line, that’s when you say, ‘I need to take action,’ and [fill that space].”
After 30 years with Quick Chek, many of them overseeing HBC in one way or another, Connolly sees greater urgency today. “The last couple years there have been quite a few [recalls],” she says. “It’s the most that I’ve ever seen within the industry, covering the major manufacturers.”
Clear the Decks
Paul Rossberger, vice president of sales and marketing for the convenience channel for Lil’ Drug Store, agrees that the number of recalls have been more prevalent.
“Over the last 36 months, there have been more than 10 nationally branded over-the-counter HBC products pulled for some period of time from the retail shelves, or not available on the retail shelves,” he says.
For Lil’ Drug Store, a Cedar Rapids, Iowa-based supplier of nationally branded HBC and other products to c-stores, including Advil, Aleve, Claritin and more, a recall kicks in with a notice from either the FDA or the manufacturer.
“We immediately notify distributors and retailers that there is this recall, and we get all the pertinent information to them, such as the brand, the code numbers, etc.,” Rossberger says. “Then we provide them directions on how to return that product. In some cases, the product can just sell through. In other cases, in a true recall, the product usually has to be pulled from the retail shelves, sent back to the distributor and then returned to the supplier.”
Tom LaManna, vice president of merchandising services for Convenience Valet, says his company has a detailed, seven-page document of standard operating procedures in the event of a recall.
“Our procedures and actions differ depending on the FDA classification: recall, market withdrawal or safety alert,” he says. Following the manufacturer instructions and disposition directive for the product, “we do everything we can to identify the affected product [based on our internal controls and record keeping] and communicate what needs to be done to all parties, with speed and accuracy being critical.”
Convenience Valet, Melrose Park, Ill., provides more than 400 products from national manufacturers, including Bayer Corp., Procter & Gamble, Pfizer, Glaxo- SmithKline and others.
Gap Filling
Once those products are off the shelf, the concern becomes filling the gaps.
“Retailers can’t appease every shopper when their brand is recalled. Those shoppers who are brand loyal—it drives their behavior at the shelf. In most cases when nationally branded products are recalled, retailers will lose business,” says David Case, business development manager for convenience for Advantage Sales & Marketing LLC. “Retailers who don’t react will lose more sales than those who do.”
Advantage Sales & Marketing, Austin, Texas, is a consumer-packaged-goods sales and marketing agency representing Unilever, Johnson & Johnson and GlaxoSmithKline, among others.
Referencing the recall of a brand-name antacid, Case said retailers can ease the loss. “When [the product] was recalled, retailers who beefed up [a competing brand] SKU offerings and facings didn’t lose as much as those who didn’t react,” he says. “Develop a recall process and follow it.”
For Quick Chek, filling that open space can take two or three different routes, according to Connolly. The chain of 129 c-stores might:
- Leave the space open if the absence is expected to be brief.
- Add another product that is intended for a similar ailment.
- Grow a timely seasonal section, such as allergy medications.
- Bring in a generic product with similar attributes.
“If a generic is still available, then we’ll double-face or put as many facings [of the generic] as we need,” Connolly says. “We will create a sign for the customer to let them know: ‘This product has been recalled.’ We try to do whatever we can to communicate to the customer the reason why the shelf is empty if it’s going to stay empty for a certain amount of time.”
Distributors Can Help
“We look at products that have ‘like’ ingredients and that are used for the same symptoms,” says Rossberger of Lil’ Drug Store. “So if you have a cold and sinus product that has been recalled and it’s for congestion, we’ll look to replace that product with a product that contains similar active ingredients.”
It might be another featured brand or private-label alternative, he says: “Stocking of both brand names and private labels in the right size at the right price for top-demand categories is a win-win solution for the customer and the retailer.”
There is great debate specifically in the c-store channel about the best role for private label. Rossberger stands on the pro side. “For the convenience retailer, we believe our approach is the ideal solution: to balance name-brand and private-label supply by offering both types of products,” he says. “C-stores that have suppliers with assured access to both brand-name and private-label products will benefit from dependable supply, fewer SKUs and stronger in-store financial results.”
Others strongly disagree, advocating a big major-brand presence in HBC. Case of Advantage Sales & Marketing sees generic or private-label products as a short-term solution, not a high-profile role side-by-side with major brands.
“Private label has been a good fallback for some manufacturers, to the point they’re trying to create the private label as their ‘brand,’ ” he says. “Long term, this isn’t a good strategy for convenience, as private label requires name brand merchandised right next to the [private label]. With space being premium, [private label] isn’t seen as a long-term merchandising strategy in convenience.”
LaManna of Convenience Valet strongly agrees: “With space being at a premium, a private-label substitute makes no sense.”
Not all recalls mean the whole brand name has been taken off the shelf, says Paul Maione, account executive, convenience stores, for South San Francisco, Calif.-based Core-Mark International. “My first inclination would be to see what the alternatives are from a national brand,” he says. “And a lot of the consumers have come to understand and use a national brand. So I would default to that before making a private-label substitute.”
One added caution in replacing a recalled product with private label: Be sure the private brand isn’t part of the recall.
Automation Assists
Prepping or planning for recalls, says Tom Kozenski, vice president of product strategy for Alpharetta, Ga.-based RedPrairie, is about “protecting brand, minimizing risk and financial cost and liability.”
For many companies, technology may help. Retailers can program POS devices to identify recalled products when consumers bring them up for scanning. A message on the register can say, “Do not sell.”
With the government putting more responsibility on retailers, operators with loyalty programs may soon be asked to use their email or mobile phone databases to communicate with recipients of recalled products.
But of all the retail channels, c-store operators need to be engaged, Kozenski says. “Their supply chains are complex, with a variety of delivery models—they may get product from their own warehouse, they have direct store delivery.
“It doesn’t get more complex than a c-store when comes to [product] traceability.”
Product Recall Toolbox
- Develop a concrete reaction plan. Create and document the procedures for managing recalls. Then train the necessary staff so they understand what to do.
- Remove the recalled product from the shelf. Return it to your distributor or destroy it as recommended by the recall notice.
- Determine which product should fill that space until the recall is resolved. Consider replacing recalled product with a major-brand or private-label/generic substitute intended for a similar ailment; or grow a timely seasonal section, such as allergy medications.
- Create signage. Let consumers know why the product is missing and, when applicable, direct them to an alternative.
- Consider providing an alternative as a special offer. Because every store—yours and the competitions’—will be missing the same branded product, make hay by letting consumers know you have a product to meet their needs, whether generic, private label or another major brand.
- Do a mock recall. Stage a recall to ensure procedures and training are solid.
- Keep good records. Maintain detailed records of what was returned to verify that you’ve received proper credit from the distributor or manufacturer.
Definitions
A few key definitions from the FDA’s Investigations Operations Manual 2012:
- Recall: A firm’s removal or correction of a marketed product that FDA considers to be in violation of the laws it administers, and against which the agency would initiate legal action (e.g., seizure).
- Market Withdrawal: A market withdrawal means a firm’s removal or correction of a distributed product that involves a minor violation would not be subject to legal action by the FDA, or which involves no violation, e.g., normal stock rotation practices, routine equipment adjustments, repairs, theft, etc.
- Safety Alert: A safety alert is a communication voluntarily issued by a manufacturer, distributor or other responsible person (including the FDA). It informs health professionals and other appropriate persons of a situation that may present an unreasonable risk to the public health by a device in commercial distribution. Products subject to safety alerts are often voluntarily recalled by manufacturers to avoid further issues.
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