Britvic Fruit Shoot recall costs rocket - analyst notes 'avoidable' crisis

10-Jul-2012 - Last updated on 11-Jul-2012 at 10:44 GMT

Britvic revealed today that it suspects there may be a 'design issue' with a new packaging cap design that led to a massive Fruit Shoot beverage recall last Tuesday, and predicts the crisis could now cost it between £15m and £25m.

The recall related to all Robinsons Fruit Shoot and Fruit Shoot Hydro packs featuring Britvic's new 'design cap' in the Great Britain and the company said that despite ongoing investigations, it had been "unable to speedily resolve the issues regarding the new design cap".

"Therefore we have decided to re-supply with an alternative in-market proven sports cap, in the short term. As a result we will start to re-supply customers in six weeks, with a gradual increase to enable us to meet historic levels of demand within six months."

Fundamental design flaw?

A Britvic spokeswoman told BeverageDaily.com that an investigation was ongoing to determine the issue affecting some 'sports caps' - after reports of the new spill-proof 'Magicap' coming off in the mouths of children that led to the recall - with production and bottling of the drink still suspended until new sports caps arrived.

"At this stage we've worked out that the new design cap probably has a design issue, and therefore we can't quickly resolve it. It will take some time, and that's why we're adopting a short-term alternative," she said.

Asked about potential damage to the Fruit Shoot and Britvic brands, the spokeswoman added: "You've got to look at the company's excellent track record, and it has never had an issue of this sort before."

She added: "There are always risks with any market innovation, and in this case the recall does not affect the drink but the packaging, so in no way should this reflect badly on Britvic's reputation.

"We're taking a responsible and prudent approach by stripping the product of the shelves, and our priority is protecting the safety of consumers. We hope that has come across very clearly from our reaction when this issue came to our notice."

Britvic also said this morning that soft drinks trading was still adversely affected by the poor UK weather conditions and weak consumer that blighted it earlier in the year.

"The group now expects to deliver a result for the current financial year that is at the bottom end of market expectations, before taking account of the impact of the Fruit Shoot recall," Britvic said, pointing to its Q3 results on July 19 2012.

'Avoidable' recall issue

In a note published this morning, stockbroker Panmure Gordon moved from a 'hold' to a 'sell' rating on Britvic's stock, and on the basis of the recall and weak trading, reduced its pre-tax profit forecasts for the company by £25m in 2012, to £80.1m, and by £20.5m in 2013 to £101.5m

"Whilst Britvic cannot control the weather, we believe the issue surrounding the product recall was avoidable," equity research analyst Damien McNeela wrote.

Britivic said it was difficult to make precise predictions about the full financial implications of a "developing situation" in terms of the recall.

However, due to the "now extended period of absence [of Fruit Shoot] from the market" and restrictions on available cap production capacity of up to six months - it said the impact on pre-tax profit was likely to be around £15m to £25m across the current and next financial years.

One consolation for Britvic is that the recall does not affect Fruit Shoot in the USA, Australia or Republic of Ireland, while Fruit Shoot My-5 is not being recalled and no other Robinsons products are affected.