- Cranswick Supplies Aldi, Tesco, Sainsbury’s, a wide customer base
- Chicken products are being recalled over salmonella at the Hull production plant
- Why isn’t Cranswick’s share price collapsing under this problem?
- Cranswick Trades Higher After Strong Revenue and Earnings Momentum
Cranswick (LON: CWK) shares might be thought likely to take a very substantial hit over the current salmonella problems from the Hull factory. After all, products are being stripped off the shelves of Aldo, Sainsbury’s, Tesco, and so on as a result. There will be a loss from the stock that has to be destroyed, possibly some loss of future business from a loss of faith in the brand. Poisoning the customers doesn’t have a good look to it after all. And yet the Cranswick share price is up 3.5% this morning. So what’s going on here?
One possible answer is that a salmonella outbreak is just a part of doing business. Which is true in fact – although we need to be careful and point out that we don’t mean this in the socialist sense. That the capitalists will happily poison the workers if only they can get away with it. Rather, working with chicken meat just does mean having to deal with salmonella. It’s always going to be present in some quantity. The task is not the elimination of it, it’s the reduction to permissible – or even sensible – levels.
So, the occasional – by which we do mean occasional – outbreak of salmonella poisoning is simply one of those things which is going to happen. What matters is how it is dealt with. A speedy recall of all potentially affected product is exactly the way to do that – it’s also exactly what Cranswick has done.
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Entirely true, there might well be those who shout about poisoning everyone but the adults in the actual food business know this is something to be managed, not eliminated.
This then brings us to the costs that need to be carried as a result. As a result of this being a normal risk of being in business then there will be insurance to cover these costs. This doesn’t mean, necessarily, that an insurance company will be paying the bills although such policies can be available. In the absence of an outside insurer, Cranswick will have self-insured. That is, put aside some particle of revenue, not dissimilar to what might have to be paid as an insurance premium, to cover the costs as and when the inevitable happens.
The point being that no one wants salmonella in chicken, no one plans for it, no one even shrugs it off. But it is an inevitable part of dealing with raw and or cooked chicken. Such events are going to happen sometimes, the task is to reduce their frequency and also the effects of each occurrence. That there will be such events is already built into the cost structures the business operates to.
Of course, it’s possible for such matters to get entirely out of hand and that will do significant damage to a business. But from what we can see so far this particular outbreak is limited, is being handled in the right way, and isn’t outside any likely business planning envelope. So, following the news that it has happened and that it is being dealt with efficiently, the Cranswick shares, therefore, recover somewhat.