In wake of recalls, new protocols boost supply-chain integrity

LOS ANGELES —Retail sales were mediocre at best in 2007 and made worse by pet food and toy recalls that made consumers even more wary. In the aftermath of the recalls how have vendors faired and what have category leaders done, if anything, to safeguard future business?

The toy industry endured a spate of recalls that started last August and led to tens of millions of toys made in China being pulled from retail shelves. Most of the recalled toys were coated with lead paint while a few others contained small objects that could be swallowed by children.

But in all the recalls, the common denominator was that they were made in China. And that’s prompted such major manufacturers as Mattel and Hasbro and such retailers as Wal-Mart and Toys “R” Us to issue new standards in an attempt to reassure consumers that China-sourced products are safe.

The first major change occurred March 1 when Toy’s “R” Us and Wal-Mart adopted new regulations requiring independent labs to test all toys before they’re allowed in stores. The Toy Industry Association also adopted new standards in February for analyzing toy safety during the design and manufacturing process and more stringent tests for finished products.

“The industry takes the issue of the recalls of 2007 very seriously,” said TIA vice president Joan Lawrence. “We’ve created a very aggressive program to fix the lapse we saw in the safety assurance process.”

The recalls were especially difficult for the industry because of its dependence on sourcing from China, which produces about 80 percent of the world’s toys. And with toy prices drifting higher due to increasing gas prices and the higher cost of producing plastic, suppliers are not in a position to tap into new sources.

Toy giant Mattel has pledged to take care of matters at the source by enacting more oversight overseas. Mattel, which sources more than half of its toys from China, said it now requires its vendors to use paint only from certified suppliers, and uses independent experts to monitor the production of toys in China and test new lines when they’re finished.

“We’ve certainly increased our oversight in these vendor plants,” said Mattel chief executive officer Robert Eckert in February before the annual International Toy Fair. Mattel estimates the recall cost it about $110 million in lost sales.

While retailers and manufacturers have taken several, well-publicized steps to address safety issues, there are probably more on the way. And, for the most part, they’re going to happen behind the scenes, since retailers don’t want to post “Certified Safe” signs in stores that would revive a subject that they’d like consumers to forget.

“Eventually, I think you’re going to see toy companies do the same thing Nike has done and have their own people overseeing the manufacturing plants in China,” said retail analyst George Whalin. “They’re going to have to show they’re in complete control, especially since they’re in a business where they’re creating products for children.”

The recall of dozens of brands of pet foods in 2007 had an impact on the pet supply industry as well, but it wasn’t as far-reaching. The recall began last March when about 90 pet food brands manufactured by Canadian company Menu Foods were pulled from shelves. The foods were found to contain contaminated wheat gluten that was sourced in China.

But unlike the toy recalls that unfolded for months, the food problem was traced to one source and quickly eliminated, though it did produce a sales boom for such independent suppliers as Vermont-based Wagatha’s, which makes organic dog biscuits and sources all its ingredients in the United States.

“We saw our sales rocket after that incident,” said Wagatha’s president Norman Levitz.

But those increases tended to be short-lived. John Gigliotti, the founder of organic pet food company Waggintails.com, said last month that his sales “jumped 50 percent for a couple of months” after the recall scare last year, but saw them go back to normal soon after.

Proctor & Gamble, owner of the Iams brand, said it experienced a 2 percent drop in pet food sales for the quarter ended Sept. 30, 2007, due to “continued negative impacts from the voluntary wet pet food recall” but since has seen sales return to normal.

Menu Foods saw its sales head in the opposite direction. The main source of the contaminated pet food said that its lost customers representing 37 percent of its business since the recall and last month reported a fourth quarter loss of $21.7 million.

“It would not be an under-statement to say that 2007 was the most unsettling time in Menu’s 37-year history,” said chief executive officer Paul Henderson in a statement. The company also said it’s cut 27 percent of its staff, and estimates the recall has cost it $55 million.

The U.S. Food and Drug Administration Office of Criminal Investigation has also indicted a U.S. company, ChemNutra, its president and two Chinese nationals for their roles in importing and distributing the contaminated wheat gluten from China.