When a product recall goes out, what happens to competitors’ sales?
When a product recall goes out, what happens to competitors’ sales?
A couple of companies have now recalled eye drops linked to a bacterial infection that caused death, blindness or loss of an eye in a number of people. To be clear, only certain brands are affected.
But how does a recall affect companies that make similar products, whether it’s eye drops — like we’re talking about now — or baby formula, or food, or cars?
Every recall is different. “The impact of the recall just really depends on the size and severity of it,” said Garrett Nelson at CFRA Research.
Big recalls that get a lot of attention can spill over and affect other brands that make similar products, Nelson said.
Take the Volkswagen recall of 2015, for example. When it came out that the company’s diesel cars violated emissions standards and that VW had been covering it up, “that recall had a major spillover effect to other German automakers, such as BMW and Mercedes Benz,” Nelson added. “And I’ve seen estimates ranging from $5 billion all the way to about $26 billion in terms of the cumulative impact of lost sales.”
But sometimes the opposite can happen, and competing brands can actually benefit when one company has a recall, said Caroline Harrell at Inmar Intelligence.
“When a recall does hit, and those items are pulled from the shelf, the ones that stay, they’ll see kind of a spike in sales,” she said.
It also depends on how much consumers get about what went wrong, according to David Garfield at AlixPartners.
“If the nature of the recall, the reason for it and the scope of it is clear, then consumers will understand that and isolate the recall to those brands,” he said.
But if it’s not clear, Garfield said they’re more likely to start worrying about other brands too.
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