Natural Foods Merchandiser

Spinach recall taints finances

As the nationwide spinach-linked E. coli outbreak enters its second week, growers, manufacturers and distributors are likely to lose millions of dollars in discarded product, according to the country's largest distributor of organic produce.

"You're looking at a huge amount of red ink," said Frank McCarthy, vice president of marketing for Albert's Organics. "Distributors take a loss on the margin on the product and transportation costs, the manufacturer takes a loss on the manufacturing cost, and the growers take a loss on the growing cost and on their profit margin."

Although most companies carry insurance for these types of crises, it only provides for liability in lawsuits, McCarthy said. He estimates Albert's will lose "several hundred thousand dollars" in credits to retailers for discarded spinach.

At least 114 E. coli cases related to bagged spinach have been reported in 21 states this month. Sixty people have been hospitalized, and a 77-year-old woman died in Wisconsin. On Sept. 14, the U.S. Food and Drug Administration advised consumers not to eat fresh spinach or any spinach-containing products until further notice.

Since 1995, there have been 19 other food-poisoning outbreaks linked to lettuce and spinach, according to the FDA, resulting in more than 400 illnesses and two deaths. The outbreaks may be caused by bacteria-contaminated irrigation water from rivers and creeks in California's Salinas Valley, where much of the nation's lettuce and spinach is grown. FDA officials warned California farmers about the problem in 2004 and 2005, and are now working with the California Department of Health Services to review irrigation methods and other practices of Salinas Valley farms to find the source of bacteria contamination.

The most recent case of E. coli-tainted spinach has been traced to San Juan Bautista, Calif.-based Natural Selection Foods, which sells bagged produce under 31 brand names, including Earthbound Farm, Dole, Sysco, Trader Joe's, Ready Pac and Safeway's O Organics. In addition, River Ranch of Salinas, Calif., has recalled packages of spring mix with spinach marketed under the brands Farmers Market, Hy Vee and Fresh and Easy.

Natural Selection issued a recall on Sept. 15 for all its products containing spinach with "best if used by dates" of Aug. 17 through Oct. 1. According to the company Web site, none of the organic brands it produces have been implicated in the E. coli cases.

Wild Oats Markets tossed all its fresh spinach in stores nationwide the evening of the FDA announcement, said spokeswoman Sonja Tuitele. The next morning, signs were posted in stores explaining the spinach problem, and employees were provided with talking points for customer questions.

This is key, said retail consultant Kevin Coupe in his e-newsletter, Morning News Beat. "We think that retailers need to be up front about the problem and explain to people what is happening and why they aren't selling fresh spinach for the time being. We were in a store last Saturday that, while it had no bagged or fresh spinach, also had no signs of explanation that even acknowledged a problem. We think that this is a mistake, because the absence of signs was glaring, like they didn't know what was going on and/or didn't want us to know."

Tuitele estimated fresh spinach sales account for 1 percent of total fresh produce sales nationwide for Wild Oats, or $2.6 million a year. But supplier credits will make up the loss, she said.

Natural Selection is not so fortunate. It has instituted a program offering refunds or replacement coupons to consumers for its spinach products. A company spokeswoman didn't return calls asking for details. Although Natural Selection is expected to lose millions of dollars as a result of the E. coli outbreak, "it's large enough that it's not going to go out of business," Tuitele said.

Experts said Natural Selection's and distributors' and retailers' quick response to the E. coli outbreak should gain the natural and organic food industry some PR points.

"I think the industry should be proud of how we behaved," said McCarthy of Albert's Organics. "Natural Selection responded in an extremely respectful and expeditious way, with no regard to the cost and their own benefit. I'm proud to be a part of this."

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