Cadbury Recall Threatens its Business in the Muslim World

Add peanut butter to chocolate and you have a marriage made in candy. Let traces of pig DNA slip in and you have a major problem in Muslim countries where eating pork is forbidden by religious law.

Mondelez International's  (NASDAQ: MDLZ  )  Cadbury brand has recalled its Dairy Milk chocolate products in Malaysia after two types of the company's chocolate were found to have broken Islamic rules by containing pork DNA, Reuters reports. Cadbury has said it was informed that samples of its Cadbury Dairy Milk Hazelnut and Cadbury Dairy Milk Roast Almond had "tested positive for traces of porcine DNA."

Food products in the Southeast Asian country are checked regularly to ensure they are halal, or permissible according to Islamic law.

The finding of traces of pig DNA in the chocolate could lead to bigger problems for Cadbury in the Muslim world. Groups in Malaysia have already called for a boycott of Cadbury products and the company's business in other Muslim countries could follow suit.

"This will teach all companies in Malaysia to maintain and protect the sensitivities of Malaysians," Sheikh Abdul Kareem Khadaied, the head of research with the Muslim Consumers Association Malaysia, told a news conference in Kuala Lumpur, Reuters reported. "This is an issue that cuts across religion. It affects the vegetarians as much as it affects the Muslims." 

Cadbury Malaysia released a statement saying that it was working with the Islamic Affairs Department to ensure its products meet halal guidelines. This will include more product tests. The company pledged to release the results of these tests next week. While that is happening the company has voluntarily pulled its products from shelves. 

The findings represent a problem for Cadbury, not only if Muslims and vegetarians lose faith in the company's ability to control what goes into its products. Given the massive concerns over peanut allergies -- and the fact that it's a lot more logical for peanuts to be in a candy factory than pig DNA -- Cadbury faces the possibility of the global public not trusting its ingredient list.

How big is the immediate problem?

Cadbury Malaysia is a division that sells only in Malaysia. Mondelez's Malaysia sales are a small fraction of the around 15% of its revenues that come from the Asia-Pacific region. The bigger problem is if the calls for boycotts spread to Muslim markets where the company does more business, including Indonesia and the Middle East. 

Chocolate as a category provides 27% of Mondelez's sales. Most of those sales however were in Europe, which accounted for 15.3% of the total. Still Asia-Pacific chocolate sales accounted for 4.6% of the company's overall $35 plus billion in 2013 revenue.

The parent company also has significant physical assets in the Asia-Pacific region with 32 factories and 70 distribution facilities located there.  There is a real risk in not only losing sales in the region but having assets and fixed costs that become unnecessary due to sales drops.  

How should Cadbury respond?

"First of all they need to get their leadership together.... Then they have to face the public," Martin Roll, a partner in business brand strategy firm Martin Roll Company, told the BBC. "You're simply going to communicate.... If you do that very well and you really keep it up there is a possibility that you will come pretty well through the crisis."

In the immediate fallout from the news, more than 20 Malaysian-Muslim groups called for a nationwide boycott on all Cadbury products.

At a news conference, the groups said that Cadbury had "crossed the line" by selling its porcine-tainted chocolates, and that swift action was needed, Malay Mail Online reported.

"They have betrayed us Muslims by putting haram elements through the foods we consume in our body, to weaken us Muslims," said Abu Bakar Yahya, the head of Perkasa Selangor, one of the protesting groups.

Cadbury clearly has to aggressively get in front of the issue and humbly accept responsibility. If it does not the company risks becoming involved in a war it never intended. 

What happens next?

It seems fairly unlikely that Cadbury intentionally added pig DNA to its chocolate bars in order to somehow undermine the Muslim faith. But that fact is not the issue. It's the perception that the company intentionally did something at odds with the religious beliefs in a region where it does a decent amount of business.

And much like in the United States where various special interests have no qualms hijacking an unrelated issue for their own purposes, the same could happen here. To prevent that Cadbury needs to identify what went wrong, apologize, and make sure it never happens again.

Cadbury can make this go away by being transparent and being inclusive in its process going forward. Conduct the tests as planned then introduce strict new procedures. The company should also invite Muslim leaders to contribute to creating procedures that make sure this type of contamination never happens again.

If the company handles this badly it could mean the end of Cadbury in the Muslim world. That seems unlikely though as the company has been quick to respond and appears likely to handle things the right way.

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