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3 insights why companies should pay more attention to food recall crisis management

By June 15, 2017August 15th, 2017Crisis Management, Food Safety, Product Recall

The complexities of a recall event can have a wide-reaching impact on a business, as it can carry a potential loss of revenue, productivity, business relationships, and a long-term decline in the company’s public image.

With these insights in mind, and the knowledge that recalls over the past ten years are increasing, we wondered just how prepared the Australian food & beverage industry is?

As a result, we partnered with the Australian Food and Grocery Council to conduct an investigation of the level of preparation in our industry for a product recall event. The companies surveyed are a wide representation of the industry, with turnovers from less than $10 million to $1 billion and beyond.

The investigations revealed 3 major insights into product recall that every business in the food & beverage industry should be aware of.

Insight no 1: Recalls are more prominent than industry figures suggest

Consumer safety is growing in importance across the world, so it’s no surprise that the number of recalls is moving upward. There were 81 reported recalls in 2015, a ten-year high, up from 76 in 2014.

However, these statistics, collected by FSANZ, only show reported recalls: mandatory recalls resulting from a known food safety issue. There are no reliable industry statistics on product being withdrawn voluntarily, but our survey revealed that voluntary withdrawals occur much more frequently than mandatory recalls.

In total, 27% of respondents to the survey had conducted a recall in the last five years, with this number expected to rise in the next five years.

Insight no 2: Crisis Preparation Remains a Weakness Across the Industry

Our survey found that most respondents had put in some preparation for a recall, with many having documented plans that had been regularly tested. However, crisis preparation is much less widespread throughout the industry.

For example, 91% of surveyed businesses have provided their QA staff with training for a recall, but just 25% of the same set of businesses have trained their spokesperson. Businesses are prepared for the technical aspects of the recall, but are left vulnerable when a crisis hits the media, especially considering the speed with which events are communicated through social media.

From previous prominent recall events, such as Mars, Patties Foods and Tripod Farms it is clear that while the actual recall of product went smoothly in most cases, businesses’ long-term recovery and success depended on the manner the crisis was managed in the public sphere. Cases like Mars, who in 2016 successfully recalled product from markets in 55 countries, demonstrate that crises, if professionally managed, can deliver positive benefits to the brand of the business.

Insight no 3: Too Many Organizations Have Inadequate Product Recall Insurance

Putting practices into place to reduce the risk of a recall can only reduce risk, but not eliminate it, so an additional option is to transfer risk through purchasing recall insurance; however, insurance is complex, and not all policies are created equal.

Our survey found that 19% of organisations don’t purchase any product recall insurance, leaving themselves severely exposed to financial loss. Of the 81% that do, more than a third of those purchase an extension to the Public and Products Liability coverage, instead of purchasing a dedicated product recall policy.

In a crisis, this can leave them exposed to costs that aren’t covered, including defence costs, government recall costs, and rehabilitation expenses, as well as any third party financial losses.
Finally, although the average global direct cost of a product recall is US$10m, almost 70% of the organisations we surveyed purchased a limit below this value. Without adequate limits, a recall event could result in insolvency.

Reducing The Product Recall Exposures To Your Business

If you still have questions in regards to your crisis preparation or product recall insurance, we recommend you first download the full report below from the survey to find out more, then contact us to discuss your options or read about our solution to recall management.

Download the report now