While many food companies are relatively well prepared to deal with product recall, they are under-prepared in the event of a crisis, according to a new survey.
The Food and Grocery Product Recall Survey Report by the Australian Food and Grocery Council (AFGC) and Victual also found that insurance cover across the industry is inadequate, leaving organisations vulnerable to potential costs of over $10 million in the event that something goes wrong.
Additional key findings include that recalls have steadily increased in recent years, largely due to the detection of undeclared allergens and microbial contamination.
While all respondents said they have a recall plan in place, only 59 per cent frequently review it. In addition, one third of businesses surveyed have either no nominated spokesperson or have not trained their spokesperson in the event of a recall or crisis
“The results of the survey highlight the need for industry to better prepare themselves for a crisis situation. We have seen time and time again that a poorly managed recall has the potential to turn quickly into a crisis, affecting a company’s reputation and bottom line. This is especially relevant with the advent of social media, where issues are rapidly amplified,” said Director of Victual Recall and report co-author, Peter McGee.
“An essential component of protecting an organisation’s balance sheet is to transfer the risk of a product recall escalating in to a crisis through the purchase of specialist recall insurance. Added to this is the need for access to specialist resources to guide the recall process.”
The report states that there are many direct and indirect costs incurred when a recall occurs. These include not only tangible costs such as logistics, cleansing and legal fees, but more importantly costs relating to a damaged brand. The report notes that the average global cost of a recall is US $10 million. The fact that 62 per cent of respondents purchase insurance that covers significantly less than this amount is concerning.
“An insurance policy is complex, but it is a critical contract that needs to be understood so that it responds in the way you expect it to,” said David Goodall, Director of Victual Recall and a report co-author.
“For example, understanding the difference between a stand-alone contaminated products insurance policy and a product recall extension under Public & Products Liability policies is essential to ensure that you are not exposed to all the major costs relating to a recall.
“Specialised recall insurance, combined with carefully-executed preparedness planning could be the difference between the end of a business and its ongoing viability.”
The survey made these recommendations to industry:
- Businesses need a robust system for monitoring customer sentiment, including through social media
- Small, relatively cheap measures, such as reducing batch quantities and storing batch samples, can reduce recall costs
- Systems that track components or raw materials through the supply chain can help to pinpoint the source of defects
- Good communication between suppliers and retailers regarding product and packaging changes can reduce the risk of unexpected product issues
- A robust and practised recall and crisis management plan will limit the impact of a recall event