For a small-to-medium food manufacturer, a deal to supply one of the major supermarket chains can be a turning point that will underpin their business’ growth for years to come.
But with the increased product supply comes increased risk, including the heightened risk of product recalls and withdrawals.
The cost of recalls and withdrawals can run to the hundreds of thousands of dollars and is a risk that suppliers can mitigate with the right insurance cover.
Steps in a recall
Once the food manufacturer hears there is a problem – perhaps from their own testing or from a call from a consumer or an ingredient supplier – they contact the supermarkets and establish if a recall or a withdrawal is required. In both incidents, their product is removed from the shelves.
The supermarket will also remove any product they have out the back and then dispose of it so there is no chance the product is inadvertently put back on the shelves. If the product is subject to a food safety issue and requires a formal product recall, the supermarket will also put a notice on the shelf telling consumers the product is the subject of a recall and is unavailable.
Mounting costs
Each store levies the food manufacturer with an administration charge, which can be upwards of $70. Because each supermarket chain has many hundreds of stores, recall and withdrawal costs can quickly add up to six figures, said Derham Daymond, the national liability manager at Crawford & Company, which manages claims on behalf of insurance companies.
In the event of a recall, a supermarket may need to be contacted out of hours – and they typically charge a higher fee for this – and the manufacturer or importer will also have to take out newspaper advertisements to alert the public to the danger. This cost can run anywhere between $30,000 to $40,000 as well as several thousand dollars to produce the advertisement.
Protection with insurance cover
While insurance is available to help mitigate the costs of a product recall, not many insurers also have coverage for product withdrawals. It’s worth checking your policy.
This can leave food manufacturers vulnerable to the damage a withdrawal can do to their business. Instead of a supermarket supply deal underpinning the growth of a business, an uninsured withdrawal can put the future of the business in doubt.
Liberty’s Food & Beverage Insurance Policy is a recall cover specifically tailored for the food and beverage industry. Designed to address both product recalls and withdrawals, it protects manufacturers from the risk of contamination, which leads to a recall and also the need to withdraw their product due to a manufacturing error or quality control issue that is not a threat to public safety.
It’s worth talking to your insurance broker to make sure you have the cover your business needs.