Is a recall ever good?

This article was written for Strategic Risk. It features Natasha Catchpole, CFC Underwriting's crisis management and product recall practice lead.

When a product recall notice hits the headlines, the results for a food and drink retailer or manufacturer can be catastrophic.

The potential for a food contamination to cause widespread illness or even have deadly consequences means that food and drink businesses live in fear of a large-scale, high-profile product recall making the headlines, and Vince Shiers, managing director at crisis management specialists RQA Group, says many simply cannot recover if a product recall goes badly. 

“A recall event can be very costly, both financially and from a reputational point of view,” Shiers says.

“Retailers may look for supply elsewhere if a supplier repeatedly has issues or can’t supply, and consumers may lose trust in the brand if they have multiple recalls or cause someone serious harm, especially if it becomes a high-profile media story. Some businesses ever recover from a major recall and are either acquired or just simply go out of business.”

AT WHAT COST?

“A recall event can be very costly, both financially and from a reputational point of view”

CFC Underwriting crisis management and product recall practice leader Natasha Catchpole says it is often the hidden costs of a product recall that ultimately deal the biggest blow to food and drink companies going through a recall event.

“Many companies are concerned about what happens to their customers and they are obviously very consumer aware, but what many companies are not aware of are the potential financial impacts on themselves following a product recall.,” she says. “Not only do they have to address their external liabilities, they also have to manage the recall on very tight cashflow, so don’t necessarily have the pots of money needed to pay for the costs of the recall itself.

“In a lot of cases we see, the costs of the recall are only a small fraction of the ultimate indemnification under the policy – rectification costs, loss of sales, business interruption and the costs of publicity and restoring the brand are often not accounted for when preparing the ultimate cost of a recall to the business itself.”

It is here that Catchpole says product recall insurance can help. “Product recall insurance is there to help with those costs and to get production back up and running as soon as it is safe to do so. But such insurance policies are still not commonplace in the market, even if it is becoming more prevalent.

“Lots of businesses will buy insurance to protect their staff and their premises, but product recall insurance protects the product that will ultimately drive the business forward.”

COME OUT ON TOP

While an incorrectly managed recall event can have devastating consequences, Shiers says there are steps businesses can take to mitigate these risks and ultimately turn the experience into a positive event for the brand.

“A well-handled recall can be viewed positively, if a company is seen to be taking decisive action in the interests of consumer safety and taking responsibility for their issue”

“A well-handled recall can be viewed positively, if a company is seen to be taking decisive action in the interests of consumer safety and taking responsibility for their issue,” he says.

“The plan needs to be practical, up to date, and should give guidance on steps to be taken in the event of a product incident, including risk assessment, who to contact, and perhaps even prepared statements, including social media if it is a consumer brand.

“The second element to the plan should be training, but this training must go well beyond a simple desktop traceability exercise. It should be a challenging, realistic scenario involving roleplay that puts the team under pressure and tests their decision-making and communication skills.”

Ultimately, Catchpole says it is proactiveness, attention to detail and an unyielding focus on the customer that will ensure a product recall is effective in its aim of reducing the impact on both the brand and its customers.

“Much like any form of risk management, an effective product recall is all about being proactive,” she says. “The response should be quick, accurate, precise and the number one focus of any recall needs to be public safety.

“As part of preparing that model, you need to have attention to detail and investigate every possibility that could arise and decide who in the company has ownership of it.”

PREPARE TO PREVENT

While having an effective recall response plan is vital for any food and drink business, preventing a recall event from happening should still be the number one priority, and Shiers says the food industry is becoming increasingly aware of the benefits of prevention over cure.

“Food and drink companies understand the impact a recall could have on their brand, so they work hard to prevent one from happening, and put measures in place to mitigate the impact and improve their preparedness,” he says. “This has also been focused due to increased awareness of the likelihood of experiencing a product recall in conjunction with increasing regulatory expectations and stricter retailer audit standards.”

Shiers says that getting the basics right, such as implementing adequate sign-off procedures for labelling changes and deploying the right technology to detect possible contamination with foreign bodies or pathogens before distribution is vital.

He also emphasises the importance of proper supply chain management.

“One of the key factors for food manufacturers is to know your supply chain,” he says. “Get to know your suppliers, as many recalls are triggered by contaminated ingredients going into finished products.

“Check that your suppliers have the high standards of quality management and food safety that you expect. This is more than just checking they have a recognised GFSI certificate on their wall; visit them, get to know them and be sure they have a food safety culture that aligns with yours.