Product recalls pose a huge threat to profitability: 9 tips for avoiding them

In 2018, thousands of strawberry punnets in Australia were recalled after a metal needle was found in some batches. The scandal, which affected several growers on the Sunshine Coast, was widely reported around the world. The costs, though never confirmed, will likely have run into many hundreds of thousands, if not millions of dollars.

Other high profile recalls include the ‘horsemeat scandal’ in February 2013 when horsemeat was used in processed beef products, the Chinese baby-milk powder outcry of 2008 and the massive preventive recall of chocolate bars in February 2016, after a piece of plastic was found in a product.

The list of recalls is forever growing; but the causes are often predictable.

Our goal is to share insights about why recalls happen, the associated costs and how to avoid and mitigate against them.

Contents:

• What is product recall?
• Who’s at risk?
• Types of product recall and how to cope
• Why recalls happen
• Financial costs
• Reputational cost
• How to avoid product recalls
• How to mitigate against the costs
• What to do next

What is product recall?

A ‘recall’ is the withdrawal or removal of a product from the market because it is either defective or potentially harmful. It can then be checked and corrected – or destroyed.

The decision to recall a product is usually made by the manufacturer when the defect is identified. Distributors, retailers or a public authority may also instigate a recall.

In Europe, Regulation (EC) No 178/2002 lays down the general principles and requirements of food law (General Food Law Regulation). One of the main obligations of food and feed producers is that they must immediately withdraw food or feed from the market if they have any reason to believe that it is not safe.

Who’s at risk?

The effect of product recalls on companies – and defective products landing in the marketplace – can have severe consequences. For consumers, the consequences can be injury to their health or even death. For a manufacturer, the costs may be counted in substantial financial penalties, damaged reputations and even the demise of a business.

So, it’s vital to know and understand what exactly your responsibilities are when it comes to product safety and line solutions.

If you are involved in the security and supply chain production of food, beverages and any other ingestible product you are at risk of a product recall.

Whether you are an owner, director or a process engineering manager, you are responsible for ensuring the safe manufacture of whatever product you are making.

If a mistake is made in the production line management then the outcome could be disastrous with potentially dangerous contaminants entering your products. These are substances that have accidentally, or sometimes maliciously, been added to your product during the course of the production chain.

It is not only the global giants that are affected. As the Australian strawberry scandal revealed, product recalls can also affect far smaller producers and SMEs.

Types of product recall and how to cope

The reasons for a product recall are varied and many. These are the most common types of food contaminant:
• Bacteria such as listeria, E. coli, bacillus and salmonella
• Chemical substances such as agrochemicals (insecticides, herbicides, fungicides, fertilisers, rodenticides) and persistent organic pollutants (‘POPs’)
• Processing contaminants – these occur during the processing of foods via heating, cooking, and fermentation
• Animal drugs and hormone residues – such as recombinant bovine growth hormone (RBGH)
• Heavy metals – such as lead, mercury and cadmium
• Genetically modified organisms (GMOs)
• Foreign bodies, such as metal scrap, pieces of glass, insects and moulds.

If you suspect that a mistake may have happened and that one or more of your products has been contaminated, these are the steps that you should follow:
• Notify the correct authorities such as the Food Standards Agency (FSA) of your intention to recall a product
• Establish a consumer helpline or other communication channels to minimise public panic
• Give details of the scope of the recall – which serial numbers or batch numbers etc. are being recalled
• Product recall announcements are released on the respective government agency’s website – the FSA in the UK. In high profile recalls you may be advised to take out adverts in newspapers or speak to news reporters. Be sure to have a crisis communications plan in place ahead of any such event
• Consumer groups notify their members when they learn of a recall affecting them specifically
• Typically, the consumer is advised to return the goods, regardless of condition, to the seller for a full refund or modification
• Avenues for possible consumer compensation will vary depending on the specific laws governing consumer trade protection and the cause of recall.

Why recalls happen

Mostly, product recalls happen due to factors such as:
• Deficiencies in the food production and monitoring processes such as non-compliance with current Good Manufacturing Practices (GMPs)
• Failure to maintain food processing facilities and equipment
• Incorrect labelling
• Non-compliance with a manufacturer’s own Standard Operating Procedures.
• Weaknesses in a company’s Hazard Analysis and Critical Control Points (HACCP) analysis
• An issue picked up during a regulatory spot check
• An inability to track products through the supply chain.

In 2011, researchers at Queen’s University, Belfast completed the first ever analysis of all the food recalls announced in the USA, UK and Ireland over the previous decade. The research by Dr Antony Potter at Queen’s Centre for Assured and Traceable Foods identified 2,439 food recalls over the previous 10 years and found that only 21% were detected by the company in question, whereas 68% were detected during routine or spot testing by regulatory bodies.

This means there is an awful lot that the manufacturers themselves can do to predict and prevent product recalls.

Financial costs

Many people ask how much it costs to recall a product. There are various reports assessing the costs to companies of a product recall. The one thing you can be certain of is that it will be a large sum of money – in some cases big enough to bring down a company for good.

In November 2016 a report by RSA and the Food and Drink Federation (FDF) estimated that product recalls “can result in multi-million euro costs”.

Bear in mind that these are just the direct costs, such as:

• Notifying the relevant regulators
• Notifying the entire supply chain
• Notifying all consumers
• The retrieval of the product, possibly from all over the world
• Storage
• Testing
• Destruction
• Loss of unsalable product
• The additional labour costs associated with all the above
• The investigation of the root cause.

In some cases, there may be expensive lawsuits to contest, not to mention to cost of reputational damage.

Reputational cost

This is all about how much product recalls affect a company’s brand image. Be in no doubt that the impact on brand image and the producer’s reputation can be far more damaging than the immediate financial costs of recalling a defective product.

Reputation is a major factor in brand success, and the reputation of food brands is built on quality, trust, customer satisfaction and safety.

Recalls can lead to a loss of customer loyalty, damage to the brand and exposure to expensive and damaging legal action for the company. Not to mention the unwelcome media attention that higher profile cases get.

It is difficult to put a number on the actual financial cost of brand damage. But disgruntled consumers voicing their opinions via social media channels can have a devastating and lasting impact on a brand.

Consumer research by Harris Interactive revealed that 55% of people would switch brands following a recall, even if only temporarily, and that 15% of them would never purchase the recalled product again.

Furthermore, 21% of those surveyed said they would actively avoid the full product range made by the manufacturer at the centre of a recall, not just the recalled product itself.

Reputational damage runs even deeper. For all food and ingestible product manufacturers, a product recall will affect relationships with their supply chain – and if your supply chain irreparably breaks, it won’t be long until your entire company is broken.

How to avoid product recalls

Given the majority of recalls happen due to operational mistakes, all manufacturers should ensure their processes adhere to global food safety standards recognised by the Global Food Safety Initiative (GFSI). These include standards set out by the British Retail Consortium (BRC) and Food Safety System Certification (FSSC) 22000.

Companies that achieve certifications in these world-class standards demonstrate that they have implemented and audited best practice food safety principles.

To comply, and therefore avoid product recalls, manufacturers should:
• Set up divisions in the production line to maintain batch integrity
• Perform frequent, thorough cleaning and sanitation processes and have an EMP in place
• Maintain effective HACCP programs, and learn from “near misses” as well as actual occurrences
• Have an established crisis communications plan drawn up by an expert in the field
• Ensure that every process or procedure is properly documented and validated
• Get to know your suppliers and ensure that they operate to the same high standards that you do
• Invest in the latest technology and supply chain solutions
• Strictly define and control access points for employees and visitors, which should include areas that are particularly vulnerable to tampering such as mixing, or ingredient preparation
• Ensure all employees adhere to personal hygiene principles, document any infractions, and through continuous improvement processes, ensure that they do not happen again
• Remote video auditing technology can be deployed to view and audit practices, and send specific video clips of infractions for training purposes, to ensure compliance to these practices at all plants, globally.

How to mitigate against the costs

As we have already stressed, the cost of a product recall both in terms of the up-front financial costs and the reputational damage can run into the millions. Implementing best practice operational methods, set out above, will go a long way to avoiding product recalls but they cannot entirely stop them from happening.

However, in the event of a lawsuit, your production process – all the way down the supply chain – will come under intense scrutiny. So, operating according to international codes of best practice will serve as a strong defence. This is because manufacturers that can prove they are following food safety protocols and have the documentation to prove it are more likely to be found to have exercised “reasonable care” to help prevent contamination of any kind.

Product contamination insurance can partly cover the losses generated by the contaminated products.

Traceability will also help mitigate against the costs as you will be able to pinpoint where the error occurred and who is responsible for it. This will help in any investigation looking into how the errors occurred and how you can avoid them in the future.

What to do next

Major contributing factors to recent recalls have included deficiencies in the food production and monitoring processes such as non-compliance with current Good Manufacturing Practices (GMPs), failure to maintain food processing facilities and equipment, non-compliance with manufacturers’ own Standard Operating Procedures, weaknesses in their HACCP analysis and inability to track products through their supply chain.

Here’s a checklist for all food and ingestible products manufacturers who want to ensure they stand ahead of their peers:
• Thoroughly document every single part in your production line – establish an EMP
• Ensure you have a stock of spare parts to mitigate against mechanical breakdown causing contamination
• Ensure compliance with globally recognised standards such as BRC and FSSC 22000
• Invest in traceability
• Make sure that your Food Safety Management System is based on the principles of HACCP. This stands for Hazard Analysis Critical Control Points and is a systematic process for identifying hazards that can occur in your food business. It requires manufacturers to analyse any hazards that have been identified and assess how likely they are to occur. Once that is understood then it is about putting in place suitable control methods to prevent your food from being unsafe and protecting public health.

A well designed and implemented food safety management system will provide your business with the foundation on which it can build to develop a service that is high quality and above all safe.