Food recall vs crisis: the importance of preparation

After analysing the preparedness of the food and beverage industry for product recall, a recent survey conducted by the Australian Food and Grocery Council (AFGC) and Victual found that most companies are underprepared in the event of a crisis.

Over a period of 10 years, the number of recalls used to average around 60 per year; however, this has been on the rise, with 76 reported in 2014 increasing to 81 in 2015. Recalls can either fall under the mandatory category in which undeclared allergens often cause a problem, or voluntary in which the company wants to amend the taste or weight of a product to protect their brand reputation.

The survey, which received 46 responses, found that two-thirds of organisations have not had to implement their recall plan. Those that have did so voluntarily, with about 90% of recalls initiated by the company. This means that the majority of organisations have not experienced first-hand a recall that has escalated into a crisis, and therefore they are unprepared to handle this situation.

“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,” explained Director of Victual Recall Director and report co-author Peter McGee.

Although all of the respondents stated that they have an established recall strategy, only 59% of them are committed to reviewing and updating it every 6 months. It is important to acknowledge the difference between recall planning and crisis management; while many recognise the need to be prepared for a recall, most organisations do not have the same structured strategy in place for a crisis.

Ultimately, this comes down to training employees, having dedicated staff for these situations and purchasing insurance. Most businesses train their staff for recall implementation, but of the 85% of businesses that have a nominated spokesperson, only a quarter of these have trained that spokesperson for the activation stage of a product recall.

“An essential component of protecting an organisation’s balance sheet is to transfer the risk of a product recall escalating into 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,” said McGee.

Research suggests that the average global cost of a recall is US$10 million, but 63% of respondents said they purchase insurance that covers less than this amount. With an array of costs facing companies in a recall situation — such as legal fees, logistics and third-party expenses — it is surprising that 19% of organisations fail to purchase any form of product recall insurance.

“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, also a Director of Victual Recall and report co-author. “Specialised recall insurance, combined with carefully executed preparedness planning, could be the difference between the end of a business and its ongoing viability.”

Overall, the results highlight the importance of being fully prepared for recall or crisis through planning, specialist resources, regular testing and insurance; many organisations in the food and beverage industry have not yet achieved this and therefore continue to be at risk.