Food product recalls are a major threat to food companies. They result in disruption in operations while managing the recall, direct cost of recalling stock and the associated activities and the indirect costs caused by the knock-on effects, mainly reputational damage. This effect on consumers can result in significant long term financial losses for a company due to loss of sales.
Food recalls cost companies an average of $10 million in direct costs alone, according to a study by the Food Marketing Institute and the Grocery Manufacturers Association (GMA) in the US. A separate GMA sponsored survey found 5% of companies incurred over $100m in direct and indirect costs.
The effect on consumers is possibly the most significant factor. A survey by Harris Interactive found that 15% of consumers would never buy that product again and 21% of people at a centre of a recall would not buy any product from the same manufacturer.
Product recalls are increasing
In both the US and the UK the numbers of products recalled have increased in the last few years (see chart below). In a survey of companies, the GMA found that 58% of companies had been impacted by food recalls, with 6% having an impact from 11-20 recalls.
The factors that are driving an increase in food product recalls include:
- Just-in-time global manufacturing: products are increasingly sourced through global supply chains and contaminated products can rapidly spread worldwide before the problem is picked up
- Fewer suppliers and complex supply chains: supply is concentrated in fewer global suppliers who source through complex supply chains. This increases risks in food safety and when one supplier has a problem it can affect many more retailers and consumers than in the past
- Improved technology and practices for traceability and detection of pathogens
- Stricter regulations and enforcement: the US, especially with the Food Safety Modernisation Act, and other countries have improved food safety legislation and enforcement recently
Causes of food product recalls
The most common cause of food product recalls is biological contamination (microorganisms and toxins), which mainly affects food supplied fresh or raw, such as nuts and vegetables. This type of contamination can have many causes, including use of contaminated water by a producer, personal hygiene and unsanitary food handling practices along the supply chain and pest infestations in the supply chain.
Allergenic products, such as nuts or dairy products, not declared on the label are a major cause of product recalls. These could be ingredients of the product or cross contamination from residues in the machinery from a previous production run that used allergenic ingredients.
Foreign matter is the second most common cause of food contamination in the UK and third in the US. This is a catchall for many different items, such as metal, plastic, glass, wood from production lines or packaging, whole bodies or body parts of pests resulting from an infestation infestation in the supply chain. Other causes include defective products, chemical contamination such as pesticides and unapproved ingredients.
Types of food product recalled
As mentioned above, raw foods are a major source of contamination leading to product recalls. As they do not go through the sterilising phase of cooking, consumers rely on safe practices along the supply chain to keep them safe to eat.
Nuts, fruits, vegetables and dairy products are the major product types recalled, with spices and teas also significant.
Baked goods are the most likely to contain unlabelled allergens such as milk or nuts. Other food categories with multiple ingredients that have had recalls recently include sauces and pasta.
Costs of a food recall
The direct costs of a food recall include:
- Assembling the crisis team
- Removal of the product from the market, which includes:
- Issuing notifications to:
- Regulatory bodies
- Businesses affected in the supply chain
- Collecting the product from warehouses, retailers and consumers
- Storage of the recalled product
- Destruction of the product
- Issuing notifications to:
- Investigation of the root cause of the factor that caused the recall
- Managing the PR to inform customers and protect the business reputation
Estimating the direct costs
In 2010 researchers Moises Resende-Filho and Brian Burr developed an easy-to-use-model to estimate the direct costs of a food recall. This was based on the shelf price of a product and rough estimates of transportation and communications costs, including both notifications of recall and PR.
Real world examples of direct costs of a product recall
In 2016, a supplier recalled 10 million pounds of flour when it was linked to an outbreak of E. coli. The flour sold at approximately $0.50/lb, so using the easy calculator to estimate costs this amounted to £5.7 million for the direct cost of the recall.
Indirect costs of a food recall
Indirect costs have no finite period and are often difficult to measure directly. For example, there may be no certainty that all a reduction in sales or profits were caused by a recall. However, the lasting effects of reputation damage and brand avoidance by consumers can last for years.
In some cases a whole industry can be affected by a food recall by one supplier or manufacturer, as happened with a spinach recall in the US which caused a long-term drop in sales of spinach across the country.
Indirect costs of a food recall include:
- Litigation costs, from claiming damages (from others or others from you) or prosecution by government agencies
- Fines from government agencies
- Lost sales
- Decline in value on the stock market
- The impact on brand reputation in the industry and with consumers
Product recall insurers Locton estimate that about 80% of the total costs are incurred long after the recall has been dealt with. This shows the importance of investing time and resources into PR to maintain brand reputation.
One of the major causes of food product recalls, as mentioned earlier, is contamination with pathogens such as Salmonella, Listeria and E.coli. This can occur at any stage in the food supply chain. The main way to prevent contamination is to implement hygienic practices to prevent cross contamination, such as:
- Ensure there are proper hygiene procedures to keep equipment and surfaces clean and personnel handling food maintain personal hygiene.
- Prevent the growth of microorganisms by temperature and moisture control through adequate ventilation
- Ensure processes prevent cross contamination between raw and cooked or fresh products, including measures such as separating employees working in each area
- Implement pest control measures to deny harbourage, prevent entry to buildings and prevent access to food and water, including waste food
Rentokil has a range of solutions to help reduce food safety risks at all stages of the supply chain by preventing contamination through pest control and maintaining high levels of hygiene.