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Food product recalls are a major threat to food companies, as managing these recalls while continuing existing operations becomes challenging to say the least.
One of the main challenges that a food product recall can bring about is the direct cost of recalling stock and the associated activities as well as the indirect costs caused by the knock-on effects, mainly reputational damage. This affects consumer perception, which 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 a 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: