A quick scan of recall listings on either the FDA or USDA site reveals a host of food safety incidents that have affected brands in just the last few days. Pull up an extensive review of food recalls in the past several months or years, and you’ll see some staggering numbers. In fact, a recent report issued by the Economic Research Service indicates there were 4,900 food recall events in the United States from 2004 to 2013. That translates to roughly 490 recalls per year — or 1.3 recalls every day.
As the data continues to trend upward, the negative impacts on brands in the food and beverage industry escalate. A recall disrupts more than just operations and sales for the implicated organization; it actually upsets the entire supply chain and ecosystem. There’s a domino effect that unfolds, creating a chain of costly, brand-damaging repercussions. Following is an explanation of how and why these dominos fall, as well as expert advice on what your company can do to prevent a similar outcome.
First Domino: Recall Initiation
When a recall is required to remediate a food safety danger, the direct costs begin to unfurl for the manufacturing company. This process averages about $10 million to manage activities such as:
- Pausing production to carry out recall response initiatives
- Alerting necessary parties within and outside the organization, including regulatory agencies and relevant retailers
- Managing the logistics of removing affected or mislabeled products
- Examining the source of the recall, including issues with suppliers, equipment, processes or contamination prevention plans
- Remediating the identified problems to prevent similar occurrences
- Planning for expanded human resources to handle recall tasks in addition to routine operations
The acute portion of a recall crisis is most effectively handled by partnering with a team of trained investigators, advisers and attorneys to help identify critical elements such as:
- Scope or scale of the recall, assessing its depth, or the level in the distribution chain to which a recall notification must be given.
- The level of severity, ascertaining what level of risk, if any, there is to consumer health and safety. Recalls are designated into classifications based on public health risk.
- What notifications or statements should be made, from press releases to consumer notification letters.
Ultimately, these expenses equate to millions of dollars from your bottom line, but there’s probably even more to come. This is, after all, just the first domino to fall.
Second Domino: Media Blitz & Brand Damages
Stories exposing scandals are a proven way to catch the public’s eye, so unfortunately for the manufacturing and restaurant/retail industries, any news of a food recall receives immediate and aggressive media coverage from both traditional and social media platforms. In the event of a recall, publicity is inevitable — and it’s an expense that spans every aspect from public relations management, to eroded sales, to the company’s valuation.
“There was a time when negative incidents involving food or beverage products tended to be isolated to a very regional audience, but that era no longer exists,” says The Acheson Group, a global food and beverage consulting company. “Why? Our food travels around the globe, and so do the stories about food safety issues. Now, stories of companies that don’t take food safety issues seriously are shared instantly across social networks, and sharing is virtually frictionless. It takes only the click of a ‘like’ button to repeat news of a contamination across yet another social media platform, growing from nationwide to worldwide news instantaneously.”
As the news media picks up on the story, the blame game often ensues, echoing throughout social avenues and resulting in resounding effects on the brand. Customers want to know that the products they’re buying are safe, and food recalls are alarming. In response, consumers may change their purchasing, food preparation and consumption practices, or avoid the product for months or years afterward. It erodes their trust in the brand, which comes with a hefty price tag for the company.
Third Domino: Inventory Impacts
Next, the recall begins to impact large-scale supply and inventory patterns. A single food safety failure can affect a long list of distribution channels, including:
- Retail outlets
- Federal government consignees
- Foreign consignees
Grocery stores, for example, must expend time and resources to gather recall-related details (lot numbers, UPCs, shipping information, etc.), issue internal recall notices, pull products from shelves, make arrangements for food disposal and reimbursement, notify consumers appropriately and file any necessary compliance paperwork.
Because of the chaos and disruption a food recall causes for these channels, clients may choose to move their business elsewhere, leaving a significant gap in sales potential. At this point, your company must find new business from other distribution options, which demands an expensive sales effort. This third domino can really put on a strain on the brand’s client relationships and jeopardize future income.
Fourth Domino: Lawsuits & Litigation
According to the CDC, 48 million people get sick from foodborne illness each year, 128,000 are hospitalized and 3,000 die. If your organization is sued on the basis of a contaminated or unsafe product, you can expect to deal with attorney fees, court costs and settlements. In the worst cases, you may even need to pay damages to harmed consumers.
If enough consumers are sickened or affected by a recalled product, there’s a substantial possibility of facing a class-action lawsuit. Prosecutions are a reflection of a failure to protect consumers, as well as potential negligence or (in the rarest of cases) malicious intent. The financial effects of these reputational scars go well beyond obvious litigation expenses. As a lawsuit unfolds in the media, even deeper brand damage occurs.
In addition, if your organization is found to be in violation of any relevant compliance mandates, the FDA or USDA may consider legal actions like initiating a seizure or injunction, implementing administrative detention to gain control of adulterated or misbranded products, suspending the facility’s food registration to prevent the shipment of food or even doling out criminal fines. All of this adds up to major financial casualties for the brand.
Fifth Domino: The Long Tail
Finally, the last domino is thrust down. Here, you’re challenged to pick up the pieces of long-term ripples in trust. Governing regulatory agencies will be much more keenly aware of how well you are mitigating food safety risks within your facility. As a result, there are likely to be new audit requirements that involve greater frequency and granularity going forward. In essence, your entire food safety effort goes under a microscope, which means you have to be hyper vigilant over the entire operation.
Your brand recovery will also take time. Extra effort and resources will need to be spent to re-establish the public and customer trust. Even after years of redoubling efforts to improve and verify new safety standards, some brands involved in prior recalls still experience lower brand trust among customers than they earned prior to the recall incident.
Consider what all of this does to the profitability of the product line and how it affects the viability of your business over the next several years. The Food Recall Domino Effect is a company-defining experience — one that every food brand should be working diligently to prevent. So, how do you put food safety into clearer focus and minimize the risks associated with recalls?
The Key to Food Recall Risk Reduction
What can you do to reduce the risk of food recalls? Many organizations are taking a proactive approach, despite having not yet experienced an extensive recall.
Some proactive steps that can be taken include:
- Use an environmental mapping and food safety workflow solution to gain as much visibility as possible into the root causes of contaminants and pathogens in your products.
- Gain visibility into your upstream supply chain partners’ food safety performance. This is imperative to mitigating the chances of a recall caused by raw ingredients and materials entering your environment.
- Simplify the testing process within your food manufacturing facilities – automation tools can drastically decrease the manual, error-prone steps that lead to mislabeled tests and can shorten time frames between positive test results, and keeping contaminated food from leaving the building.
Food safety touches every department of your company, from plant managers, corporate quality and food safety personnel and the corporate supply chain to operations, maintenance, quality assurance, the laboratory and crisis management. An automated technology solution makes authentic transparency and uniformity across these teams a reality, affording invaluable support to the organization’s risk reduction and compliance effort.
From the history and results of test points to the corrective actions applied to remediate problems, it is vital to have a thorough, accurate documentation process in place. Food safety cannot truly be achieved without standardized, documented, shareable and automated processes to safeguard against contamination. By leveraging a dynamic food safety software like Corvium CONTROL-PRO, you equip the team to:
- Visualize preventive control points on an intuitive floor plan
- Quickly identify locations and patterns within your food safety plan
- Communicate quickly and effectively
- Unify documentation between departments
- Leverage automated notifications and alerts
- Systematize the scheduling of preventative controls and testing
- Easily access all sampling data, testing results and corrective action records
- Verify performance
- Digitize documentation, archival and auditing preparation
- Control document administration and accessibility
- Develop customized and detailed workflows
- Create functional checklists for effective change management
- Produce intricate audit trails
- Make informed decisions about corrective and preventive actions
- Generate industry-standard and customized reports
Today’s manufacturers face a time of heightened regulation, and technology has become so much more integral to the management of food safety and compliance. A cloud-based software solution that manages all data and workflows via a centralized database allows you to unlock food safety and compliance insights, maintain document control and security, facilitate company-wide contributions and eliminate points of risk, error, inefficiency and miscommunication.
This is good news! It means that you don’t have put your reputation on the line or suffer the aftermath of fallen food recall dominos. You can choose a smart solution that empowers you to proactively manage your food safety risk. When it comes to maintaining the livelihood of your brand, there’s simply no substitute for a proactive approach.
For more information about preventing and managing recalls, access your free, comprehensive Food Recall Prevention Kit.