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The Catastrophic Cost of Food Recalls

When we consider the greatest threat to food industry establishments, we may think of inflated overhead costs or employee turnover, but a single recall can devastate a manufacturer’s reputation and success. Each year, billions of dollars are lost as a result of food safety program failures that directly affect consumers. With an increased focus on optimal production and profitability, a solid food safety program can fall through the cracks.

Direct Costs

According to a study done by the Food Marketing Institute and the Grocery Manufacturers Association (GMA), food recalls cost companies an average of $10 million in direct costs alone, which include:

  • Production interruption in response to the recall
  • Notifying regulatory agencies, all supply chain parties, and consumers
  • The collection and elimination of contaminated products
  • Conducting a thorough investigation to identify the contamination source
  • Remediation to prevent future incidents
  • Additional resource funding (both human and technological)

Indirect Costs

Though direct costs can significantly impact a company’s bottom line, they are often minor compared to the indirect costs that follow. According to recall insurance company Locton, 80% of total costs are incurred after managing a recall.

Risking Retailers

Major retailers often pull more than just contaminated products from their shelves, sometimes resulting in the loss of a manufacturer’s entire line. Retailers may also feel reluctant to continue the same volume of business with a compromised manufacturer.

Insurance Impact

Due to an increase in the frequency of food recalls, manufacturers are often required to obtain recall insurance, though even a solitary incident can dramatically increase annual premiums, reduce coverage, or terminate the insurance altogether.

Compliance Costs

Aside from the potential fines issued by government agencies, compliance costs can arise from the need to adjust internal processes to comply with regulatory testing, monitoring, and documentation requirements.

Litigation

Companies sued due to an unsafe product can expect to pay court costs, legal fees, and potential settlements. In some cases, companies may have to pay damages directly to consumer claimants.

Reputation Repair

Your brand’s reputation is its primary asset. Consumer mistrust can trigger a lasting change in purchasing behaviors, directly contributing to profit loss. Based on a poll by Harris Interactive, 55% of consumers indicated that they would switch brands in light of a recall, 15% would never purchase the recalled product again, and 21% would avoid purchasing future products made by the manufacturer.

With modern access to digital information and aggressive media coverage, negative publicity is often inevitable, resulting in potential public relations management costs.

Avert FSA Can Help

It’s important to remember that, in the long term, food safety and profitability go hand in hand.

Avert Food Safety Advisors understand that any threat to the success to your food safety efforts is a direct threat to your bottom line. That’s why we work to create a full-scale food safety program customized to your company’s specific needs. We’ll help you build brand protection focused on recall prevention and provide education and training to strengthen your process.

Don’t risk the reputation of your company. Call Avert FSA today at 702-706-6574.

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Matthew McClure provides sound strategies that instill cost-effective methods for building robust food safety, operational and quality assurance programs. Along with a Bachelor of Applied Science in Microbiology from The University of Akron and an MBA in Finance from Louisiana State University, Matthew brings over 20 years of experience in the food safety industry to AVERT Food Safety Advisors. His knowledge spans many areas including FDA food processing facilities, USDA meat and poultry plants, dietary supplement manufacturers, retail, cannabis manufacturing, and food service operations.

Contact us for more information:

info@avertfoodsafety.com | Tel: +1 702.706.6574

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