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Big name recalls show the importance of product recall protection

04 April 2016

Garry Moseley, director at specialist food and drink major risks practice, Arthur J. Gallagher, highlights the potential impact of a product recall.

According to reports in the media, the recent Mars recall followed a customer complaint about finding a piece of red plastic inside a Snickers chocolate bar.

If reports are correct, the problem resulted from an issue with a protective cover which had broken off a machine at a manufacturing plant in the Netherlands, contaminating the bars and, potentially, creating a choking hazard.

Acting swiftly and proactively – a better safe than sorry approach – Mars issued the voluntary recall of a range of products and, as a result, took on the mammoth logistical task, not to mention cost, of getting the products off sale. All of this to the obvious delight of the tabloid press who did their best to dramatise the story.

More recently Nestlé found itself in a similar position, having to recall a range of pizza and pasta products after concerns were raised that pieces of glass may be present.

These crises, faced by two of the world’s biggest food companies are one thing. However, it raised the question of whether all food businesses would be prepared to do a similar thing? The answer, one suspects, is that many would not…

With product recalls now reaching an all-time high, many SME’s will be forced to confront the reality that they may not be effectively protected. It is vital to have well-thought out product recall plans and comprehensive insurance. Failure to do this could result in huge costs – and could even put companies out of business.

With increasingly global supply chains, many food companies will source ingredients and components from all over the world. This can reduce costs and is something that should not be discouraged. However, with reward comes risk, and as a supply chain becomes more global, so does the risk. That means the possibility of legal actions in overseas courts and the cost of appointing relevant legal counsel and pursuing such actions.

It may mean the cost of translation across a multi-lingual network of countries to get the recall message across to product holders, consumers and other interested parties. It means transportation costs globalise with the network, complicating matters further. These are all important issues to consider which require specialist advice.

Most importantly perhaps, businesses must ask themselves if their insurance policies would meet the cost of such an incident in full. Taking Mars as an example, the reputational damage alone may be quantified in the millions in terms of the damage it could do to a company’s value. If businesses don’t have cover for, at the very least, the cost of managing the PR impact of such an incident, my feeling is they are taking a very big risk.

What else can be done??

So, aside from taking specialist advice from lawyers, reputation management specialists and insurance experts on preparing for such an eventuality, what else can companies do to protect themselves?

One of the first courses of action we advocate is carrying out a mock product recall exercise. Like a fire alarm test at a place of work, doing so is essential and will help companies unpick any flaws in their plans.

Secondly seek information from those who know – not just legal and insurance professionals – those who have been through a recall. Doing this can help a company gain valuable insight and advice from those who have experienced such a scenario for real.

Whatever the route a business chooses, whether it is to proceed as they are or to step up their policies now, this is undoubtedly a timely reminder which will not go unnoticed. Companies would be well served to revisit contracts, policies and procedures now to ensure they are up-to-date.

With new health and safety guidelines in place bringing more punitive fines and custodial sentences for health and safety breaches, it’s not a question of whether a company can afford to do this, it’s whether they can afford not to. 

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