The Real Impacts of Product Recall

Hort Connections

17 May 2015

Victual Pty Ltd is a Corporate Authorised Representative (No. 453044) of Insurance Advisernet Australia Pty Ltd, AFSL 240549

Agenda

• Product Recall – does it keep you awake at night?

• Direct and Indirect Costs of a Recall

• AFGC survey on recall preparedness

• Holistic approach to recall planning

Recall Trends

• Recalls are trending upward

Source: FSANZ, http://www.foodstandards.gov.au

Recall Trends

Source: FSANZ, http://www.foodstandards.gov.au

• It’s a real issue in Fresh Produce

Real Cost of Recall

• Recall costs are escalating

• Costs are Direct or Indirect

• Global Average Recall Cost $USD10M

Type of cost

Value of recalled products

Retailer administration charges

Public Relations Advice

Legal Advice

Value of unaffected products that are returned or

implicated

Point of sale notices

Consumer care line and monitoring of social media sites

Advertising recall notices

Customer reimbursement i.e. vouchers, replacement

product

Product Disposal

Shipping / additional logistics charges i.e warehousing

Specialist advice i.e. consultants, laboratories

Relabelling, packaging changes

Value of loss of contract to supply

Fines and penalties

Post recall advertising - brand recovery

Placement Product Costs

Cost of Production Stoppage / Shutdown

Additional labour costs for reworking

Your Loss of Profits

Customers Loss of Profits

Estimated Cost of RecallSource: GMA & EY, 2011, Capturing Recall Costs, USA

Real Cost of Recall

Indirect Costs:

• Brand and reputation

• Market Share

• Share Price

• Market ImpactLargest concern regarding recall impactSource: GMA & EY, 2011, Capturing Recall Costs, USA

“The estimated cost to one company

was $78 million. The estimated cost

to American peanut-containing

product producers was $1 billion”

Source: GMA & EY, 2011, Capturing Recall Costs, USA

Recall Survey

Victual and the AFGC collaborated to complete an industry survey into the preparedness of the food and beverage industry for product recall.

Survey Findings

Recall Plans

• 100% had a documented Recall Plan

• 89% had reviewed their plan in the past 12 months

• 87% had conducted a mock recall in past 12 months

Survey Findings

High level of confidence in ability to trace products through supply chain

Survey Findings

Crisis Management

• Not as well prepared

• Spokesperson ready?

• Social Media “Threat”

Definitions:

Recall: A recall is an action taken to remove from distribution, sale and consumption,

food which may pose a health and safety risk to consumers. (reference is FSANZ,

Food Industry Recall Protocol)

Crisis: Crisis is an abnormal and unstable situation that threatens the organisation’s

strategic objectives, reputation or viability. (reference is from BS 11200, Crisis

Management – Guidance and good practice)

Survey Findings

Response:

• Recognise the need for expertise to adequately respond

Survey Findings

Risk Transfer:

• 19% have no insurance for recall

• Lack of understanding of insurance cover

• Cover likely inadequate for exposure

Survey Findings

• Insurance unlikely to respond sufficiently to cover all losses

Survey Findings

• Global Average Recall Cost $USD10M

• Limits purchased likely inadequate

Limits Purchased

Recall Management

• Prevention

• Response Plans

• EducatePrepare

• Test plans

• Review plans

• EducateMaintain

• Quick decisions

• Access to expertise

• Focus on customerRespond

• Catastrophe protection

• Appropriate limit

• To cover all costsInsurance

Summary

Survey Summary:

• Generally well prepared for a recall

• Not as well prepared for a crisis

• Direct and Indirect Costs of Recall are rising

• Access to expertise and quick response crucial to limiting impact

• Inadequate levels of insurance

Effective recall management requires:

• Quick response

• Access to expertise

• Effective stakeholder communications

• Plans trained and tested

Insurance gives comfort that business is protected

Coming Soon….

Victual RecallRegister your interest here:

http://www.victual.com.au/victual-recall/

About Victual

Victual Purpose

Creating value by rethinking and better managing risk

Access full version of survey here:

http://www.victual.com.au/victual-recall/

Or contact us at Victual

Peter McGee

0410 017 824