Food Forum: The true price of recalls

It can cost millions to pull a product off the shelves, not to mention the damage to the brand’s image and lost sales. Recall best practices can help ensure brand protection.

By Roger Hancock, president and founder of Recall InfoLink

Supermarket executives typically do not start the workday thinking about how they will pull product off the shelves of their stores. Even so, during the first ten months to 2012 more than 600 companies had to issue a recall.

Product recalls can be devastating to any brand and any business. They are never planned, and do not happen when the schedule is clear so that there is room to handle the extra work. Whatever the cause, the work of identifying the item(s), preparing communication, alerting customers, answering questions, issuing credit for returned products and physically removing products from the distribution channels takes time and costs money, not to mention the impact on sales.

The direct cost of a recall can easily reach into the millions of dollars, and the indirect cost to brand equity can be multiples of that, according to industry research. Recent research by Deloitte states, “it was found that the average cost of a recall to participating food and consumer product companies is $10 million, in addition to brand damage and lost sales.” Further, the study found that recalls impact stock price immediately, noting that “the stock price of the affected company underperforms the sector index by an average of 2.3%.”  Poor recall execution compounds the stock impact “up to 22% within two weeks after the recall announcement,” the research concludes.

Recalls do not have to be catastrophic. The best way to protect your business is to practice doing a recall before a crisis actually occurs. This will help achieve the speed and accuracy needed to protect your brand and your business, not to mention your customers. Conducting a mock recall twice a year is quickly becoming an industry best practice.

Here’s a sample mock recall process to follow:

People: The recall team needs representatives from each of the business functions that may be impacted by the recall event, including operations, communications, quality assurance, logistics, legal, finance, executive and customer service. Each member of the team needs to understand the role that needs to be filled and how to respond to support the process of their piece of the recall event.  Also, make sure that each member of the team understands the desired outcome of the recall event (i.e. consumer protection, brand protection, business continuity, etc.).

Processes: A recall has a profound impact on normal business processes. The supermarket business model involves generating sales by moving product to the shopper. A recall turns the model upside down. Practicing how to “operate in reverse” through regular mock recalls reduces the pain that a recall creates. The recall process starts by answering several questions, including:

 

  • Why is the product being recalled?
  • What specific products are being recalled?
  • What could happen if the product is mishandled?
  • What information do regulators need?
  • Who needs to be re-supplied?
  • What is the public supposed to do?
  • How will outreach to the media be conducted?

Environment: A supportive environment is essential for recall exercises.  Frequently, the pressure is high to act quickly in order to protect the public and protect the brand.  A command center may make sense during a recall so that the right people have easy access to each other, the latest information and the tools they need to do their jobs.

A recall done right is a sound strategy for building consumer confidence and protecting a brand and the business behind it. A systematic approach to preparing a company’s recall management team will mean the company is resilient even through the most trying of times.

Using a robust mock recall process will prepare your people, processes and your business environment to carry out a recall of your product efficiently and effectively when the need arises.  

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