How Much Does a Food Recall Really Cost You?

It’s a dreaded word that no food manufacturer wants to hear…RECALL.  The cause of over 48 million illnesses annually, nearly 25-30 food contamination incidents occur globally each week. 1  According to a study conducted by Ohio State University’s Robert Scharff, food recalls cost an estimated $55.5 billion a year when factoring in medical expenses, productivity loss and mortality. 2But how does this translate from a company standpoint?

According to Food Online, companies manufacturing food products that are involved with a recall are affected by direct costs, lost sales, and impairment of their brand.

A study performed by the Food Marketing Institute and Grocery Manufacturers Association indicates the average direct cost to a company per recall is $10 million, and that doesn’t include sale losses, deaths/illnesses, and the hit on their reputation. 3

When one or more of their products are recalled, companies must notify the proper channels (alerting them of the recall), destroy those products (removing them from the shelves adding to lost revenue opportunities), and find the source of the contamination (which can lead the manufacturer to close down all of their plants for cleaning until the source is identified), all of which add up to a hefty financial burden.  And while many might see the $10 million average as a large number, Class 1 recalls, which the FDA classifies as “Dangerous or defective products that predictably could cause serious health problems or death,” can hit hundreds of millions of dollars.1

Take, for example, the peanut butter recall in 2009 which was tainted with salmonella, costing peanut producers nearly $1 billion or Westland-Hallmark Meats beef recall in 2008 which cost them close to $500 million.3

Besides productivity costs, shippers have to deal with any lawsuits that arise and government fines.  So was the case last year when ConAgra agreed to pay $11.2 million dollars in criminal fines and forfeitures to the government for salmonella tainted Peter Pan peanut butter back in 2007.

Now imagine the damage done to your company’s image after such an event.  As Ironshore states, “While it takes years to establish a respected reputation, food recalls due to contamination and safety concerns can damage that reputation virtually overnight.”1

According to a consumer poll conducted by Harris Interactive, a market research firm in Rochester, NY, after a product recall, 55% would temporarily use a different brand, almost 15% wouldn’t buy that particular recalled product again, and 21% wouldn’t buy any brand associated with the manufacturer.3

While large company recalls, such as automobile manufacturers, can accumulate into billions of dollars in losses, small companies, who don’t have the financial backing to support such brand impairment, often find no choice but to declare bankruptcy.

The Food Safety Modernization Act, which goes into full effect on April 6th, applies to shippers, carriers, brokers, receivers, and loaders in a mandatory effect to keep food products safe.  Those who are not familiar with this ruling can read more here.

So how can you help mitigate your risk of contamination during transport?  One way is by reducing the number of stops before your products reach their destination.  Road Scholar Transport cuts back on the handling of your products with dock-to-dock, no transfers, as well as offers 24-hour expedited service.

Cross-contamination/sanitization also poses a risk to the integrity of your products, especially for less-than-truckload (LTL) shipments, which carry multiple types of products in a single trailer at the same time.  Wooden pallets, which are very porous, and therefore, absorb fluids that breed bacteria also serve as a means of cross-contamination and that doesn’t even include splinters from the wood that can puncture the products.  Road Scholar Transport, however, operates trucks with aluminum floor trailers to create a more sanitary environment for your products.  We conduct regular sweeps on all trailers to ensure that your freight is being transported in a clean, and therefore safe, environment as well as have record of what has been transported since the last time the trailer was cleaned.

Another way to reduce your risk of a recall is to make sure that you have qualified drivers and well-maintained equipment moving your products.  Unsafe drivers can damage products through speeding, accidents, and not securing the loads properly, while equipment that isn’t maintained, especially reefers, can lead to spoilage or contamination risks if exposed to high temperature conditions.  You don’t have to worry about this when shipping with Road Scholar.  Our trucks are air-ride equipped and driven by experienced and uniformed drivers, providing a safe, smooth ride.  Our reefers are top notch, equipped to handle even the tightest temperature ranges, having imbedded technology that tracks the temperature within and alerts our team in the event that the temperature goes out of range so we can rectify the situation prior to the product losing its integrity.

Learn more about Road Scholar’s food-grade services by clicking here.

 

1http://www.ironshore.com/blog/costly-food-contamination-recalls-unavoidable

2http://fortune.com/food-contamination/

3http://www.fooddive.com/news/more-than-money-what-a-recall-truly-costs/426855/