Cost-cutting sparks rise in food and drink recalls

In a survey of 200 food industry employees and executives, two in five (42%) believed cost-cutting in the production process was to blame for the increase in number of recalls.

A further 41% believed cost-cutting as a result of downward pricing pressures from retailers and consumers was to blame.

Lockton’s head of product recall Ian Harrison said: “The correlation we’re seeing between increasing pricing pressures within the UK food and beverage sector and the instances of product recalls is one the industry cannot afford to overlook.

“Our research has found that as pricing pressures increase, manufacturers have to cut more corners and look for cheaper ways to produce their products. An unintended victim of this is oversight and quality control, leading to foreign bodies finding their way into food and beverages on our shelves.”

More at risk in the long term

While manufacturers might see cost-cutting as a quick remedy in the face of price pressure, it puts the company more at risk in the long term, said Harrison.

He added: “For some of the UK’s smaller manufacturers the cost of a recall may even be terminal. Manufacturers should ensure they have the right cover in place, to minimise the financial impact should they face a recall.”

Lockton’s Research into recalls announced by the Food Standards Agency found that the number of cases of foreign bodies in products had jumped by 350% between 2012 and 2017.

Food recalls have also doubled over the past three years, with nearly a quarter (25%) caused by contamination by objects such as glass, metal or plastic.

“Only two recalls in first half [H1] of 2012 were due to the presence of choking hazards,” said Lockton. “In H1 2017, this number had more than tripled to nine cases.

“Comparing all recalls in 2012 and those in 2017 so far, the number of recalls due to choking hazards has more than doubled – from seven to 15 – with scope for the total number to rise even further by the year’s end.”

Second most common cause for recalls

The second most common cause for recalls was bacterial contamination, with salmonella accounting for 14% of cases in the past six years. Listeria was found to be the cause of 10% of UK food and drink recalls.

As recalls continue to rise, so have the costs that they create for affected companies. Mars’s recall last year alone cost the firm tens of millions of pounds.

“Not only do businesses face the logistical cost of removing and replacing goods but they can also face severe reputational and even legal damage as a result,” said Lockton.

“Recalls can be an expensive mistake to make. Globally, insurers received claims worth almost £240M for 2017 alone for food and beverage product recalls, with the average large case in Europe costing businesses more than £7M, according to recent industry data.”

Lockton found that 26% of businesses it asked said it would take up to six months to fully recover from a product recall. About two-thirds (67%) said the recall of a key product would cost more than £30,000.