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The Cost of a Recall
The total cost of a product recall is often hugely underestimated. As well as the more obvious practical costs, there are many intangible costs that can mount up to make a product recall very costly.
A product recall can have a big impact on brand reputation which can cause long term effects on sales and can even cause a business to go under. Many companies choose to mitigate the financial impact via recall insurance, but do you fully understand the potential costs?
Why don’t you estimate the cost of recalling your leading brand? Use the cost estimator below:
Cost Estimator
| Cost Type | Limited local recall Widespread multinational recall | Comment |
|---|---|---|
| Consumer Careline | Difficult to quantify but call centre costs can easily escalate to very large figures when involving multiple territories and languages | |
| Cost of Shutdown | If your plant is shut down due to contaminated or faulty equipment costs can escalate rapidly | |
| Crisis PR & Social Media Campaign | Social media is often the main focus of consumer information and complaint, but expert communications and PR strategy is needed to ensure your message is effective and getting through | |
| Disposal | Disposal by certified destruction may be required if the product contains certain chemicals or heavy metals | |
| Fines | Fines imposed by regulatory authorities related directly to a product recall | |
| Packaging Redesign | Many recalls are due to errors on packaging and costs for new packaging can be significant | |
| Point of Sale Notices | These need to be produced and then distributed to stores internationally | |
| Contacting Consumers | You may need to send our large volumes of letters to consumers. You may have the details, or you may be provided them by retailers | |
| Post Recall Advertising | The cost of advertising on traditional (possibly including TV) and social media to reassure consumers following a recall and to encourage them to stick with your brand | |
| Recall Notices | This may just be a notice on your web site or depending upon the product and risk recall notices may require publication in newspapers and magazines | |
| Sending Replacement Products | For non-food consumer products a replacement may be sent out to the customer. The costs of this can escalate rapidly if tens of thousands of replacements are involved. This is unlikely to be done on a large scale for food products | |
| Repair / Correction | In some cases (non-food) products may be repaired rather than being returned or disposed of. This may involve teams of engineers visiting domestic or industrial locations to fix the faulty product | |
| Retailer Charges | The retailer chains may charge administrative fees to cover the cost of notifying store networks and removing product from shelves | |
| Shipping & Logistics | Faulty product may be sent to centralized warehouses for sorting or to await destruction. These warehouses will often be additional contracted capacity | |
| Specialists / Labs etc | Laboratory testing often forms a key part of the investigation process sometimes involving unusual and highly expensive tests requiring premium turnaround | |
| Value of Loss of Contract | It is a fact that companies may lose the contract to supply following a recall; especially if the manufacturer is unable to restore confidence in the safety or quality of their processes | |
| Value of Recalled Product | The value of the product being recalled can very high. If a recall is due to a faulty component or contaminated ingredient, the value of the finished product may be many times the value of the component. This can come as a big surprise for component / ingredient manufacturers. | |
| Value of Unaffected Recalled | Value of product may also include batches of products that are recalled that may not be affected by the recall. If traceability capability is poor, over recalling may be high. | |
| 0 |
Hidden Costs
Other costs after the initial recall action to add onto your final bill. These may impact your business months or years after the recall:
- Reduced sales
- Reduced profits
- Increased regulatory scrutiny by government authorities
- Increased testing and quality assurance / safety procedures
- Unfavourable resolution of litigation
- Ongoing legal fees
- Prosecution of members of the board of directors in relation to product safety breeches
- Risk of increased insurance premiums
- Cost to reputation
- Reduction in share price and therefore company value.
- Cost to change or correct manufacturing process
- Increased threat from competitors
And finally…
In the long term, the biggest of the other costs could be intangible brand damage. How you respond to the product recall can determine whether it becomes a major crisis and damages your brand in the eyes of your consumer and investors. Alternatively, a well-managed product recall is quickly forgotten. Don’t end up as a case study for poor crisis management!
Other relevant services
RQA Group specialise in crisis management and offer a comprehensive and customised service throughout the whole process.
RQA Group can assist you with all aspects of business continuity, from creating a new Business Continuity Plan, assisting in understanding your risk profile and more.
The best way to reduce your product recall risk if you are a food manufacturer is to have a comprehensive food safety and quality programme.
“RQA Group have provided risk management consulting and training to our businesses around the world for many years. They have also helped us to ensure we are prepared for product recalls and business continuity challenges. They are highly professional and expert in their field and we consider them a valuable resource across the business.”
Tom Richardson,
Group Insurance Director
Associated British Foods plc
“The Speedibake Crisis Management Committee were put through their paces in a crisis challenge test by RQA Group. It was a tough but rewarding day and the team performed well together. This puts us in a better position to effectively manage potential crises in future. Thank you RQA for making it feel so realistic!”
Peter Wilcock,
Technical Manager
Speedibake
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