Product recall costs revealed

Patties’ frozen berry case in the courts

This case provides a good insight into the costs associated with product recalls.

In 2015, Australian leading frozen food supplier, Patties was forced to recall Nanna’s and Creative Gourmet brands of frozen berries after the government found Hepatitis A contamination.

This month, Patties is taking the matter to court, seeking millions of dollars in compensation from its supplier that sourced the infected fruit from China.

The Age newspaper reports that in a statement of claim filed in the Supreme Court of Victoria, Patties says Australian food wholesaler Entyce Food Ingredients breached a supply agreement by providing food that was not safe for human consumption.

Where the money was spent

In its statement of claim, as reported in The Age, Patties says it had to dispose of $3.8 million worth of berries held in storage.

As of May 2017 had paid out $41,389 in compensation to seven customers infected after consuming the berries.

The company incurred another $5 million in losses because of the outbreak and recall, including spending:

$196,576 advertising the recall

$198,591 running a call centre

$136,942 employing public relations professionals

$597,788 getting removing products from shelves, and

$24,920 on social media

Patties, best known for making Four’n Twenty pies, says its loss of earnings totalled $4.4 million and is seeking damages plus interest. Entyce is contesting the claim, and rejects that it owed Patties a warranty that its berries be uncontaminated and fit for human consumption.

The Age reports that Patties sold the Creative Gourmet brand to Entyce in December 2015 (for an undisclosed price). Patties also phased berries out of its Nanna’s range at the time, ending an association with a product that had plagued it for most of 2015.  Creative Gourmet, under Entyce’s ownership, again recalled berries earlier this year after another Hepatitis A scare.

Costs of recalling products

Any product recall – be it food, hard goods or otherwise – will involve the kinds of costs outlined in the claims made by Patties. All recalls involve notifying trade customers and consumers, fielding questions and retrieving goods as well as engaging public relations and legal assistance. Patties also had to dispose of berries held in storage plus those it retrieved, incurring a major loss. Recalls can also include the cost of refunds and disposal, or possibly repair and replacement.

In Patties’ case, it also involved compensating consumers who fell ill after eating the berries.

It is clear that the overall costs to the company have been substantial and dramatic.

Best avoided

All businesses making or selling consumer products need measures in place to ensure their goods are safe to use. This includes managing up the supply chain. Avoiding the damaging costs of a recall is one important reason to ensure this happens.

And if the worst does happen and you need to initiate your own recall, it’s critical to have a plan in place before you have to use it!

Guidance is available on making products safe and managing their passage along the supply chain. AS ISO 10377:2017 Consumer product safety – Guidelines for suppliers and AS ISO 10393:2017 Consumer product recall – Guidelines for suppliers set out systems and strategies to help businesses at all stages of a product’s life cycle.

I have created a checklist that’s based on the two ISO standards. It’s available free of charge on this website.

Learn from others

All suppliers are required by law to notify the government when they initiate a product recall. And the government makes this information available to everybody on its product recalls website. I recommend all suppliers sign up for alerts.

If you sell products – it pays to be aware of how products fare in your market sector. If a product similar to one that you sell gets recalled it can impact your business. It can also serve as a prompt to review your own products to assess whether that defect could happen in your product.

Read more in my blog article Product safety recalls Australia.