How Much do Product Recalls Really Cost?

InfinityQS Blog
By InfinityQS Blog | August 21, 2013
Blog Author

Picture this: your food processing plant is forced to recall several hundred packaged meats from its facility after a food borne illness is discovered lurking inside of a product. The product recall initially costs your company $50 million as a result of not using statistical process control software.

Upon further review, however, it is discovered that the $50 million you lost initially is only the tip of the iceberg in terms of what it cost your company. As a result of the disaster, future sales are affected. Stores are now suspicious of your product and are skeptical about putting your product back on shelves. And further, you are going to have to increase your spending on advertising as well as customer relations to compensate for the damage that has been done by the recall.

Here are some additional factors that your company will have to take into account, according to ExpertRECALL:

  • Notification expenses

Once it is discovered that your company is indeed responsible for a faulty product, the public must be informed—and your organization is going to have to spread the message. Fees will include radio, television, newspaper advertisements, telephone messages and direct mailings.

  • Liability

If someone is harmed from your product, and it was not that individual’s fault, you are going to be held liable for either his or her health or the health of that person’s family should the person perish. Lawsuits and labor expenses may be expenses that your company will have to pay for.

  • Retrieval

Once a product is on a store’s shelf, it is going to have to be returned. A company that issues a recall will be held responsible for collection, shipment or destruction of a recalled product.

Case in point: recalls can cost your company a lot more than the amount you initially lose. If you are a publicly traded company, shares of your product will plummet, as in the case of Maple Leaf Foods when a similar scenario happened in 2008, forcing their product shares to fall 10.2 percent. But it should be noted that sometimes, a product recall, especially in the case of food borne illness, can cause incalculable repercussions—like the 12 deaths that resulted from the Listeriosis found in Maple Leaf Food products.

As the above circumstances surrounding an initial recall indicate, there is no set formula for judging the after effects of a product recall. As ExpertRECALL explains, many costs can be associated with recalls. Scale, scope and the type of recall will all come into play when trying to judge how much money your company will be responsible for after the initial damage is calculated.

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