More Frequent Product Recalls Vex CPG Companies
By Dale Buss
The pox of safety recalls of food in the United States over the last few years has raised alarms across the CPG industry for farmers, manufacturers, distributors and retailers to step up efforts to prevent contamination and to protect consumers from the consequences when it happens.
Food scientists and production experts, technologists, communication experts and others are responding to the cry with a new determination to boost traceability, collaboration and communication using various techniques.
“This is top of mind for CPGs and retailers, especially with new regulations in place under the Food Safety Modernization Act, as well as the pace of recalls over the last several months,” says Bahige El-Rayes, partner at consulting firm A.T. Kearney. “It has impacted everyone.”
Improving in this realm can be crucial for CPG brands in a hypercompetitive era. “The fact that you’ve taken action with less time lost helps tremendously to save you dollars and brand image and retain your customer base,” says Amit Rai, senior director of SaaS solutions and implementation for Riversand, a Houston-based provider of software in the food-safety arena.
Intensifying efforts on safety recalls also can be very important for food retailers. Consumers consistently trust their grocery store when it comes to food safety, an annual report by the Food Marketing Institute has shown year after year. In the latest report, this year, 93 percent of shoppers said they trust their grocery store to ensure that the food they purchase is safe.
Among other things, retailers engage with supply-chain partners to ensure all suppliers have strong food-safety programs and to ensure that food has been produced according to the highest standard by requiring a GFSI-certification program such as those offered by the Safe Quality Food Institute.
Food recalls seem to be in the news more than ever – because they are. High-profile recalls in recent months have included the pulling of crackers and other products by Mondelez, Pepperidge Farm and Flower Foods after public-health officials identified a whey-powder ingredient from a supplier that they feared was contaminated with salmonella. Last spring, a romaine-lettuce outbreak resulted in hundreds of illnesses. And in June, the government blamed Kellogg’s Honey Smacks cereal for a salmonella outbreak that caused more than 100 people to become ill in 33 states.
In fact, U.S. food-safety regulators have been recalling about twice as many products as a decade ago as about one in six Americans still get sick every year from eating contaminated foods, according to the federal Centers for Disease Control and Prevention. Annual product recalls by the U.S. Department of Agriculture, which regulates meat producers, rose by 83 percent from 2012 through 2017, while those issued by the Food & Drug Administration, which regulates everything else, jumped by 93 percent, according to an analysis by industry consultant Stericycle Expert Solutions.
The reasons include more aggressive approaches to recalls by CPG companies as well as by public-health advocates. Plus, the Food Safety Modernization Act has allowed federal regulators to discover problems sooner and take action more quickly. The law was enacted in 2011, giving the federal government the power to mandate a recall when companies fail to pull their food products voluntarily. But the agency only recently has moved to exercise this ability more vigorously.
Legacy problems abound in the highly complex American food-production and –retailing system. Storing and tracking data about raw ingredients alone presents a significant challenge, and accuracy is critical. A single ingredient can come from many sources, each of which may have a different origin and composition. Meanwhile, labeling errors also continue to dog manufacturers and can be very expensive if a recall occurs.
An additional factor is that “there is visibility in areas of the value chain that couldn’t be seen before,” increasing the identification of safety concerns that lead to recalls, El-Rayes says.
A further contributor to the frequency of recalls these days is a boom in consumer demand for fresh and temperature-controlled produce, deli and other products on store perimeters, to which retailers have responded by expanding those departments; by their nature, these categories are more subject to recalls than traditional center-store CPG goods. And that expansion leaves retailers more vulnerable: Romaine sales dropped 45 percent in May from a year earlier, according to Nielsen data, and the fallout hurt sales of other leafy-green vegetables too.
Greater collaboration on traceability around standards can benefit the food industry in three ways, says Ryan Richard, senior director of industry engagement for retail grocery for GS1 US, a not-for-profit information-standards organization based in Lawrenceville, N.J., which promotes adoption of its standards for food traceability.
Prevention can help the industry prevent contaminated food from causing harm to consumers, Richard notes. Protection of consumers also helps protect brands from long-term damage to their bottom line and public image. And prediction means companies can more easily initiate the course of action for an effective recall.
CPG companies are responding in a number of ways. One of the most important is to bolster the information network that links product data internally and with partners. On the software side, a platform called Master Data Management can act as the master source for all product data to publicize a recall to the various stakeholders. This avoids data discrepancies and ensures that the right information is disseminated to all players over a product’s entire lifecycle – from incoming ingredients shipments to finished-product deliveries. Data from MDM also can be used to manage inventory, recipes and logistics.
Also, an MDM system can ensure that there is data consistency across various communications channels, such as in-store, online and mobile, as well as across different domains including vendors and consumers. That means products can be traced from one end of the supply chain to the other, with centralized and integrated information that ensures consistent product information at the brand level.
Such platforms can give CPG companies, distributors and retailers the visibility they need to make recalls as effective as possible.
“If you have this end-to-end flow of information within the ecosystem, if there are any issues with raw materials at a plant, for example, they’ll come up within minutes,” says Rai. “So you’d know exactly which set of products in which set of stores have to be recalled, and be able to pull out customer-transaction data on those products in those stores – and be able to reach out and do specific [notification] campaigns around specific geographies.”
Blockchain technology also is emerging as a major tool for the industry as it attempts to get its arms around recall prevention, traceability and public notice. Blockchain provides a permanent record of transactions, which then are grouped in blocks that can provide an alternative to traditional paper tracking and manual-inspection systems that can leave supply chains vulnerable to inaccuracies, according to an IBM blog post.
When applied to the food supply chain, digital product information such as farm origination details, batch numbers, factory and processing data, expiration dates, storage temperatures and shipping detail are digitally connected to food items and the information is entered into the blockchain along every step of the process, IBM explains.
The information captured in each transaction is agreed upon by all members of the business network; once there is a consensus, it becomes a permanent record that can’t be altered. Each piece of information provides critical data that could potentially reveal food safety issues with the product. The record created by the blockchain can also help retailers better manage the shelf-life of products in individual stores, and further strengthen safeguards related to food authenticity.
“Every item in blockchain has its own identity, and no one controls the MDM,” El-Rayes explains. “It’s almost a democratization of the product, because it’s controlled by every single party.”
For example, software provider SAP works with brands and grocers on a process called cold-chain monitoring, in which temperature sensors inside sealed containers can record temperature logs to a blockchain. This allows brands to ensure their temperature-sensitive goods have been stored correctly and are safe for consumption.
Richard agrees that blockchain advances such as this can make a big difference. The rise of this technology, he says, “is reinvigorating the conversation round the importance of automation in the supply chain and how to facilitate better data sharing.”
In any event, more retailers are getting proactive about how they handle recalls once they’re made by a food supplier, and about notifying consumers. Some have established special task forces that are focused only on food safety and recalls, refining standard procedures to make them more effective. And many retailers are leveraging their customer databases to make them more effective tools for recall notifications.
For notifying customers, retailers still must use the traditional methods that include local media publicity and in-store notification. Social-media channels also have helped tremendously. And increasingly, digital loyalty platforms are making the notification process easier for stores. About 40 to 50 percent of a typical retailer’s customers are identifiable in their loyalty databases these days, El-Rayes says. And in addition to making recall communication more complete, he says, savvy retailers actually can use such occasions to enrich relationships with customers.
“Consumers are looking for more transparency, so a properly communicated, well-drafted message about a recall can be really effective in improving the overall relationship,” El-Rayes says.
Of course, even as CPG companies, distributors and retailers embrace the mandate – and the opportunities – of improved handling of recalls, cost remains a major constraint. “All of these solutions add significant costs to the system, and consumers expect that retailers and CPGs will be able to solve recall problems without adding costs from consumers’ pockets,” El-Rayes says. “But they can’t. There is a premium involved, and the question quickly comes down not to a lack of ideas but to who funds it.”
Richard of GS1 US says that small suppliers can have the biggest challenge and that they often believe scalable solutions aren’t available. “That’s why we work to educate the entire industry – from source to store – about how to improve collaboration using standards,” he says.