How the food and drinks business can avoid the next big contamination crisis

With combined revenues exceeding €1trn and a rate of growth that comfortably beats most other manufacturing sectors, Europe’s food and drink businesses appear to have little to worry about. But all is not what it seems. Shaken by the horsemeat scandal of 2013 and other lower profile irregularities, regulators are getting tougher. And as the penalties for breaches of regulation are becoming more punitive, communications-savvy consumers are also much faster to complain.

As an example of the closer attention the industry is getting from regulators and consumers, in June and July alone the UK Food Standards Agency issued 12 recalls of products, including wine, soft drinks, soup, spices, palm oil, smoked fish and tofu.

The reasons cited ranged from the presence of small pieces of plastic and broken glass, salmonella and other toxins, to the discovery of illegal dyes. All these breaches suggest failures at the manufacturing level.

Overall, with increasingly valuable brands to protect, food and drink companies are significantly more vulnerable than they were a few years ago. It’s no surprise then that, alongside the ever-present concerns about the volatile price of raw ingredients, the threat to brand and reputation has for the first time become the major worry for the industry, according to Aon’s latest survey of global risk management.

Related to this, the risk of deepening regulatory oversight has jumped from eighth in the survey two years ago to third this time.

Worries about brand damage are growing despite evidence to the contrary. As Aon executive director Norman Andrew says: “Only 8% of respondents can confirm that they have actually suffered some kind of material loss because of damage to their brand or reputation.”

Feeling the heat

Some companies are taking no chances. Drinks giant Carlsberg, for instance, has about 447 brands to protect. It has a risk management strategy that relies principally on a heat map that reflects the degree of short- and long-term risks, as well as the effectiveness of preventative action.

A dynamic tool, the heat map runs a two-dimensional rating system that estimates the impact of the specified risk on net revenue, brand image and the likelihood of the threat materialising.

Responsibility for reviewing the group’s overall exposure lies with the executive committee, which updates the heat map to reflect movements in perceived risks. It also uses the map to identify emerging risks over a three-year horizon.

The executive committee then takes appropriate action on the basis of what the map is telling them.

In a ground-up approach, the executive committee also taps the intelligence provided by far-flung local factories and then feeds their reports into the map. “Local-level risk assessment follows the same principles as group-level risk assessment and is based upon the heat map,” the company explains.

To make sure that action is taken at the production sites instead of simply at headquarters, the executive committee hands responsibility right down through the organisation by appointing local risk owners. They are charged with mitigating any current or emerging threats through a practical series of actions whose results are monitored and evaluated.

This year, Carlsberg has identified the hottest risks – those pushing into the upper right quartile of the heat map – as the impact of duties and regulation, and the deteriorating state of the Russian economy.

In the longer term, Carlsberg’s latest annual risk management workshop has identified the image of beer in Europe – an issue of direct concern to brand reputation – as a strategically important risk.

Supply chain

As the UK food and drink industry senses the dangers presented by dramatic developments such as e-commerce, it is moving logistics professionals up the executive ranks.

According to Simon Eagle, a senior consultant at supply chain consultancy Scala, the most successful companies in the fast-moving consumer goods sector (FMCG) – which is dominated by food and drink – are giving their supply chain managers a much bigger say in the business, including board appointments.

“Influence at [the logistics level] is needed more than ever as companies have the opportunity to make – or not make – critical decisions on how they operate their supply chains,” he says.

In this environment, there is clearly no time for complacency. Yet even some of Britain’s large food manufacturers seem to think the UK horsemeat scandal, which originated in Romania, bears no relation to them. According to a survey commissioned by supply chain risk management specialist Achilles in the wake of the scandal, 82% of manufacturers said the scandal had not changed the way they manage information about their suppliers. This is despite the fact that more than half of them reported that they know less about their second-tier suppliers than their first-tier ones. Astonishingly, 40% said they didn’t know exactly who all their suppliers were.

According to Achilles chief executive Adrian Chamberlain, the industry should abandon its historic reliance on paper record-keeping because it offers little benefit for an increasingly complex and globalised supply chain. At the time of the scandal, he commented: “Food and drinks manufacturers should implement a single co-ordinated system to manage information about all suppliers across the world and map their supply chains before there’s another horsemeat scandal.”

Brand credibility

Some sectors of the industry, particularly processed foods such as meat or fish, may have to work on the credibility of their brands. Following incidents such as the horsemeat scandal, UK consumers lack confidence in the authenticity of many products.

A study released in July by scientific consultancy Leatherhead Food Research revealed that up to 43% of consumers are not confident processed foods contain the type of meat or fish specified on the label. Of all these products, chilled and frozen ready meals scored the lowest – 5.6 for meat and 6.3 for fish on a scale of 1 to 10 – while sausages and fish fingers were ranked at 6.8 and 7.2 respectively.

“The food industry needs to take a multi-layered approach to address the myriad issues associated with food fraud,” says Leatherhead research scientist Dr Monee Shamsher. “Our new species authenticity testing technology puts the power back into the hands of manufacturers and retailers, but it is only part of the equation.”

The long-term solution, she says, is to show decisive measures are being taken to combat the problem.

Meanwhile, providing food for thought for large producers, whole meat and fish from local butchers and fish mongers topped the confidence scale with a score of 8.6.