Protecting crucial revenue from seasonal production

Christmas is traditionally seen as a boom time for UK retailers, as consumers spend big on everything from decorations and food to presents.¹ However, less well understood is the positive knock-on effect for many manufacturers, for whom increased demand and the production of seasonal products can represent a significant contribution to overall revenues.²

This year, however, competition for a share of seasonal spending is likely to be fierce, given predictions of a £4.4bn fall in consumer spending over the festive period.³ On top of that, rising transport, materials and energy costs are combining to apply greater pressure as orders decline overall and margins are eroded.⁴

As a result, it seems likely that additional seasonal revenues are going to be more important than ever this Christmas in what has been a tough year for the manufacturing sector.⁵

Manufacturing seasonal production risks

Seasonal manufacturing production is, however, subject to risk – not least the risk that faulty, unsafe or mis-labelled seasonal products will necessitate a product recall.⁶

The impact of a product recall at any time can be devastating, leading to significant financial losses as well as reputational damage that can endure for years. For instance, when Nottinghamshire-based popcorn maker, Thomas Tucker, was forced to recall several popcorn brands due to allergen mis-labelling, the firm quickly entered administration, weighed down by spiralling recall costs.⁶

Clearly, the impact of a product recall can be even greater if it affects a seasonal production run that is particularly important to a manufacturer’s overall financial performance – and, at a time when product recalls are on the rise⁷, this risk is increasing over time.

The cost of a product recall

It is all too easy to underestimate the impact of a product recall, assuming costs will be limited to removing a product from sale and compensating customers that have already bought it.

Those costs alone can be significant but are only part of the story. The cost of a product recall can also include:

Destroying affected products.
Retooling or process redesign to correct production errors.
Replacing faulty or mis-labelled products.
Losses from halted production lines.
Cancelled contracts, reputational damage and ongoing reduced sales.
Compensating third parties – from retailers to consumers.
Legal fees and any compensation awarded to affected customers and consumers.⁶

Given the current tough trading conditions for manufacturers, and the revenue potential of seasonal production, this is clearly a risk that no manufacturer should ignore.

How to protect your seasonal production

As with any risk, the first step to protecting against a product recall event is prevention – and that means understanding possible causes and ensuring that product processes and quality controls address them.

The unfortunate truth is that risk management and quality control processes do not necessarily address the root cause of many product recalls – i.e. human error.⁶

So, even with rigorous production controls in place, insurance to defend against the cost and disruption associated with a product recall should be considered to help protect your seasonal production.

A commercial combined policy may well include product liability insurance designed to step in if a product causes injury or property damage to a third party but won’t cover a product recall.

Your current insurance programme may include some product recall insurance, however, cover may be limited to recall costs only. In this case, your business could be left to cover the bulk of the costs, including those related to rectification, business interruption and loss of custom following reputational damage.⁶

Product recall insurance to protect seasonal production

A manufacturing issue or human error leading to a product recall could strike at any time, so it is worth taking a closer look at standalone recall insurance as part of your manufacturing business insurance cover.

Designed to step in at a time of crisis, product recall insurance provides the support you might need in dealing with a product recall – helping to keep your business afloat by covering the cost of recalling affected products, investigating the cause, lost sales, crisis management support and brand rehabilitation.

In short, the only way to effectively protect your seasonal production is to pair effective risk management with the right product recall insurance.