In the wake of the horsemeat scandal we discussed last month, businesses are improving their supply chain standards to meet retailers’ demands. Now they need to focus on restoring the trust and confidence of their consumers and stakeholders and taking steps to minimise the financial impact.
The whole issue around traceability and provenance has quickly grown and begun to spread to other areas including eggs and mechanically recovered meats.
Many businesses have responded by documenting where ingredients come from and improving the accuracy of labelling to the level expected of food stuff allergens; the cost of which can run into tens of thousands per site for larger operators.
Management time has clearly been tied up with the immediate concerns of implementing changes and trying to mitigate brand/reputational damage.
While it is important to ensure the integrity of supply chains, additional steps are required to persuade consumers, investors, regulators and other stakeholders that products are high quality and safe.
Consumers will continue to avoid businesses that cannot demonstrate where their ingredients come from. Lingering doubts about sourcing will continue to weaken the reputations of affected businesses, prolonging the period they spend firefighting.
Moreover, businesses should limit the financial impacts. Businesses which fail to control costs risk breaching financial covenants and running out of cash. Either outcome could leave them without the financial resources needed to mitigate the damage and prevent similar issues in future.
By now we expect organisations to have investigated the facts:
- Were they were involved in food contamination?
- Can they make claims against their insurers or suppliers?
- What evidence is available to show they are not involved or to back up claims for recoveries? How reliable is it?
The next step is to use these facts to earn back public trust and win new customers. Businesses that can demonstrate how and where it sources ingredients can gain competitive advantage through improved trust in their brand from consumers. Establishing brand trust will make all the difference when they next visit the supermarket and are choosing between products.
Businesses should also build their cases for recoveries from insurers and suppliers. By compiling the evidence now, they can reduce the amount of work needed later to establish the facts. This can cut professional fees and speed up the recovery process.
And it is vital for businesses to let investors and regulators know what action they are taking. By proving to stakeholders that they have a sound plan, management can create valuable breathing space to implement changes. And any action to bolster the brand could be undermined if shareholders panic and the share price falls.
In the longer term, businesses should revisit their strategy and assumptions in the light of the current crisis. We can’t predict when the next scandal or issue will arise; however, considering what lessons can be learned from the past few months can help to mitigate the impact of any potential future event:
- Do I need to challenge my approach to customers? Do I need to keep them better informed?
- Is my pricing strategy still valid? Will customers trust low-cost products in future?
- Is our approach to crisis management robust? How effectively do we deal with sudden changes?
- What would we do differently next time?
Finally, remember to make the most of a good crisis. For many customers, particularly in the meat processing sector, this situation has presented a clear opportunity to exercise leverage and force change; whether through changing standards, sourcing demands (UK versus Europe) or avoiding price increases. Are you ready?