Earlier this spring, The Cotswold Brewing Company was forced to recall its popular Hawkstone Black and Hawkstone Spa Lager after failing to disclose the presence of gluten in its beers. Product recalls like this one can be financially devastating, but the hidden costs and outcomes often reach far deeper.
Recalling large quantities, or entire batches of product, is a nightmare for brewery owners. Product recalls can have a range of negative consequences, including severe reputational damages, legal and administrative exposure, supply chain delays and third-party liability, in addition to significant out of pocket expenses.
Despite the damages a product liability case can cause, far too many recalls still occur in the craft brewing industry. Craft brewery owners need to prioritize building a culture of safety to limit potential product recalls. Understanding specifically how a case can impact a craft brewery’s operations is an important first step to help owners prepare their businesses and establish a prioritization of proper product liability risk mitigation practices.
Examining the hidden costs of product recall
With the continued growth of social media, breweries are more exposed than ever, and one misstep can position a mislabeled product or contaminated beer as a leading topic for public debate on the internet for the wrong reasons.
Depending on the scope of a recall, customers may lose trust in the brewery, which can not only lead to a drop in sales but also damage the organization’s marketing efforts. If the recall is bad enough, it could also impact relationships with vendors, as some businesses may not want to partner with a brewery featured in news headlines for mishandling their product. Breweries could lose distributors, event merchants and packaging partners who help in the canning and bottling process.
Let’s say a brewery crafted a beer that failed to properly list the presence of peanut butter in the product. If a customer with a peanut allergy visited the brewery, sampled these beers, and then suffered an allergic reaction on the premises, the brewery would be liable. News could spread quickly of this incident and customers may even boycott the business, leading to a long road to recovery for breweries of all sizes.
Beyond reputational damage, this type of incident has the potential to lead to further harm to the brewery. For example, there may be unexpected out-of-pocket expenses. Standard product liability coverage does not cover the costs of pulling product from shelves or reimbursing distributors unless it is specifically endorsed.
There could also be legal and administrative exposures related to a product recall. Depending on the scale of the subsequent claim, the brewery’s response would likely require significant investments of time and resources among staff members, pulling employees away from normal daily operations. For a small business, this can slow production and distribution.
Depending on the severity of the incident, a customer could also sue the brewery, and the ensuing legal action may lead to defense and legal fees that exceed the limits of the brewery’s insurance policy. If the claim is bad enough in certain states, this could also trigger investigations or audits by local and federal authorities.
A brewery mired in product recall issues could also suffer contractual losses. In the above example, if the brewery distributed this mislabeled beer through bars and bottle shops, they could be held liable for harm caused by consuming the product on premises. In addition to the financial cost, the incident could lead to disqualification from trade shows, conferences, beer events and competitions.
In other product recall cases, contamination could have major supply chain implications. If a brewery finds a contaminant in one batch, it could impact other products if they used the same hops, grains or other ingredients. This could trigger additional recalls of other lines of beer. If the issue is traced back to brewing equipment, then the brewery would have to shut down that equipment, which can result in downtime and business interruption. In extreme cases, extended downtime could lead to staffing cuts as a brewery struggles to navigate lost revenue.
What can a craft brewery owner do to avoid the hidden costs of a product recall? An emphasis on safety and risk mitigation is critical.
Leading with product safety
Brewery owners looking to avoid product recalls should prioritize building a culture of safety at their workplace. This process may require extra steps, but management can start with these best practices:
- Train and retrain: Staff members should be trained to identify any potential product liability exposures and to act accordingly. This training should be repeated annually and immediately following any incident to ensure team members are following both industry and the brewery’s best practices.
- Prioritize quality control: Management should have strict regulations in place requiring comprehensive quality reviews of products during each stage of production and packaging. This will help identify any potential problematic products or batches and encourage team members to take product liability concerns seriously.
- Audit, and often: Regular auditing is critical to ensuring safety. Breweries should consistently review their own production process to ensure staff members are working thoroughly and not taking any shortcuts. Outside the organization, brewery owners should consider auditing any business partners, such as contracted bottlers, to confirm they are also following proper safety precautions.
- Implement safety technology: Investing in the right technology will demonstrate to staff that safety is a priority for brewery management. Consider using technology such as compressed air or invert/blow-out systems to blow debris out from bottles and cans before filling them, or information of things (IoT) devices to monitor product temperatures during transit to ensure contamination risks are limited.
Partnering with the right businesses can also aid product safety efforts. A specialty insurance provider that knows the craft brewing industry can provide comprehensive risk assessments complete with tips and recommendations designed to prevent product recalls and the ensuing risk. These best practices can help a craft brewery ensure their team is taking safety seriously and approaching risk mitigation with the best tools available.
The negative impacts of a product recall extend far beyond financial losses. Reputational damage, additional out-of-pocket expenses, administrative burdens and supply chain delays are all real threats that can lead to temporary, and in some cases, permanent shutdowns. Understanding these risks and taking proactive steps to create a culture of safety and thorough quality control and maintenance is critical to protecting craft breweries from product recalls.
Paul Martinez is program manager and insurance brewmaster for Brewery PAK Insurance Program. Martinez has 20+ years of commercial insurance experience and 10+ years of experience underwriting breweries. He can be reached at 888-386-5701 or Paulm@brewerypak.com.
