“[UK food and beverage] manufacturers must now strike a difficult balance between keeping costs low and ensuring they are not increasing their vulnerability to liability claims, all while negotiating acceptable liability limits with major retailers with potentially inferior products.”
This is what insurance broker Lockton’s inaugural food and beverage (F&B) industry research found, citing demand from retailers for lower prices. Manufacturers, in turn, are finding themselves in a pickle as they implement or consider measures in order to cut costs but at the risk of compromising product quality.
Here’s the lowdown:
- 76% of F&B manufacturers in the UK feel growing price pressure from retailers.
- 43% are reducing the size of products sold at the same price – coined as “shrinkflation”.
- 56% would consider doing the same; only 1% would rule the practice out.
- 72% would use cheaper raw materials if pressure persisted; 10% are already doing it.
- 38% claim on-site safety standards are being eroded due to cost cutting.
“We’re fast approaching a tipping point where the quality of what’s on our shelves is at stake,” said Ian Harrison, head of product recall at Lockton. “The move towards cheaper raw ingredients is setting a dangerous precedent that puts manufacturers at risk of product recall or food scandal. Inexpensive ingredients are often associated with poorer quality, food fraud, and lower safety standards.”
Now as pressure to cut costs sets manufacturers up to take on greater risk, 56% are having to spend more on insurance while implementing cost reductions in other areas to meet new required premiums. A double whammy, indeed, and manufacturers are on average purchasing 13% additional liability.
“While increased cover seems a sensible decision to make in the face of increased risk, our research has found that, in many cases, the decision to take out increased cover among manufacturers is in fact involuntary,” read the report, which also found that 50% expect retailer demands to price manufacturers out of future contracts.
According to Harrison, most major retailers will stipulate that suppliers need to have a minimum level of liability insurance as part of a standard contract. In fact, Lockton’s research showed that 40% of manufacturers are failing to win a contract due to their inability to meet the expected liability requirements.
“More cover is no bad thing, but comes with higher premiums: manufacturers must determine what costs are realistic for them,” said Harrison in the report, which highlighted the importance of understanding coverage needs.
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