We are often approached by small-scale food producers who have a product that they would like to take to market. Their dreams are to reach their target consumer market by having the products on the shelves of grocery store chains, other small retailers and restaurants. It's great to dream big, but there are many things to consider before you go too far down this path.
Business experience will dictate a lot in terms of the price of insurance. Even if you've run other types of business or are a professional in another line of work, if you don't have much experience in your new, proposed line of business, then from an insurance standpoint, you're at a higher risk than someone who knows what they're doing. This means higher premiums.
At a minimum, an insurance company would need to know the following and the answer to these items will, to an extent, dictate price:
- Resume – including applicable training, such as Food Safety training
- Business Plan
- Address of commercial kitchen being used to prepare the items
- Description of the kitchen operations and food handling operations - e.g. they want to know how many opportunities there are for errors such as the number of people handling the food from start to finish during the production stage
- Labelling, with ingredients that will be used on packaging - e.g. they want to know about allergens, ingredients that have a high probability of causing illness or reactions or product recalls etc.
- Product description
- Approx. annual revenue - as your business grows, the cost of insuring the business will also grow
- Copy of contracts with potential vendors - some vendors (retailers) may have specific terms in their contracts that the insurer needs to be aware of, e.g. how much product liability insurance is required by the vendor
- Description of product flow to customer, i.e. the number of other businesses/ hands (e.g. wholesaler, distributors, trucking company for shipping etc.) will it flow through before being purchased by the consumer
Most retailers require businesses to 'buy' shelf space in their stores. This can typically be $150,000 to $500,000. They have different pricing for eye-level shelves, low shelves, high shelves etc. In 2020, Walmart hit the news when they hiked their fees to up to 6.25% on the cost of goods on their online portal; in 2016, Loblaw increased fee by 1.45% and then added 0.79% in 2017 for suppliers using Loblaw distribution centres. So for a small-scale producer, this could be out-of reach, and it may be worth considering staying small for a few years to solidify their production processes, their branding, their distribution channels, packaging... and, of course, their finances, before taking the leap. Nothing to do with insurance, but definitely something to consider.
Many retailers will require you to have high limits for Product Liability Insurance to protect them should claims arise. National retailers may ask for a minimum of $10,000,000 ($10million); smaller retailers may ask for $2,000,000 - $5,000,000 coverage. This alone could cost several thousand dollars a year in premiums.
Spoilage coverage is an endorsement to a commercial property policy which provides coverage for the loss of perishable stock that are stored at the premises of the insured property.
Food contamination and product recalls can happen at any time. They are mostly whether accidental but there is always a possibility of malicious contamination. This can be disastrous to a company’s reputation and bottom line.
Food contamination insurance coverage can cover:
- Accidental product contamination
- Malicious product tampering
- Product extortion demand
- Identifying the right coverage for your business interests and risk tolerance
Foodservice processors should also consider Food Processors Insurance which can cover:
- Product recalls and contamination and infestation
- Consequential loss, including power failure off-premises, transportation breakdowns
- Negative publicity and brand reputation injury
- Spoilage due to breakdown or failure of refrigeration, cooling or heating
- Business interruption for losses
- Research and development interruption
- Environmental pollution liability
- Delayed shipments
Generally, this is included in Commercial General Liability insurance policies. However, there are some exceptions, in which case, you would need additional insurance.
- Damage to Your Product: CGL policies will cover damage to property other than the product you are making.
- Damage to Your Work: CGL policies will not cover damage to your completed work.
- Damage to "Impaired" Property: CGL policies exclude damage to property or products that contain your defective products.
These are just a few things to consider. Your dreams shouldn't be shattered by all of these demands. But maybe, it's just a matter of putting it off for a few years, so that you can grow and evolve in a wholistic way.
For more information on any of these additional types of insurance, a professional insurance agent will be able to guide you as to what your business will need. For a referral, please contact our office.
The Chef Alliance is a leading foodservice association in Canada offering Chefs and Entrepreneurs a place to grow their business. They can benefit from liability insurance to protect their clients and finances, peer support strengthen their business, discounts to lower their business costs, market their services and increase profits. This leaves them time to concentrate on what they do best - cook great food!