The most significant risks in Cloetta Fazer’s operations are related to changes in consumer behaviour the lead to lower demand for the company’s products. Other risk areas include price pressure in the retail trade, shifts in consumer preferences and structural changes in the grocery trade that affect the market situation for Cloetta Fazer’s traditional customers. The Group’s risks have been identified, evaluated and ranked on the basis of their impact on the Group’s results and the probability that they will occur. Certain risks are beyond Cloetta Fazer’s direct control, while others can be influenced by the company. In either case, there must be an awareness and strategy to handle these.
Risk categories
Cloetta Fazer’s risks can be grouped in the following categories:
Market risks – risks that are beyond Cloetta Fazer’s control, but where measures can be taken to better monitor and alleviate these external exposures, such as the volatility of raw material prices, changes in consumer behaviour, structural changes in the industry and dependency on key suppliers.
Self-inflicted risks – risks that are attached to or created by strategic decisions such as pricing strategies, a lack of expertise or a shortage of qualified staff in the organisation.
Risks related to the company’s core business – risks that are always a central aspect of Cloetta Fazer’s risk management strategy, such as project safety, delivery precision, brand management, technical problems, fires, explosions or other catastrophes in production. In 2006, no accidents in production led to disruptions that affected delivery precision.
Factors with potential to increase the level of risk – such as inadequate crisis management or contingency routines and risk-awareness in the organisation.
Risk management
Most risks are of a strategic nature, underlining the need for rigorous attention to risk in the strategic planning process. Continuous efforts to formulate detailed risk definitions and action plans and to review the existing crisis management and contingency plans are conducted throughout Cloetta Fazer based on the results of the crisis management drill that was carried out in the Group during 2005.
Good management and understanding of risk is also essential in identifying areas that should be covered by insurance. Cloetta Fazer uses a group-wide insurance solution to facilitate synergies. This coverage spans a wide range of areas that include property, equipment, consequential loss, general liability and product liability, product recalls, contamination, transports and business trips.
For obvious reasons, product safety is of the utmost importance for Cloetta Fazer. A crisis management group has been set up and can be immediately mobilised when needed. Detailed recall plans have been formulated for situations where a product must be withdrawn form the market. In such case, it is vital that both customers and consumers can be informed through the established channels.