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Introduction

Developing a successful food or beverage product is a dream most foodies have considered. And why not? The world needs innovation in food and drink and it’s a deliciously rewarding business venture. Nevertheless, according to the latest market research, over three quarters of all new product launches across the Fast-Moving Consumer Goods (FMCG) sector fail in their first year. Whilst we didn’t want to begin on such a sour note (!) it’s important to emphasise this fact so you can embark on your endeavour with your eyes wide open. A lack of success can often be down to not having the right product at the right time, marketing it wrong, running out of money or poor management (amongst many other things). However, a lot of these common problems can be alleviated, and you can protect yourself through knowing your rights with regards to the law and having the right contracts in place. At the end of 2016, YouGov interviewed over 1000 UK SMEs and we had the stats analysed by the Centre of Business and Economics Research (CEBR). According to this research, the Food and Beverage Sector loses over £1.5 billion through not taking care of their legal business. Ignoring the law means legal problems will eventually bite, and we cannot express how important it is to protect your ideas and the foundations of your product from the outset. We hope you enjoy this plain-English LawBite (we realise our name is quite apt here!) guide for producing and creating a compliant FMCG brand with the business’s legals in mind. Please note, some of these stages will of course over-lap and some things may not necessarily apply to you...

Product Development And Compliance

Basic labelling requirements

Complying with food and drink safety is not the most exciting part of your product adventure. But it’s certainly no fun to have your product rejected, recalled or worse- actually make someone sick. The government website dictates what you need to do with and display on your product so that it can be sold in line with the law. The Food Standards Agency (FSA) is the regulatory body who govern and set guidelines for food safety. Below we’ll have a brief look at what you need to address from the outset and as such what you need to make consumers aware of on the product itself.

Your main responsibility is to ensure that you do not include anything in food, remove anything from food, or treat food in any way which means it would be damaging to the health of people eating it, to ensure that the food you serve or sell is of the nature, substance or quality which consumers would expect and to ensure that the food is labelled, advertised and presented in a way that is not false or misleading.

There are 4 basic things that you need to display on the front of your packaging:

  • Name
  • ‘Best before’ or ‘use by’ (or instructions of where it is)
  • Quantity
  • Any warnings e.g. ‘with sugar and sweeteners’

And there are 5 additional things which you need to display if applicable on the front, side or back:

  • Ingredients (if there are more than 2)
  • The lot number or use-by date
  • Any special storage conditions if it has them
  • Cooking instructions or how to use if necessary
  • Name and address of the manufacturer, packer or seller

Next comes probably the most obvious thing you need to address, which is letting the consumers know what is actually in your food. Many people are very health-conscious these days, which is reflected in the government’s agenda to make the contents of your product as clear as possible. Here’s what you need to remember:

  • Ingredients must be listed by order of quantity or weight, led by the main ingredient
  • With regards to allergy and intolerance, you must make potential food allergens easily identifiable on the packaging for the customers to see.
  • You must also include specific labelling for high caffeine drinks and foods where caffeine has been added for a physiological effect

There is also an important requirement to make your food ‘traceable’! This obligation of traceability requires for you to be able to supply information about all food, food substances, and food producing animals, so it is key to keep all of this documentation in your possession.

It is extremely important to comply with these requirements. The law maintains that the manufacturer of goods for consumption has a ‘duty of care’ to all of those who will be consuming it. If you don’t comply and something does go wrong then you could find yourself facing prosecution or regulatory action by Trading Standards or Environmental health, or even a civil claim for damages. The Food Safety Act creates a number of offences which carry serious penalties, including substantial fines and custody in certain cases. Follow the rules and advice mentioned to protect yourself, your business and most importantly, your customers!

European legislation, health claims and government guidelines

The government and in particular the European Commission are very hot on not ‘misleading’ consumers with dubious health claims, introducing the Health and Nutrition Claims Regulation 2006. You also have to consider the Consumer Protection against Unfair Trading Regulations 2008 which set out the minimum standards for consumer protection, protecting consumers against unfair practices and bans misleading and aggressive sales tactics.

Just because a product is very healthy and contains fresh tomatoes, for example, you can’t claim it is a ‘cancer-preventing’ super-food that everyone should eat daily. In general, if you would like to claim a product is beneficial to health in some way, it must be based on science and the claim must be approved by the European Commission. Even if you wanted to make a more ‘general’ claim that implies a product is good for you, you must support this with an explanation of why. Below is a short list of key terms you need to familiarise yourself with in case you intend on using any of these claims:

  • ‘Low fat’ - Product must contain no more than 3g of fat per 100g for solids and 1.5g of fat per 100ml for liquids.
  • ‘No added sugar’ - The product has had no sugar added to it (but does not mean there are not naturally occurring sugars though!)
  • ‘No added sugar’ - The product has had no sugar added to it (but does not mean there are not naturally occurring sugars though!)
  • ‘Light’ or ‘lite’ - To say your product is ‘light’ or ‘lite’ it must be at least 30% lower in one typical value as a minimum e.g. calories, than your standard products and you must also explain what has been reduced and by how much e.g. ‘Lite: 50% less calories!’

Furthermore, if your product is ‘organic’ and you want to display it as such, you must get registered and receive a license from an approved organic control body (CB). EU rules apply to organic production, labelling and control of organic products. To apply for your certification and find out more detailed information, visit the government website.

If you use flavourings or additives you must say so and the ingredients list should be in order of weight at the time of manufacturing.

Importantly, you must clearly list any allergens e.g. shellfish, nuts and soya.

Most manufacturers provide nutritional information voluntarily though since December 2016, they are now required to do so by law. This is how you display it:

  • energy (in kJ and kcal)
  • fat (in g)
  • saturates (in g)
  • carbohydrate (in g)
  • sugars (in g)
  • protein (in g)
  • salt (in g)
  • plus the amount of any nutrient for which a claim has been made

For more detailed information, be sure to check out the FSA’s food.gov website, which includes further useful information on nutritional labelling and also the FSA’s PDF guide. You could also check out the European Commission website for their definition of a ‘health claim’ and its authorisation procedure.

Product Logistics

When we say ‘product logistics’ we are really talking about how the supply chain will operate to smoothly take your product from mother nature to the table of your customer. You need to have effective control at every point through water-tight contracts which- and here’s the important bit- you understand. The vast majority of FMCG products are sold to consumers through two channels - either via retailers offline or online via a website. Below we’ll highlight the way in which each of these paths is taken and the contracts you should have in place to ensure the smooth running of your enterprise.

Here are some terms within the supply chain you will be familiar with, though the extent to which you use each will rather depend on your business needs and scale and your position within the supply chain.

Whether goods are sold to local convenience stores or even the bigger retailers, this is what the supply chain process will generally look like:

Supplier > Manufacturer > Distributor > Retailer > Consumer

Supplier: This is the company or individual supplying the product to the UK supply chain. This could either be in its raw form e.g. carrots for a carrot cake or the finished product itself. If you are a supplier sourcing food or drink produce from overseas, you can hire an agent with knowledge of the language and country to assist you or you can go on sites such as alibaba.com and run your own due diligence checks to make sure they are authentic

As a supplier you may be either (i) supplying to a manufacturer (ii) supplying to a distributor or wholesaler or (iii) supplying directly to a retailer or (iv) selling directly to a consumer. When you are working with a manufacturer these are some of the things you need to bear in mind in your manufacturing agreement.

  1. Price: Is the price clear? Does it include VAT? Are there any extras? Are there any discounts you can get for volume orders or for loyalty? If it’s an ongoing contract how are potential price increases handled? Do you get advanced warning of these?
  2. Payment terms: Linked to the cost is how your invoice is paid- will it be in one lump sum or in instalments? If you have gone for better quality products, you might want to negotiate favourable instalments to keep cash-flow under control. Can you suspend these instalments if product is delivered late or wrongly or not at all? If money has to be paid in one go what are your credit terms (ie the amount of time between the date you get their invoice and the date you have to pay).
  3. Quality: What standards must the goods meet? Are there any legislative or industry standards you want to reference in the agreement (e.g. in relation to packaging)? What happens if food doesn’t meet those standards (e.g. it is off or past its sell-by date). Can you send it back, get a rebate, get it replaced?
  4. Orders and Delivery: How are orders placed? Must it be in writing/email? To whom? Can you change your mind after placing an order or vary it? How long after each order is placed must goods be delivered? Where must they be delivered and in what form/containers? Who pays for transport costs or insurance costs of shipping? If you are importing from overseas, who is responsible for customs clearance and any duties payable?

There are plenty of other things you should be thinking about too. For example, should you put all your eggs in one basket (there’s a pun there somewhere) or spread your needs across two or more manufacturers? Maybe you will get a better price if you agree to exclusivity with a manufacturer?

What happens if one side of the agreement is breached? What are your remedies? What happens if performance of the contract is frustrated by unforeseen circumstances (power cuts, strikes, extreme weather)?

Once your goods have been manufactured you (or they) will be looking to deal with a distributor so that the product can get to market. This could be a large distributor or an ‘order fulfillment’ agencies, such as Asendia, who have their own warehouses which deal with all the logistics. These services can handle anything from the initial enquiry to returns, depending on your needs. Many of the headline issues set out above in relation to manufacture agreements apply to agreements with distributors too (on price, payment terms, quality, orders and delivery, breach and performance failure, exclusivity). In addition, these issues typically come up with distributors as well;

  • Will the distributor be allowed to distribute through all sales channels or only some of them (with you reserving rights in other channels or appointing other distributors instead)
  • How long will the Term be – you might want the Term to be relatively short so that you can approach another distributor if things don’t work out
  • Can the distributor licence or assign the agreement to someone else? You want to deal with the party you know, not some other stranger they have decided to delegate to
  • How is price being calculated – is it per unit? Is it a percentage of the onward selling price?
  • Are there any deductions from the price which the distributor may make e.g. if goods are returned to the distributor from retailers, or for bad debts (the retailer never makes payment) or for ‘shrinkage’ (stuff getting lost in the warehouse)
  • Are there marketing commitments which the distributor (or you) have to fulfil
  • Are there any up-front payments or advances you can get the distributor to pay you?
  • Can you audit the distributor’s books and records in case things go wrong

Any distributor (including you yourself, if you are doing your own distribution) will need an agreement in turn with retailers (or wholesalers – bulk intermediaries who sub-distribute to wholesalers).

  • In retail agreements the familiar themes are repeated;
  • What is being supplied, in what form and when, to where?
  • How does the ordering process work?
  • In what form of packaging must retail units be sent?
  • What is the price – expect long arguments with retailers about levels of discount off your proposed price which they would like to have. Discounts given in return for guaranteed sales volume represent a typical compromise
  • Who pays for shipping and insurance?
  • What credit terms does the retailer get?
  • Can goods be returned by the retailer if they don’t sell?
  • What shelving, in store promotion or wider marketing commitments can the retailer give?
  • Who owns the goods prior to their sale by the retailer? Do you still own them till the retailer has actually paid you for them?

Who is responsible if goods have to be withdrawn? Often in this supply chain you will be smaller than the party you are dealing with, whether they are a manufacturer, distributor, wholesaler or retailer it is likely they will have terms that are more in favour of their business needs so although you might be keen to get going and excited they are interested in your product you should have these contracts checked for onerous terms which might affect you in the long run.

Once your goods are with a retailer then the retailer turns to dealing with the consumer. Of course it may be that you are your own retailer (e.g. as an artisan baker) in which case a lot of this next section applies to you.

Many startup businesses particularly in the food production industry start small before they go big. To begin with you may find yourself producing to sell at market stalls or small local businesses, and it may not be necessary or cost effective to hire kitchen space elsewhere. If this applies to you, then you need to bear in mind some of the following. Firstly, you must register your premises with the Environmental Health Department of your local council at least 28 days before opening for business. It is also important that your premises are deemed fit for purpose, and this is something that environmental health are also useful for. They can provide an evaluation and let you know what kind of things may be of particular importance to your setting. If you are operating from home, the onus is on you to ensure that you remain up to scratch with Health and Safety requirements (including fire) and Hygiene standards. Officials have the right to spot check your business premises and goods for compliance. They can ask for documentation and samples of food, and you are legally required to readily provide this. You can obtain documentation and advice from your respective local authority.

For further guidance, you should visit the Food Standards Agency website.

As a retailer, you will want to have terms and conditions of sale with consumers that regulate your responsibilities and their rights and which are adequately brought to their notice.

If you want to incorporate (include) Ts and Cs into the sales contract, you have to ensure that a customer is given notice of them before the contract is concluded. Consumers aren’t deemed to have accepted such terms unless you’ve given adequate notice and taken reasonable steps to bring the terms to their attention.

Take the example of a purchase in your retail shop. This sale is governed by your specific Ts and Cs, as long as a sufficiently obvious and clear notice at the premises is brought to the attention of the consumer. A notice printed in small letters or at a distance from where the purchase is made doesn’t amount to ‘adequate notice’. Equally, if your Ts and Cs are on the back of a document (say, a sales docket or a receipt) that may not be sufficient to fix the consumer with notice, unless a statement on the front of the document states that the contract is made subject to the terms printed on the reverse. If, alternatively, you are selling online, then aside from the Ts and Cs of your website, you will need to have Terms and Conditions of Sale that customers have to accept prior to purchase. This could be in the form of a tick-box, which has a clear link to the Terms beside it, which consumers can read before they buy..

Irrespective of what terms and conditions you proscribe, if you are retailing through premises, then (whether you are big or small) you need to bear in mind relevant consumer legislation in the way that you operate with consumers.

For example, under the Consumer Rights Act 2015 the law implies into contracts of sale that;

Traders must have the right to transfer/sell the goods.

  • Traders must have the right to transfer/sell the goods.
  • Goods must be fit for a particular purpose
  • Goods must match the description, sample or model that the customer sees or examines.

The Consumer Rights Act also gives the consumer a right to a full refund for 30 days after the date of purchase in the case of a faulty product

The Electronic Commerce (EC Directive) Regulations, 2002, also affect you (if you are selling online) and set out information that you must provide to the customer before the sale including the technical steps necessary to conclude the contract, and how the consumer can detect and correct any errors prior to the purchase.

Due Diligence

There are two defences under the Food Safety Act which apply to the main offences, 1-the principal one is the defence of due diligence, 2-the second is if the act is the due to the act or default of another (where you have to give notice to the court that you are running this defence).

‘Due diligence’ is a defence which is designed to balance the protection of the consumer against defective food with the right of traders not to be convicted of an offence they have taken all reasonable care to avoid committing. The result should be to encourage all concerned to take proper responsibility for their products.

This defence is available where the person charged proves that they took all reasonable precautions and exercised all due diligence to avoid the commission of the offence by himself or by a person under his control. The burden of proof lies with the person or company accused on a balance of probabilities. That is why it is so important to deal with the steps set out above before any issue arises, to show that you were acting as a responsible business who could not have reasonably forseen the issue that arose. The question for the court is what reasonable steps could have been taken by a business of your size, and this can sometimes be a matter for expert evidence. For example, a small business might not be required to undertake the same precautions which would be expected of one of the major retailers.

The defence of due diligence also applies to offences under the General Food Regulations 2004 and the Food Hygiene Regulations 2006.10. Retailers of own label products can rely on the second defence if the omission that arose is the fault of another.

We hope you enjoyed Part 2 of our plain-English guide to developing a food or beverage product. Parts 1 and 3 go into detail about starting and running your business so do have a look at them too. Of course none of this information is a complete substitute for professional legal advice so if you’re confused about any of the above or would simply like the reassurance of a solicitor, LawBite offers a free 15-minute consultation, which you can access by submitting an enquiry here. Good luck!

Contributors:

Lizzie Knight, Head of Marketing
Jeremy Barnett, Regulatory and Food Safety Barrister
Hannah Newell, Corporate and Commercial LawBrief (LawBite lawyer)