How Grocers Can Reduce Food Waste and Improve Profitability

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How Grocers Can Reduce Food Waste and Improve Profitability

By Kevin Payne - 07/12/2018
Fresh produce presents a particular challenge to grocers' margins, as much of it ends up going to waste

Margin pressures for retail grocers, always notoriously thin, are being further squeezed due to increasing consumer expectations for high quality and low prices. While the industry has enjoyed decades of relative stability, it’s now in a state of increasing turmoil.

Today’s retail grocers regularly wake up to headlines such as “The New Era of Grocery Just Claimed Its First Victims” (The Washington Post) and Grocery prices are about to skyrocket, say industry insiders” (USA Today), always emphasizing a perilous landscape ahead for the industry. Under increasing pressure, grocers are being hit by a perfect storm of market forces, including:

  • New low-price competitors, both domestic and international, setting off price wars
  • Dramatic increases in freight costs due to a shortage of drivers and the implementation of electronic logging devices (ELDs) that strictly limit driving hours
  • Increased spending of consumer food dollars at restaurants, and prepared foods earning business from consumer food dollars
  • New delivery channels such as click-and-collect and home delivery, adding costs without the offsetting pricing power
  • Consumer demand of visibility into the origin, authenticity and freshness of the products they buy

Combined, these margin-thinning forces illustrate the need for grocers to re-examine their business models and determine where to cut costs, all without sacrificing quality or customer value. It’s no longer feasible for grocers to write off losses associated with food waste as simply the “cost of doing business.” In this turbulent market, grocers need to save every cent possible to maximize margins, focusing on offering products that attract foot traffic and repeat buyers.

The Challenge of Fresh Produce

Retailers striving to keep up with consumers’ ever-growing demand for fresh produce have taken measures to offer high-quality fresh products year-round, even it means shipping produce across the country or from other continents. However, fresh produce is challenging to deliver within its window of optimal freshness, and therefore often ends up going to waste.

The National Resources Defense Council (NRDC) estimates that 40 percent of the food produced in the United States gets thrown away. The cost of this food waste in the United States – an estimated $218 billion per year, according to the council – is a bill that grocers can no longer afford to foot. Previously, grocers factored this cost into their pricing model, but with shipping costs increasing, and low-price competitors moving in, this makes less business sense every day. Grocers can’t continue to drop their prices while also covering the cost of the waste that they’re incurring.

Grocers can’t continue to drop their prices while also covering the cost of the waste that they’re incurring.

Recover Margins by Reducing Waste

Reducing food waste is fairly straightforward once you understand the cause. For example, there’s a common misconception that poor in-store handling is the root cause of fresh food waste, because decay and spoilage often materialize at the store. As a result, blame is often placed on store associates who, in fact, probably did nothing wrong.

Freshness of produce, or lack thereof, is a function of how a product is handled from the moment of harvest to consumption. To address this, the industry needs to implement real-time monitoring and management of the produce at the pallet level at every stage of the fresh food supply chain. This provides a true picture of exactly how much freshness each pallet of produce has left. As a result, products can be effectively managed based on their actual remaining shelf life to reduce waste.

Why each pallet? Why not just the entire lot and its harvest date?

The industry assumption that all produce harvested on the same day will stay fresh for the same amount of time is flawed. Many variables can heavily affect the remaining shelf life of produce after it’s harvested, including:

  • Harvest conditions
  • Cut-to-cool time
  • Shipping and handling

Studies have shown as much as 16 days of pallet-level freshness variability for some types of fruit received at a retail distribution center. Furthermore, the visual inspections that grocers often rely on are inaccurate, as a fruit or vegetable with five days of remaining freshness may look the same as one with 10 days left.

The industry needs an accurate view of which produce has sufficient remaining shelf life to meet their freshness and sales requirements, and which produce will fall short and spoil before it can be sold and consumed. By leveraging actionable insights about remaining freshness, the necessary measures to reduce waste become clear, and grocers and other members of the supply chain can manage the variables affecting shelf life at the pallet level in real time.

Armed with this information, grocers can implement proactive, intelligent pallet routing and manage inventory and deliveries appropriately. For example, pallets with lesser shelf life can be sent to local stores, and those with more shelf life to more distant locations. Grocers then avoid unexpected spoiling in the warehouse due to unclear freshness, and can guarantee that consumers enjoy consistently fresh products, so everybody wins. Further, without eating the cost of waste, grocers can rapidly improve margins and more effectively compete in today’s market.

About the Author

Kevin Payne

Kevin Payne

Kevin Payne is VP of marketing at Zest Labs, in San Jose, Calif. Read More