Food Surplus Markdown Strategies - latest innovations

Food surplus markdown strategies are central to any retailer’s approach to food waste. How to do it? When to communicate it? How to communicate it? And how automated should the process be.

As supermarkets around the world look to reduce levels of food waste, we look at the balancing act required to keep profits high and food waste low.

Cleaned transcript

Introduction and setting the scene

COLIN:

Welcome to the ECR Retail Loss “Sell More and Lose Less” podcast series.

Discounting food before its expiry date, often called marking down, is critical to reducing food waste.

In this podcast, I’m joined by Richard Thaleman, the Food Waste Advisor to ECR Retail Loss to discuss food surplus markdown strategies.

We explore presentations and new insights from retailers from a recent meeting where we looked at how to position markdowns.

Is it a value proposition or a sustainability proposition?

We looked at the placement in stores of these discounted items.

Should they be in the aisle or in a separate location?

We also talked about the use of electronic shelf labels.

And then the data from markdowns and how that might impact and inform future buying decisions.

For example, if you know that only 60% of an item sold at full price, does that mean you should look at discontinuing that item or changing the retail price?

A couple of weeks ago, we had a really well attended working group meeting on the food and waste group, or food surplus and markdown group, however we might want to call it these days.

We had 81 people attending and our focus was on markdowns and discounting before the product runs out.

We were looking at who’s doing something new and different in this space.

We started off with a paper from Professor Akers from the University of Massachusetts.

She did some work around the positioning of markdowns.

She identified that many retailers were hesitant, especially in America, to do markdowns because of concerns around their brand equity and brand reputation.

Would they lose the sense that they were a fresh retailer?

Then we had a retailer share their journey on moving from a markdown strategy that was more static, less visible and not generating huge amounts of data, to a new, more dynamic markdown process.

Then we had reactions to both those presentations from the retailers, and a jolly good time was had by all.

But more importantly, Richard, as the Food Waste Expert Advisor to the ECR Retail Loss Group, what were your takeaways and your thoughts?

What should retailers make of this particular session?

What should they take away and think about?

Consumer perception and communication

RICHARD:

I think it was a very interesting session all round.

If we start with the paper from Professor Akers, looking at consumer communications was very interesting.

You’re right to say that in some of the markets, and in some of the bigger markets, retailers are reluctant to even do reductions because of brand perception.

The findings in that paper suggested that when you’re talking about the environmental impact, and that customers are helping to save waste and save the planet, in whichever way you put it, it puts markdowns in a slightly different light.

It becomes less of a brand-damaging discount.

It doesn’t look like they’ve got a flood of labels, which they don’t want people to see when they walk into the store.

Of course, when you look at the UK and other markets where we’ve always done markdowns, we’re used to seeing that.

There’s another side to this: how can we communicate better to capture more people who want to buy reductions?

In the UK, for example, everybody’s used to seeing “reduced to clear” labels and understands what it is.

Food surplus markdown strategies – store placement: aisle vs dedicated section

COLIN:

And the constant debate, isn’t it, about where it goes.

Is it a separate section or is it in the aisle?

That seems to be unresolved.

RICHARD:

Yes, I think you’re right.

That really comes into it.

Some of that is dictated by the size of the store.

Some people don’t have a dedicated space, so they have to keep it in aisle.

Other people choose to keep it in aisle and then move it to a dedicated space.

Something else I experienced in my time in retail was looking into the type of customer buying markdowns.

In a couple of shops, I found it interesting that lots of people were going in to get a bargain at the time when they knew all of the reductions were going to be out, whether it’s seven o’clock or another time.

But what they were actually buying were lower priced items.

It didn’t really matter what the product was, but it generally tended to be bread, fruit and veg that was always below 50p.

When it came to a five-pound pizza that might have had a huge discount and was now two pounds, they weren’t interested.

So, really, all they were doing was hunting out the really cheap stuff that they could continue to make food with for the rest of the week.

I think there is a lot more work to do on location, communication, and the way that you phrase how you’re trying to sell that and for what purpose.

There are different customers for different products in stores as well.

Changing signage and customer attitudes to food surplus markdown strategies

COLIN:

Good thoughts.

RICHARD:

Through those customer comments, I think we see that lots of shops are changing the wording around what they put above their “reduced to clear” sections to try and encourage more people to buy.

There’s lots of food that is perfectly good quality for another couple of days or even a few days, and even weeks when you’re talking about produce.

So it’s really key to keep on this topic.

Retailers should take away that, at this point in time, people are not too worried about an item being reduced to clear.

There are far more people, probably even from the turn of the discounters in the UK, when you used to see Range Rovers turning up in an Aldi, and that changed everybody’s perception of cheaper food.

People are always looking for good quality and cheaper food.

Food surplus markdown strategies – dynamic markdowns vs static markdowns

COLIN:

Very good.

What about the retailer that presented their journey on dynamic markdowns?

What were your takeaways from that presentation?

RICHARD:

Now there’s lots of good innovation on dynamic markdown and algorithms to make the most profit and to choose the best time to reduce specific products.

Moving away from static reduction is important.

In my time in retail, there was a lot of debate about even moving a reduction by one pence when, at the economies of scale, it means millions of pounds of loss.

When you’re doing a static reduction every day at certain times of day, and then another static reduction later in the day, it’s not the most profitable way to go about it.

The presentation we had showed how much difference you can make in sell-through and profitability by bringing on board an algorithm and dynamic markdowns in stores.

In some instances, people are buying earlier in the day at a lower markdown.

They’re still buying because they know that they’re going to use it that day.

So a smaller markdown is making you more profit.

They’re still getting a bargain because they were going to buy that product that day anyway.

Balancing profitability and waste reduction when it comes to food surplus markdown strategies

RICHARD:

There is a fine balance, especially when people want a more sustainable way of looking at this problem in retail.

With dynamic markdowns, when you look at how much you need to mark down to get sell-through and be more profitable, sometimes being more profitable means you sell some products at a certain price which maximises profit, but you might end up with a few more items left at the end of the day.

That could fly in the face a little bit of the core commitment to reducing the amount of food waste, because it’s measured by weight.

The solution is to make the most profit and then tweak the algorithm until you get the balance you want.

As long as you can donate the remaining food to charities and get it into humans or animal feed, you know that you are delivering on both profit and waste reduction.

But first and foremost, as a business, as a retailer, you want to make profit.

You’ve got to make that decision.

From the presentation we had, it was more about “let’s get rid of all of the products” through dynamic markdown.

Perhaps tweaking it a little further so that they can still get rid of it, but then starting to backpedal a bit and adjust it to the point where you’ve got it absolutely right.

The Courtauld Agreement and wider commitments

COLIN:

Now, just for those outside the UK, what’s the Courtauld Agreement?

RICHARD:

The Courtauld Agreement is driven from Champions 12.3.

It’s a commitment to reducing food waste by 50% by 2030.

In some way, shape or form, most people are trying to do that, whether they are signed up to that commitment or not.

It’s a profitability problem as much as an environmental problem, so you want to get after it.

COLIN:

Is that UK only or is it across Europe?

RICHARD:

It’s across Europe.

Lots of people are signed up to that through WRAP, the organisation.

But even outside of that, there’s no reason why you can’t start to work towards those goals with the same principles.

Onboarding things like dynamic markdowns will help you get there.

Using food waste markdown data for assortment decisions

COLIN:

I liked the piece that was mentioned in the presentation around using the data on markdowns to drive assortment decisions, or to have difficult conversations with the buyer around what percentage was sold at full price and what percentage was sold at discount.

What’s your take on that?

RICHARD:

I think that is right in many cases.

The more data you can have that informs you on what you do with that, and when you look at buyers making some decisions on discontinuing products…

Having that kind of information to hand is really beneficial. And then making the right decisions on what customers want.

And it might even end up being that the feedback is to a supplier that their products sell far more at a lower price. Who knows?

They might even reconsider the retail selling value so that they could make a decision on that as well as or before they become discontinued or delisted in a number of shops.

COLIN:

Yes, good point. What else did you pick up?

RICHARD:

So one of the things that I always look at, and it kind of pulls all these things together, is that when you look at the hierarchy of selling products at full price, then through markdowns and then now through redistribution so that when it does become food surplus or redistributing it to humans or turn it into animal feed, the whole premise of that is that you’re not putting anything in the bin.

And so the way that I like to look at this is that you turn that upside down, effectively emptying what’s in the bin on the floor and looking at what better decisions could we have made on those products.

Because I think that in depending on what sort of KPIs you have in retail, you’ll be looking at did they follow the compliance of doing markdowns and tick in the box?

Did they donate to charity tick in the box?

Once it’s got past that, you’re almost saying, giving yourself a pat on the back to say, well, I did all the things that I’m accountable to do. and you know got a green light on my KPIs

What I’m saying here is this perpetual improvements. Keep emptying it out and looking at what’s actually in the bin and what could you have done with it.

Could it have gone to charity if charities never pick it up on a Monday because they can’t make use of that then?

Maybe food surplus markdown strategies need be dynamic to make a deeper markdown? But it’s just about thinking more and more and just keep working at what’s in the bin and how else could we have done to improve profitability.

COLIN:

I think it’s a really good point. The idea of continually challenging ourselves.

Why has it gone in the bin?

And why is it going to be thrown away?

Very good. Well, thank you very much for your thoughts and your takeaways.

We’ll meet again and do this all again for our next meetings.

We’ve got loads of them coming up through the next six months or so.

And so really appreciate your time in sharing those ideas, those thoughts.

Thanks Richard.

RICHARD:

No problem thank you.