Highlights from the June 2020 ECR Working Group Meeting on Food Waste & Markdowns

Over 300 participants from 35 different retailers from Europe, USA, South Africa, Latin America and Australia joined in the ECR group discussions on Food Waste & Markdowns. Below is a recap of each session and links to the presentations. The next working group session is planned for November 18th & 19th, with follow up, and updates from these sessions, some new hot topics related to food waste & markdowns plus an innovation showcase.

Expiry Date Visibility: Is this be the “holy grail” of all food waste & markdown “holy grails? Certainly many see it that way, with improved forecasting the benefit most prized. But this has been the dream for a long time, and while there are some retailer cases where the expiry date has been built into the individual item label / sticker, especially on production items, and retailers seeking to discover whether there is a business case for RFID, 2D barcodes or Databar, at batch, case or item level, the reality is that for most grocery retailers it is a highly intense manual process. It is within this context that the FIFO / LIFO models being researched by Asst Prof Rob Broekmeulen are of such significance, for they are relatively low cost to build, and the potential savings in waste could be up to 8%. Click here to view Rob’s presentation.

True Cost of Food Waste: To paraphrase a quote from the 1930s (Adrian Bell, Silver Ley): For the customer, the privilege of buying a chicken prepared for the oven whenever they want, they have to pay for all the days the chicken was there and they didn’t want it, and for the store and adapted for the problem of food waste, for giving the customer the opportunity to buy what they want, when they want, the store has to pay for all the days that they are left to dispose of the surplus. Using some simple assumptions, just a small improvement in the quantity of products that need to be exited can generate double digit improvements in EBITA.

Optimising Markdowns: To markdown or not is the question? Survey results ahead of this session suggested that the majority of retailers offer expiry date based discounts using fixed discount percentages. In this session, case studies from the Coop and Waitrose shared learnings on the introduction of dynamic markdowns, and how they went about implementing a data science based approach to price discount percentages with a view to improving their top and bottom lines. The group discussions included debate on the speed by which algorithms and machine learning can catch up to sudden changes in store traffic and volume, for example, the pandemic; the way the algorithms and pricing recommendations could be changed to reflect different organisation priorities and targets such as reduced salary based costs Vs waste, or profit Vs waste. Finally, the group talked to the challenge of how to build trust with the stores in the dynamic pricing system, and how to encourage stores to “just follow the gun” Vs their instincts to perhaps “over” discount so as to minimise the product that has to be either donated, converted to animal feed or energy or put to land fill.

Plastic Vs Waste: Research suggests that many consumers have a “blind side” when it comes to thinking about the relationship between plastic reduction and food waste. When shoppers are asked to call out the most important actions they are taking on sustainability, they cite plastic reduction far ahead of food waste. Yet, on many products food waste vastly out-contributes plastic reduction on the extent to which they contribute to global warming. In an example shared by the presenter, Lilly Da Gama, one slice of bread wasted contributes as much to global warming as the entire packaging of the bread (plastic) itself. In her presentation, Lilly proposes that packaging and products should be seen as one system, and that organisations should work across functions to deliver a balanced approach to new product design. In the discussion that followed, many retailers including Tesco and Sonae declared that they are already acting in a way that is line with her recommendations, however the clear gap and opportunity for the industry, is to educate the shopper on the relative importance of food waste over plastic reduction on most fresh products (except ketchup, etc) and to connect with them in a way that is as compelling and emotionally engaging as the BBC’s Blue Planet documentary on plastic in the ocean.

Production Forecasting Part 1: Asst Professor Karel Van Donselaar shared how an Efficient Frontier for every bread department can be created if advanced ordering is used. This allows organisations to make an informed choice on targets for %Waste and Revenue per store. More advanced ordering gives a 1%-5% increase in revenue. There is a potential increase revenue of 7% by applying advanced ordering and ordering per piece. There is a clear trade-off between improvement potential, increased purchasing costs (due to ordering per piece) and added complexity. Click here to read Karel’s presentation

Production Planning Part 2: The value of waste and markdowns from the production departments, bakery, deli, rotisserie, etc can be in excess of 15% of the total budget. In her presentation, Sam McPherson, shared how Asda are leveraging new production planning technology from ADC to ensure that the right quantity of product is produced at the right time, with waste reduction as the primary target. Results from the pilots to date are encouraging, with 12-18 % savings in waste across the production departments. The discussions focused on how to measure and improve compliance to the forecast and the ownership within the organisation of the central production forecast and the targets for waste, lost sales and late in the day availability. Click here to view Sam’s slides.

Contracts and Food Waste Prevention: This final session of the series was dedicated to the launch of a new ECR study on the extent to which more innovative forms of contracts and trade terms can influence food waste prevention Vs the traditional fixed price and quantity contracts. The findings, presented by its author, Rakesh Allu, a doctoral student at Cornell University, reviewed each of the different contract types, concluding that the contract type where the incentive levels for each partner, are most aligned is the whole crop purchase contract. In the study, the practical application of the findings are presented. The study also recognises the importance of data sharing and how it needs to be the foundation of any new collaboration between producers and retailers in food waste prevention. To read the report click here

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