Last year, supermarkets accounted for 180,000 tonnes of food waste in the UK, down from 200,000 in the previous year (figures from the British Retail Consortium, BRC). Across the pond, the United States yearly throws away around one-third of all the food it produces, with grocery stores being responsible for discarding 10% of that amount.
Retailers worldwide, in the struggle to stay competitive, find themselves throwing away of an increasing quantity of goods on a daily basis. In the case of supermarkets, groceries and convenience stores this problem becomes even more dire, given the perishable nature and short shelf life of many of the goods they sell.
The reason for the current state of waste stems from both the consumer and the retailer; customers are picky and have become accustomed to having not only a wide variety of choice, but also the freshest selection, which they expect to be available at every store visit. In order to keep up with competitors, grocery retailers push themselves to live up to this expectation.
The discerning nature of today´s consumer, along with the Replenishment Planners' fear of empty shelves has led to the dire consequence of overstocking, which ultimately results in food waste. There is a prevailing rule among retailers of all sorts: the trade-off between low write-off numbers and customer experience, with waste being perceived as a by-product of the retailer´s desire to better serve the needs of its customers.
According to Nielsen, fresh food is the fastest growing department at supermarkets, now representing about 30% of supermarket sales. The main reason for growing fresh food sales - particularly fresh prepared food - can be attributed to changing shopping habits among small households as well as consumers in urban areas, who seem to value not only the perceived freshness of the products but also their convenience (reason: these customers don't have time to cook). Supermarkets and grocery stores are reacting to this trend and increasing their in-store production, offering their own lines of ready meals, such as sandwiches, wraps, fresh salads or sushi, which ultimately also leads to raw material waste.
Food waste is a severe environmental and ethical problem, with governments in western countries already starting to require businesses to either donate or re-purpose usable food instead of having to dispose of it. The USDA (United States Department of Agriculture) and the EPA (Environmental Protection Agency) recently announced the first-ever national food-waste reduction initiative. Similar initiatives in the UK with the charity WRAP follow the same purpose. While the environmental aspect is starting to be addressed and is a subject of its own (which we will not treat here), the economical impact of inaccurate replenishment for groceries and fresh food retailers remains unaddressed. Businesses unable to accurately plan, face a growing pressure from better prepared competitors and lowering margins.
The fate of fresh product food-waste in grocery stores is not inevitable. The best way for them to survive, or better yet, succeed, is to reduce waste and preserve margins without negatively impacting the availability of fresh food for their customers, which relies on:
- Having the right products on the shelf = Happy customers + Less waste
When to introduce new product lines in order to either keep up with competitors and/or create a better offering for their customers. This includes in-store prepared food.
- Having correctly priced products = Happy customers + Less waste
Which is the right price for which fresh products, measuring price elasticity and ensuring a competitive pricing.
- Avoid overstocking = Happy store owner + Less waste
When to replenish which products, in order to avoid out-of-stock or overstocking.
Obtaining accurate answers for the categories above is only possible by correctly predicting future demand at a store level. With future demand being impacted by multiple factors such as store location demographics, day of the week, weather, competition, promotions or seasonality – just to name a few – there is not a single grocery replenishment planner able to pull data from all those sources and predict accordingly.
This is where a central replenishment and assortment system plays a big role. At Blue Yonder, we are committed to supporting retailers in optimizing replenishment and assortment decisions, according to their unique strategy and company goals, be it either out-of-stock or write-off rate goals to reduce waste. We provide retailers with data-driven accurate forecasts and order proposals for all their locations and for all product combinations - which can be aggregated to determine the right gross amount of products to buy, and when. These forecasts are based on superior algorithms and machine learning models - instead of individual rules or decisions at the shop floor level, allowing for a higher accuracy. By allowing retailers to integrate optimized order proposals to ordering systems, the full process can be automated, thus avoiding inefficient manual interventions. This has allowed our customers to achieve a 20- to 50-fold reduction of manual interventions while reducing the out-of-stock rates by more than 50% and simultaneously minimizing write-offs.
The ultimately goal of grocery stores is not only to increase sales and revenue, but also to raise profitability and margins, and maintain their competitivity in the challenging retail market. By adopting an enterprise-class replenishment solution based on accurate demand forecasts, grocery stores have the right tool to reduce waste and preserve their margins without having to trade-off their customer experience. Because picky grocery store customers still deserve to be picky.