Published 2 years ago.
About a 7 minute read.
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Many retail and food giants are proving that businesses can grow, improve margins and bolster competitive advantage through examination of waste streams and investing in creative solutions — even during a pandemic.
The cost of doing business is on the rise. Companies in every industry —
especially food and grocery — are still grappling with a myriad of
spurred by the COVID-19 pandemic. Consumer needs and buying habits are changing,
and 81 percent of global
now feel strongly that businesses are responsible for helping to address climate
change. Grocers are stuck in a pressure cooker.
According to the Wall Street Journal,
top food retailers including Walmart and
Target said they, combined with
other major retailers, shouldered more than $2 billion in increased operating
costs — including “wages, bonuses and other benefits for workers during the
early months of the pandemic.” The same can be said for small businesses, which
spent up to 1 percent of revenue on cleaning products and additional labor.
Adding insult to injury for the food industry, the global food price index rose
by 6.5 percent from 2019,
reaching a concerning six-year high.
Beyond rising operating expenses and food prices, grocers must also contend with
the initial investments required to implement sustainability initiatives and
growing pressure from consumers to double down on these efforts. One
estimated the cost of compliance with global government sustainability standards
at $425,000 for small to mid-sized businesses — presumably much more for large,
national and multinational chains. While these figures may be daunting, what’s
often overlooked is that food, supply and product waste equate to financial
waste. And conversely, reducing that waste reduces financial waste. So, while
implementing sustainability efforts may require some large upfront costs with
minimal short-term returns, there’s big potential over the long term — both in
terms of ameliorating environmental issues, and strengthening the bottom line.
Many household-name brands are proving that businesses can grow, improve margins
and bolster competitive advantage through investing in sustainability issues —
even during a pandemic.
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Target has done so through facing up to the realities of shrink in its fresh
food departments. Supermarkets and grocery stores are among the leading
contributors to food
which is made worse by the fact that many grossly underestimate their spoilage
rates, or shrink. While stores often calculate their waste at being less than 15
percent, real rates are often much, much higher — up to 50 percent in some
cases, when comparing fresh food delivered to fresh food sold.
Target recognized this issue; in response, it transformed its replenishment
strategy to significantly reduce shrink. A key pillar in the company’s 2020 Corporate Social Responsibility Report
is to invest in new methods and technologies that ensure stores don’t hold more
food than they expect to sell, and stock only “what is relevant to a particular
store and the guests it serves.”
With shrink persisting as the biggest problem hindering grocery margins and
sustainability progress, Target’s approach serves as a prime example of aligning
financial and environmental goals. AI technology that analyzes shrink and
forecasts buying trends is a critical element in improving the accuracy of a
store’s data. Through smart forecasting, ordering tools, merchandising solutions
and offering guests discounts on food close to expiration, grocers can follow
Target’s lead in reducing food waste and growing fresh food margins.
Kroger’s efforts at the nexus of food waste, hunger and waste diversion have
helped its stores stay focused amid crisis. Many grocers drive sales by grossly
overstocking fresh food displays — a major contributing factor to the US’s $160
billion food waste problem. In a departure from convention, Kroger is
transforming logistics, urging partners to reduce
investing in hunger intervention for families, and shifting wasted food from
landfills to other recycling methods or industrial uses — all with the aim of
reaching zero food waste by 2025.
Steps grocers can take to replicate this effort include merchandising reforms
and new ordering strategies such as scan-based trade. For example, an audit of
first-in, first-out (FIFO) merchandising can help buyers determine which
SKUs are properly merchandised. If more than 5 percent of products are not
following FIFO, grocers have an opportunity to significantly reduce shrink and
recover potentially tens of thousands of dollars by making simple merchandising
Similarly, grocers can hedge against the negative side effects of volatile
customer demand and food pricing through models that provide an alternative to
simply throwing away expired
With scan-based trade, suppliers maintain ownership of inventory rather than the
retailers themselves; so, anything that doesn’t sell is “bought back,”
ultimately removing shrink (from spoilage, breakage and theft) from the margins.
When supported by technology that examines buying trends, predicts demand and
informs grocery buyers exactly how much to order, this approach makes it
possible to keep shelves well-stocked while virtually eliminating the cost of
Scarborough, Maine-based Hannaford’s nearly 200
stores throughout the northeastern US are all certified as stewards for
sustainability. The company only sells seafood harvested using legal methods in
regulated environments, and encourages suppliers to invest in gear and farming
technologies to reduce fishing’s adverse impact on the environment. Hannaford
also identified energy consumption as an area for opportunity, both when it came
to reducing environmental impact and increasing profit.
The company benchmarks energy consumption against Manomet’s Grocery Stewardship
which has helped Hannaford save more than $100,000 in energy costs over the
last year. These types of minor adjustments to the way resources are tracked and
utilized are low-cost, high-impact solutions that retailers of all sizes can
make to ensure a successful co-existence between profitability and
Unilever is a prime example of
how values can drive valuation. Under the leadership of Paul
Unilever has executed a significant strategic turnaround in its approach to
environmental stewardship. Once considered part of the problem, the consumer
goods giant now operates under a comprehensive “Sustainable Living
— which includes “shifting to 100 percent renewable energy, substantially
reducing plastic waste and water use, achieving a deforestation-free supply
chain by 2023, and pressing world leaders to adopt the Paris climate accord.” An
unlikely environmentalist, Polman has been vocal about the importance of
businesses “creating value through values, versus pursuit of value at any cost.”
Despite some significant initial investments, this mindset has paid off. The
company’s market valuation is up by nearly 50 percent, while other major players
in the consumer goods sector are down; and the company says it has recovered
significant revenue lost due to climate change.
Unilever’s example is an important reminder for grocers and retailers to drive
business value through actual values. When social impact goals are given
priority, costs decrease and valuations improve. Harvard Business Review
reported on research that found more investors are betting on companies with
strong environmental stewardship, and companies that are proactive on this front
are bolstered against potential financial impacts of sustainability-related
Grocers and retailers can also turn to AI to evaluate the impacts of waste
beyond their fresh foods departments. Panda Express found through waste
audits that unused soy sauce packets were creating a significant environmental
and financial impact on the company. One
reported that after the fast food chain reset its ordering and use of individual
soy sauce packets, stores were seeing significant improvements in waste-related
costs and diverting more waste from landfills.
With accurate, intelligently analyzed data about product ordering, use and
waste, food businesses can gain clear insights into where they are losing money
and use that data to inform effective waste-reduction strategies.
For most grocers, the opportunities to reconcile environmental values and
business margins can be found in every cart, up and down every aisle. Through
smart technology, better merchandising, innovative ordering strategies and
values-driven changes, grocers can become leading environmental citizens, and
improve profitability along the way.
Published Mar 12, 2021 10am EST / 7am PST / 3pm GMT / 4pm CET
Stefan Kalb is the co-founder and CEO of Shelf Engine — a software company helping retailers eliminate food waste through AI technology. Stefan started his career in the food industry in 2009, when he founded Molly’s — a grab-&-go food company. While growing Molly's to over 400 regional retail locations, he discovered the problem of food waste firsthand. Hungry for a better solution, he co-founded Shelf Engine in 2016. Stefan feels most inspired at Shelf Engine when he gets to witness the numbers reflecting a reduction in waste and the immediate positive impact that has on customers.