Every year, 750,000 tons of fresh goods are wasted in France. According to an Ademe study from 2016, food waste losses are as high as the net income of an average retail store: 0.9%. Just like robberies, throwing food away means throwing money away for supermarkets.
Beyond ethical or environmental considerations (which are obviously centric on that topic), reducing food waste is of crucial importance for retailers: it’s about *not losing* money. Except it’s easier said than done, and this where experts are needed. Knowing the right metrics to look at, and how to interpret them, is key to decide and act in a more efficient way.
1. Improving inventory management thanks to the gross waste / net waste nuances.
If a product is about to expire in the aisle and isn’t sold at its full price, it means the quantity ordered was too high in the first place. The inventory manager (or management system) has to know what is happening so it won’t order the same quantity every time, in order to avoid future waste. You can’t waste what you don’t have in your inventory!
Optimization means dealing with two different rates:
- Gross waste: goods that are almost at the end of their shelf-life, and that need to be dealt with before being thrown away
- Net waste: goods that are actually being discarded, after you tried everything to save them
The gross waste ratio is a good indicator to estimate how good your inventory management is. The net waste ratio gives information about how well your food waste management system is performing.
2. Tracking the goods’ second life profitability
Being aware of the waste and improving stock management is only the beginning: now it’s time to focus on gains and losses for every reference. Whether they are sold or given away to charities, you have to measure and understand other metrics: results metrics, and mean metrics.
Products performance indicators are the best tools to calculate what a store earns and loses to food waste
- The short sell-by dates turnover and its ratio with the gross waste indicates how well the markdown labeling is performing.
- Donations and their ratio are a good indicator of the tax return the store can get (e.g., in France: 60% of the buying price)
- Both net waste and its ratio are the perfect indications of what a store is actually wasting. A lower ratio means overall good food waste management.
Focusing on the means metric helps to improve the whole picture
- The projected short dates turnover (as a value or as a ratio), is a direct indicator of what happened during the markdown process, and what would be the hypothetical earnings if everything is being sold.
- The average markdown is helpful to improve performance because it helps decide on the best prices for each product. Many tools exist to make sure it varies according to each store’s policy.
- The resale rate for every discounted product (actual T/O divided by projected T/O) will help check if the discount is the right one, if the products are displayed in a proper way, if they were labeled earlier enough in the morning, if all the discounted goods are advertised enough, put together in a visible aisle or dispersed, etc. It’s a key metric about sales performance.
Keeping an eye on these metrics is allowing everyone to monitor their actions in an accurate way. Therefore, the more accuracy you want, the deeper you need to dive into the metrics: each store, or each aisle, each product family, or even each product.
Let’s be careful: only compare similar things!
Some retailers are considering discounted goods as waste, so that they don’t impact negatively the inventory management if they are sold afterward. By doing this, it also means that these stores are calculating everything through a gross waste prism, and have no vision over their net waste.
Other supermarkets don’t record the marked down goods as wasted. This is often the case when they only do “discounts”: the SKU remains the same but the good is sold at a lower price, because the discount is applied directly by human hand at the register. Stores do that to avoid dealing with a “double out” syndrome: the discounted item might be taken out of the stocks when reaching its sell-by date, and then again when being sold at a discounted price. This way, these goods are only considered “waste” when they are actually being thrown away, and the supermarket is calculating everything with net waste solely… and they have no vision over previous steps and gross waste.
Because of that, stores thinking with their “gross waste” seem to waste more, when they are actually being more meticulous about their inventory management. In the end, it’s impossible to tell whether their net waste is better or worst than the other ones! Because of that difference, and because nobody can see it in the reports, comparing stores policies doesn’t make sense without knowing exactly how it happens on the inside.
Beyond store policies, beyond key metrics and how frequent their updates are, having a solid advisor for food waste management is mandatory. Accurate and rigorous waste management takes a lot of effort to know what to look at, how to analyze it, and, more importantly, how to onboard teams in the process. It is worth it: the end game is more sales performance for the supermarkets, and a cleaner planet for everybody!
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