Food Misers Make Money
Posted September 17, 2012
Cutting losses helps maximize profits--an age old business philosophy not news to any businessperson. So why is $47 billion worth of product going to waste in supermarkets alone? And what are some of the opportunities for retailers and other food businesses to reduce food losses? Let’s take a look at a few businesses that have found real gains through reducing the outrageous 40% of food that never gets eaten in the U.S. (see our recent issue paper on food waste here).
You manage what you measure. One of the key themes to note throughout these success stories is that businesses invested upfront in understanding their waste streams to achieve big savings. They often did this by using software that tracked purchases, sales, and product losses with enough detail to inform specific and actionable changes.
In the Supermarket
The USDA estimates the food retail industry loses $47 billion in the form of food losses, about 9 percent of their food supply. Seeing their losses as more than just a chunk of change, in 2007, the $16 billion grocery chain Stop and Shop/Giant Landover took a close look at purchases, sales, and shrink (the industry term for losses) in all of their perishables. They found whole stock-keeping units (SKUs) that weren’t necessary . They also found that their philosophy of “pile ‘em high watch ‘em fly”—the belief that abundant piles of produce sells more— led to spoilage on the shelf, displeased customers who came upon spoiled product, and required more staff handling to sort out the damaged items. In the end, Stop and Shop was ultimately able to save an estimated annual $100 million by making small changes that reduced their loss in perishables. Equally important, customers did not notice reduced choice and less-full displays, but in fact customer satisfaction rose as produce was on average three days fresher than before.
Similarly, PriceChopper conducted an analysis that led to elimination of 680 SKUs from their bakery department, reducing shrink by $2 million and producing a 3 percent lift in sales the first year after implementation. Smaller, ~30-store chains such as Market Basket in East Texas and Louisiana and Strack and Van Til in the Chicago area were able to reduce shrink 29% and 27% respectively in perishables alone using an integrated solution by Retail Control Group.
New packaging innovations are helping to reduce shrink. Tesco and Marks & Spencer, both U.K. retailers, are testing use of an ethylene-absorbing strip to prolong produce life. The retailers estimate it could save 1.6 million packs of tomatoes, 350,000 packs of avocados, and 40,000 packs of strawberries.
Of course, some produce is bound to age in the store. The popular Berkeley, California, grocery store Berkeley Bowl bags up nearly expired and damaged produce and sells it on their “bargain shelf” for $.99/bag. Customers love the treasure hunt. The shelf swarms when new bags come in, and the produce manager estimates they sell $1,500 per day of damaged produce at each store.
In the Restaurant Kitchen
Again, software that tracks sales and waste can help highlight opportunities for savings. LeanPath software has helped dining services at the University of California Berkeley campus reduce food waste in their kitchen by 43%, amounting to savings of more than 1,000 pounds of food and $1,600 per week. Similarly, LeanPath waste data at the Sanford USD Medical Center in Sioux Falls, South Dakota revealed some immediate changes they could make in staff behavior and menu options to reduce waste. Within seven months of implementing the program, they saved $99,928 in waste avoidance, reducing pre-consumer food waste by 43%.
Slimming down restaurant menus can also be a big saver. As Daniel Humm, chef and co-owner of Manhattan’s popular Eleven Madison Park restaurant, stated in a recent article in the New Yorker, “Less ingredients in-house, less waste.” Humm paired his menu down to just sixteen items that change daily. If a restaurant offers snapper, Dover sole, and sea bass, the article explains, it must buy all of those fish each day regardless of their quality and price, and must discard anything that wasn’t ordered. By offering only a single fish on the menu, Humm can buy the best one, and just enough of it.
In the Dining Room
Sodexo operates trayless cafeterias on over half of its 650 college campuses. By discouraging the overloading of trays, it has reduced food waste by as much as 30 percent. Other food service companies are doing the same.
Restaurants are getting creative with portion sizes too. According to a recent Resaturant Management article, the main reasons to offer smaller portions include getting budget-strapped customers to come to your restaurant and encouraging patrons to try new items. TGI Friday’s offers “Right Portion, Right Price” dishes, which are roughly one-third smaller and one-third cheaper than full-size entrees. A year after introducing this option, it grew to 15 percent of total orders. The Potbelly Sandwich Shop restaurant chain has “original” size—same as the size since 1977—and “bigs” which are 30% larger. Au Bon Pain has a “Portions” line, Jamba Juice is now selling “mini-wraps,” and then there’s the whole “small plates” trend, which even Cheesecake Factory is offering.
In the home
Particularly with the recent recession, helping consumers reduce the amount of food (and thus money) they are wasting at home has become a solid business proposition. Several new smartphone apps such as Green Egg Shopper, LoveFoodHateWaste, Food Storage and Shelf Life, and many more are emerging to help consumers coordinate and actually use their food purchases. Books such as the Frugal Foodie and Use It Up Cookbooks have hit the shelves. LG and Samsung have both recently unveiled “smart” refrigerators with food management systems that help consumers track what’s in their fridge—and both are selling for double to triple the price of a regular fridge. And businesses are innovating around delivery too, such as HelloFresh which does home deliveries of just the right amount of ingredients for a meal, avoiding the need to buy a whole bunch of cilantro when the recipe only calls for a sprig (and helping consumers avoid “impulse buys” at the store as well).
Also noteworthy is that consumers really care about food waste. A recent poll by the Shelton Group found that 39% of Americans felt the most green guilt for wasting food, compared with 27% for wasting water and 21% for not recycling. A different poll by Unilever Food Solutions reported that 79% of consumers in the United States felt it was important that ‘places to eat’ reduce the amount of food that is thrown away every day.
With the value of food losses in the U.S. at $165 billion, opportunities abound. Will you be one of the crafty food misers who capitalizes on one?