Food Waste, Aisle 5: How Supermarkets Can Stop Squandering Food and Start Lowering Prices
Posted September 21, 2012
Forty percent of the food we produce in the United States goes uneaten. No matter how local or organic it is, if nearly half our edible food is ending up in the garbage, we're not doing something right.
Much of this food gets wasted at home, and I recently blogged about simple strategies we can all use to reduce this waste. But about 43 billion pounds of food are thrown away in grocery stores every year--about 10 percent of the total food supply at the retail level. The USDA estimates that supermarkets lose $15 billion each year in unsold produce alone. And because big retailers influence customer behavior on one side (Buy One Get One Free!), and suppliers on the other (demanding requirements that encourage growers to overplant for fear of not fulfilling them), their decisions can drive even more food waste throughout the system.
(Photo courtesy mari.ology via Flickr)
Industry executives say that wasted food is part of the cost of doing business. Conventional wisdom holds that customers want abundance--shelves and displays overflowing with food. Low waste numbers actually raise a red flag for store managers--if food isn't wasted, that means there's not enough product on the shelves, and the store is actually failing to deliver a satisfactory customer experience.
It's pretty twisted logic--and it's also not true, according to Jose Alvarez, the former CEO of Stop and Shop/Giant Landover. Alvarez bucked conventional wisdom by reducing waste across his 550 stores, keeping his customers happy, and saving $100 million annually in the process.
"People have it drilled into their brains that they need to have large, overflowing displays of perishable products," says Alvarez, now a lecturer at Harvard Business School. "We know there's waste, but everyone's afraid to reduce it because the thinking is that you're going to reduce your ability to sell product."
While at Stop and Shop, Alvarez was baffled by surveys that showed customers were unhappy with his stores' produce. "As far as we knew, we were at the top of our game," says Alvarez. "We were buying top-notch produce, we were maintaining the cold chain--yet people thought our produce wasn't fresh."
Efficiency Satisfies Customers, Saves $100 Million
After studying the problem in depth, Alvarez realized that the store's basic display requirements forced managers to put two to four days' worth of product on the shelf at any given time. So customers were seeing produce a-plenty, but it wasn't always fresh.
Stop and Shop drastically changed the way food was presented across all its perishable departments, in all of its stores, putting out 4 salmon fillets instead of 10 at the fish counter, or 8 avocados in the produce aisle instead of 24, stacked in a shallow basket with a dummy layer to give the illusion of depth. It took more labor to refill the displays, but less work to go through and remove any bad product. The store also reduced the variety of pack sizes available for a particular product, for example, offering field tomatoes either loose or in 6-packs, as opposed to loose, 3-packs, 6-packs, and 8-packs.
Within a few months, customer satisfaction had improved, sales numbers were up, and store waste was dramatically reduced. The changes saved the chain $100 million a year, a savings which they passed on to consumers by lowering prices.
Other changes were going on behind the scenes, too. If customers only bought 8 avocados a day, did Stop and Shop need to purchase them in cases of 24? "We started to push back deeper into the supply chain," said Alvarez. Stop and Shop buyers worked with suppliers to get smaller case sizes for some products, but weren't always successful. "Growers were saying, 'You guys want 8-packs, but the other guy wants 24-packs, so now I have to pack twice.' There wasn't a lot of industry cooperation on the issue."
Not all buyers were willing to take on increased packing costs up front, even though the cost was negligible compared to the savings in waste reduction. "Some people only see the numbers in front of their faces. It's complicated to measure the total system impacts. What we did took a lot of hard work and required a great deal of detailed analysis," says Alvarez.
From Alvarez's perspective, reducing waste across 550 stores was about efficiency and customer satisfaction. It wasn't about putting some new-fangled theory into action--it was just plain good business. "My father was a baker in Chicago, he had his own business," he recalls. "It was pretty strongly inculcated in me that you couldn't afford for stuff to go to waste. If you had stale bread you made bread pudding. You found ways to make money and satisfy customers by not wasting. If you don't do that, you don't survive as a business. We need to address these issues as an industry and as a society."
[This post is part of our Wasteland series, featuring people, towns, businesses and industries that are finding innovative ways to cut waste, boost efficiency and save money, time and valuable resources.]
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