Posted: Dec 30, 2017
If you find yourself having to purge your refrigerator’s crisper bin every few weeks, imagine what goes on at a grocery store. The Institution of Mechanical Engineers estimates that annually between a third and a half of all food produced is wasted worldwide. According to the Guardian, approximately 45% of all fruits and vegetables, 35% of fish and seafood, 30% of cereals, and 20% of meat and dairy products are wasted by suppliers, retailers, and consumers every year.
This waste is growing alongside a growing world population. The United Nations reports that the world population is expected to grow from 7.6 billion to 9.8 billion people by 2050, which makes food security a more pressing issue. Growing food requires water, seeds, labor, machinery, energy, and fertilizer. Letting food go to waste, then, is a frivolous use of natural resources that drives up costs, inflates food prices, and weakens the food supply chain.
Large food retailers such as Kroger, Sainsbury’s, Tesco, Carrefour, and Wal-Mart stand in a unique position to address this global food issue. Because of their direct links with farmers, processors, and consumers, they have the power to influence every facet of the supply chain. And because the traditional supermarket industry is highly concentrated (for example, in the UK, the top seven food retailers account for 87% of the grocery market), retailers have considerable market power to make change.
However, their high volume–low margin business model also makes them vulnerable to threats such as competition, increasing wholesale prices, and changing consumer demands. For example, super discounters such as Aldi, Lidl, and Amazon are further squeezing already thin food retail margins for large retailers.
We propose a four-pronged strategy to help retailers reduce food waste as it occurs in food farming and food production, in the stores themselves, and during consumption. This strategy can also help retailers manage competitive and strategic challenges by strengthening retail partnerships with food suppliers and connecting with customers’ needs and wants in new ways.
#1. Upgrade inventory systems with the latest technology. Advancements in automation and software capabilities have made inventory management scalable across more SKUs and product types. Companies like Whole Foods and Target in the U.S. are now using software to input their store layouts so that deliveries are custom-organized in shelving sequence, making it possible to go directly from distribution warehouse to the retail floor. Before, retailers relied on intermediaries to move goods from the warehouse to the store. Investing in new technology can reduce excess inventory and handling, and cut down on the amount of perishables that ultimately go to waste. Savings promise to be large and lucrative but are still far from scaling. A number of pilots and minimal viable products (MVP) are currently being launched – and if proven right, they’ll open the doors to massive investments in the technology surrounding inventory systems.
#2. Partner with farmers in the supply chain. Food waste starts at farms in the value chain. In the U.S., it is estimated that about 7% of produce is left unharvested in fields every year. This is partly due to the tendency to grow more than needed as a hedge against weather and disease and fluctuating wholesale and retail orders. But if more retailers start working directly with farmers or encourage their intermediaries to collaborate more with farmers, agricultural food waste can be significantly reduced.
Food retailers can be more systematic in sharing forecast data for specific food items to help farmers with their production plans and prevent overplanting. Retailers can also share productivity-enhancing knowledge and techniques to help farmers increase their production efficiency and boost farm product quality. For example, by working closely with its 822 sheep farmers during a season of poor Spring weather in 2015 that delayed lamb maturation, Sainsbury’s in the UK was able to extend the lamb season by five weeks. By waiting until lamb reached their full weight, Sainsbury’s boosted UK-grown lamb availability for customers and prevented potential farm losses. Further, to help British dairy farmers who have been suffering from volatile pricing, Sainsbury’s also adopted a “cost-of-production” model that directly reflects the real costs of the farms, builds in a profit, and rewards farmers for following best animal welfare and environmental standards. Choosing this model over the traditional market pricing model, Sainsbury’s helped dairy farms to stay in business and ensured continuous supply of milk for future years.
This collaborative approach in working with suppliers means treating farmers as partners rather than contractors and investing in the long-term sustainability of the supply chain instead of maximizing returns from a product in the short term. Similarly, Marks and Spencer (M&S) works closely with its farmers to divert surplus farm produce away from waste streams and into food charities with the help of partner organizations like Company Shop and FareShare.
Big food can also partner with agri-tech ventures that seek to help farmers cut waste, increase productivity, and gain better market and distribution access. Apps like Farming Data give smallholder farmers real-time market information so they can more effectively reach markets and sell their crops. By helping to commercialize these tools, big retailers invest in the continued availability and affordability of quality food supply around the globe.
#3. Modify or eliminate traditional store practices that increase waste. Some traditional food retail practices can unintentionally increase food waste. Over the years, supermarkets have embraced high cosmetic standards for fruit and vegetables, leading them to reject even marginally imperfect-looking food (e.g., too short, long, big, small or uneven in shape, too red or not red enough, and so on). To curb this food waste, grocery chains such as Asda (Wal-Mart) and Morrisons are experimenting with selling “wonky” vegetables at discount prices.
Additionally, given the perishable nature of fresh food, stores regularly end up with some surplus produce. Instead of throwing out food that can’t be sold but are still edible, Kroger, M&S, and Sainsbury’s are in the process of building nationwide systems to distribute surplus edible food to charities.
Technology is an important enabler here too. For example, platforms like Neighbourly serve as a digital hub to bring together food donors and recipients; software programs like LeanPath let institutional kitchens such as Google Food identify sources of food waste (e.g., kitchen practices) and get rid of them; and for its remaining surplus food, Sainsbury’s is working with Entomics, a start-up firm that efficiently converts food waste into fertilizer.
Another practice that contributes to food waste is product labeling. For example, consumers often misinterpret “best by” dates to be expiration dates and prematurely discard food as a result. In many countries, these labels are not even standardized or regulated — manufacturers set these dates themselves, often as a way to ensure consumption at the peak of freshness. Major trade associations for food products are urging food processors to streamline these labels. Initiatives are underway but still remain voluntary and fragmented.
As owners of private label food products and shelf space, large food retailers can play a leadership role here. Retailers can urge food manufacturers to drop the “best by” labeling or replace it with “best if used by.” Also, “sell by” labeling can be used for highly perishable foods as an indication of expiration. Some retailers such as the East of England Co-op are also considering selling food beyond their “best by” dates. And retailers can experiment with better packaging technology to extend product shelf life of their own products.
Data analytics have also debunked the notion that consumers require well-stocked displays to make a purchase. After taking an in-depth look at its perishables departments, U.S. grocery retailer Stop & Shop discovered that piling produce high resulted in more damage as well as greater labor costs. Finding new ways to display produce while reducing stock levels ended up boosting customer satisfaction because produce stayed fresher for longer. It also helped Stop & Shop reach an estimated savings of $100 million per year. Trader Joe’s uses a similar strategy by displaying their produce in narrow rows to indicate abundance.
#4. Team up with consumers. Food waste by consumers has escalated with rising disposable incomes. Young people struggle with what to do with leftovers, and only 3% of people attach a social stigma to throwing away food. Changing habits is a long-term endeavor, but food retailers can play a crucial role in educating consumers to cut household food waste.
Sainsbury’s research shows that consumers view supermarkets as a source of inspiration and guidance for reducing food waste. Free food magazines that supermarkets such as the Co-operative in UK use to share food stories can also feature waste reduction tips and recipes to utilize leftovers. Supermarkets can sponsor and team up with chefs to demonstrate how to utilize leftover ingredients and food. Dinner events that feature food made from discarded food and scraps get significant social media attention and are a great way of educating and engaging customers, especially the young.
Food retailers can also organize “waste less” campaigns. For example, in the U.S., Kroger’s recent initiative “Zero Hunger, Zero Waste” uses crowdsourcing to interact with consumers and gather ideas for food waste and hunger prevention.
Food retailers have a lot to gain from designing a circular strategy to reduce food waste across the supply chain, but they aren’t expected to do this alone. Collaboration with farmers, food processors, nonprofit organizations, and agri-tech and social ventures in the broader food ecosystem will help food retailers achieve their food waste goals. And as food retailers take up a deeper interest in their communities’ well-being, they can share the goal of reducing food waste and create a robust relationship with their suppliers and customers.
By Yasemin Y. Kor, Jaideep Prabhu, Mark Esposito
December 19, 2017
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