Every industry has their own language and it can be a challenge to really understand some of the terms. Google can provide definitions, but it does not always help you understand the importance of the term or perhaps even a specific meaning in our industry. It can take some time to find the food and beverage definition of shrink when searching online. We are going to share some food and beverage industry terms and explain how they can benefit or impact your business.
Shrink costs retailers $2,3000,000,000 per year
Shrink is defined by retailers as anything they purchase that does not go through the cash register at the correct retail price.
If we say the retail food industry in Canada is approximately $115,000,000,000 per year and total store shrink averages 2%, then it is costing retailers $2,300,000,000 per year. This is probably close to the bottom line of all retailers added up. In other words, it is a big issue for them and they are very interested in opportunities to reduce shrink.
Obviously, there is more shrink in perishable departments but as we will outline below it happens throughout the store. It is more evident in perishable departments because every day retailers cull the shelves and take product off that does not meet their standard or the best before date has expired.
What makes up shrink?
Food waste
One of the most evident components of shrink is food waste. Products that have been in the store too long or perhaps were not in the right condition when they got to the store. The decision has to be made to remove the product from the shelf. This can then be re-purposed in some cases, reduced in its current state or simply thrown out.
Conventional stores that have sizeable home meal replacement departments or salad offerings can take a product that has one bad spot and include it in a salad or fruit tray. This is one opportunity for them to reduce the impact of the loss. It is important to remember the original product still gets counted as shrink. When retailers assess product performance they will review shrink. If a product is re-purposed into a salad, they will not capture this so the results for English cucumbers will show 25 cases shipped and 20 cases sold. The 20 cases sold are English cucumbers that go through the cash register properly. If they have a bad spot and get cut up for a salad they will be included in the 5 cases of shrink.
Most retailers have a reduced product section. This was always a source of debate when I worked in retail. Do you trin people to shop for the reduced items and lose margin or do you try to get something? Usually, we tried to get something but there is no doubt some shoppers go to the reduced rack first. Some see this as an opportunity to reduce food waste.
The product that is removed and put right into the compost is the biggest loss. This can be because it is damaged, deteriorating, packaging is damaged, the BB date has expired or other issues. The decision is it cannot be sold, even at a reduced price.
Theft is part of shrink
We know people steal from grocery stores. I can remember watching the recording of a consumer taking their hand out of their pocket with a plastic bag on it and then reaching over the fresh seafood case for a handful of scallops that went right back into their pocket. We also saw people changing UPC codes. They would take a UPC code attached to an inexpensive meat item and put it over the code for a prime rib roast. People take cashews out of the bulk food bins and use the price look up (PLU) code for jelly beans that are cheaper. There are many ways people find to steal from grocery stores. No matter how they do it, the value of the product adds to shrink.
Products that do not scan properly add to shrink
If the UPC code on your product will not scan properly and the cashier is forced to just ring the item in as 2.99 that will count as shrink. It is much more difficult now for cashiers to do this because retailers rely on scan data so much. They need the accurate data to make buying decisions. It is a balance because they also do not want the consumer to wait at the cash register while they find the right code or another item with a scannable UPC. You cannot prevent everything but make sure your products are easy to scan and scan properly.
We see fresh products where BB dates get printed on bar codes at time of packing. This will prevent the retailer from scanning the item. There is nothing wrong with it but you will not get credit for the sale.
Damaged packaging leads to shrink
Packaging is such a complicated issue. It must do so many things for you. One goal is to protect your product through the entire supply chain and get to the cash register in tact with a scannable bar code. Check your products in store regularly to make sure your packaging is holding up and doing the job.
Why you need to care
Retailers are very focused on reducing shrink. You should ask if they will share the sell through on your products. This will tell you the shrink. If you sold them 100 cases and they show sales for 81 cases in the system, the shrink is 19. You always should strive to be below the department or category average. That will ensure they focus their efforts somewhere else. In our example we assume opening and closing inventory is the same.
Products do not stay on the shelf because they do not sell or because the shrink is too high. You want to stay on the shelf so do your best to be aware of your shrink and do not give them a reason to take you off the shelf.
Your customer will appreciate your interest and knowledge of the business when you can talk in their terms.
If you have any questions or require help with shrink, you can always send me an email peter@skufood.com or call me at (902) 489-2900.
Peter
As we start into the new year we are going to focus on some terms in the food and beverage world for upcoming weeks. I am going to select a different term each week and give you a good definition and also some insights into why it could be important for your business. If there are any terms you would like me to focus on just let me know.
If you see things happening let us know so we can share them with our community. We also want to hear if you find this helpful and benefits your food and beverage business!
Food inflation continues to be in the news
We see media articles regularly about food inflation. It can be a challenging topic to understand as there are a lot of factors. Perhaps this is an effective way to explain it. In terms people can relate to: Your Super Bowl party food will cost you more. These are U.S. numbers but you can see how inflation is impacting certain categories more than others.
Food waste apps
As we referenced in our article this week food waste is a big issue. We see more and more apps to help consumers find the reduced food before it goes to the compost. No retailer wants to sell anything for less then the retail but it is a reality so these apps can improve the chances of it happening and getting some return. It also reduces the product going to the compost. The biggest challenge we see is changing consumer behaviour to include these as part of your shopping habits.
When is Peter speaking?
Food & Beverage Atlantic Masterclass
Sales & Marketing for your food business Feb 9-Feb 16
A weekly course with Norm Purdy and Al Archibald
Newfoundland and Labrador
Getting more NL products into the shopping cart Feb 24