The Challenge of Food Waste

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Retailers step 3 Marketing Tools up to the next level of inventory management

Björn Weber Research Director Retail Technology Sarah Herrlein Senior Retail Technology Analyst Greg Hodge Custom Research Director

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Contents

Executive summary 1

1. Introduction: The problem of high food waste 3

1.1 Food waste in retail stores 3

1.1.1 Dimension of the problem 3 1.1.2 Economical impact on retailers 3

1.2 The environmental and social problems of discarded produce 3

1.2.1 Government campaigns and actions to

raise public awareness of the issue 3 3 Marketing Tools 1.2.2 Retailers’ current non-technology approaches (food donation programmes, organic composting and recycling initiatives) 4

2. Technology-based approaches bring new dimension to store pricing 6

2.1 Automated replenishment based on sophisticated forecast avoids overstocks 6

2.2 Accurate stock levels at all times 8

2.3 Dynamic pricing enables price changes according to current stock and sales forecasts 8

2.4 ESLs and smartphones communicate price changes 10

2.5 Shoppers’ mobiles offer upselling opportunities 11

2.6 The GS1 Databar facilitates automated mark-downs at the checkout 12

3. Conclusion and outlook 13

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Fresh Foods - 2012 PlanetRetail

Executive summary

ood shrinkage and waste can cost retailers up to 4% of revenue. Given the need to F continually drive out costs in the highly competitive grocery sector, this fact cannot continue to be ignored. To offset food wastage retailers discount items and sell them to shoppers before they go out of date and become waste. However, this discounting recoups just 0.75% of the 4% revenue loss. Taking into account the razor thin margins in the grocery industry, unsold items can be one of the major challenges for food retailers.

Although retailers are already taking some measures to reduce food waste, they do not take full advantage of the technology that can help tackle the issue. Instead, they focus on initiatives such as food donation programmes, organic composting and recycling initiatives. However, the most obvious approach to reduce food waste is to optimise order forecasts in such a way that the gap between predicted and actual sales is reduced to a minimum. With this, retailers can avoid food waste at the earliest possible stage.

This immense food waste problem in the highly developed markets is rapidly increasing

3 Marketing Tools in public awareness, especially as a good proportion of wastage occurs in households. Governments, campaigners and multinational organisations stress the fact that food wasted in the US and Europe could feed the world three times over.

Of course, food waste does not only occur in households. In the UK alone, retailers and wholesalers produce around 1.7 million tonnes of food waste each year. Some retailers react to the situation by donating surplus food - US grocery retailer SuperValu, for example, donated 22,000 tonnes of food to the Feeding America organisation in 2010. Food that cannot be donated is converted into energy by some retailers instead of sending it to landfills. For instance, Sainsbury’s, the UK-based supermarket retailer, generates power for 500 homes in a biomass power plant in Scotland. Aside from the obvious financial benefits, reducing food waste can therefore also play a part in helping retailers to achieve their own sustainability targets.

For both financial and environmental reasons, reducing food wastage is therefore an area that needs to be targeted by retailers. In this report, we will examine the ways some retailers are tackling the problem. We will focus on the technologies that enable retailers to optimise their inventory as well as generate pricing more dynamically.

Food shrinkage and waste can cost retailers up to 4% of sales revenue.

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Over the last ten years, major retailers achieved significant improvements in terms of inventory optimisation with the implementation of automated replenishment based on forecasting software. But those initiatives are often limited to the ambient range and processed chilled food. Implementing sophisticated technologies which enable the optimisation of inventory in produce and instore-produced food is now also on the agenda for retailers’ project plans.

These include:

• Automated replenishment systems based on sophisticated forecast, in order to avoid overstocks.

• Utilising real-time inventory management systems to help maintain accurate stock levels at all times.

• Using dynamic pricing to enable price changes according to current stock and sales forecasts. This helps retailers to effectively sell excess supply rather than risk it going to

waste and generating no return. 3 Marketing Tools

• Effective communication with shoppers through their mobiles provides upselling and cross- selling opportunities for retailers.

• Deployment of the new barcode GS1 Databar enables retailers to offer automated mark

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1. 1.Introduction: Introduction: TheThe problem problem of ofhigh high food food waste waste

1.1 1.1Food Food waste waste in retail in retail stores stores 1.2 1.2The environmentalThe environmental and andsocial social problems problems of of 1.1.1 1.1.1Dimension Dimension of the ofproblem the problem discardeddiscarded produce produce

With betweenWith between 50-60% 50-60% of sales of in sales a supermarket in a supermarket Food wasteFood iswaste a global is a globalphenomenon phenomenon that that being derivedbeing derived from the from perishable the perishable category, category, it it impactsimpacts the environment the environment and society and society in four in four is estimatedis estimated that between that between 5-7% of5-7% perishables of perishables key areas:key areas:the energy the energy used to used produce to produce food, food, are lostare to lostpoor to management. poor management. This means This meansthat thatthe foodthe disposed food disposed of by retailers, of by retailers, the food the food food shrinkagefood shrinkage and waste and canwaste cost can retailers cost retailers up upwasted wasted in the householdin the household and the and energy the energy used used to 4% toof their4% of overall their overallrevenue. revenue. To offset To foodoffset food to disposeto dispose of food of waste. food waste. wastagewastage retailers retailers discount discount items anditems sell and them sell to them to consumersconsumers before beforethey go they out goof dateout of and date need and need 1.2.1 1.2.1Government Government campaigns campaigns and and to be disposedto be disposed of. However of. However the discounting the discounting of of actionsactions to raise to publicraise public awareness awareness 3 Marketing Tools food recoupsfood recoups just 0.75% just 0.75%of the 4%of the revenue 4% revenue loss. loss. of the ofissue the issue

Food wasteFood atwaste retail at stores retail storesis a bigger is a biggerproblem problem in Consumers’in Consumers’ understanding understanding and awareness and awareness of of developeddeveloped markets markets than in than developing in developing countries. countries. food wastefood arewaste key are areas key whenareas looking when looking to tackle to tackle ConsumersConsumers demanding demanding constant constant availability availability this widespreadthis widespread issue. Moreissue. than More three-quarters than three-quarters and fulland range full ofrange choice of choicein retail in outlets retail outlets leads to leads toof US consumersof US consumers mistakenly mistakenly believe believe certain certain excessiveexcessive supply supplyand therefore and therefore increased increased waste wastefoods arefoods unsafe are unsafeto eat afterto eat the after expiration the expiration date date of foodof in food mature in mature markets. markets. The moral The andmoral social and socialhas passed.has passed. In the UK,In the the UK, confusion the confusion between between argumentargument between between consumers consumers demanding demanding choice choice‘best before’‘best before’ dates anddates ‘use and by’ ‘use dates by’ hasdates created has created and retailersand retailers supplying supplying it is complicated, it is complicated, while while a politicala political storm withstorm lobby with groupslobby groups suggesting suggesting the environmentalthe environmental and economic and economic impact impact is far is far that packagingthat packaging should shoulddisplay display a ‘use by’a ‘use date by’ date more measurable.more measurable. only toonly avoid to consumers avoid consumers from misunderstanding from misunderstanding the twothe differently two differently labelled labelled expiration expiration dates. dates. 1.1.2 1.1.2Economical Economical impact impact on retailers on retailers The EUThe and EU UN and have UN committed have committed to reducing to reducing food wastefood bywaste 50% by by 50% 2025 by through 2025 through the “Joint the “Joint In the InUK, the retailers UK, retailers and wholesalers and wholesalers produce produce DeclarationDeclaration Against Against Food Waste”. Food Waste”. about 1.7about million 1.7 million tonnes tonnes of food of waste food awaste year. a year. The costsThe and costs complications and complications of giving of givingthis this In the UKIn the the UK government-funded the government-funded Waste Wasteand and food awayfood means away means that over that half over of halfit is ofsent it isto sent toResources Resources Action ActionProgramme Programme (WRAP) (WRAP) has tasked has tasked landfills.landfills. In the InUS, the supermarkets, US, supermarkets, restaurants restaurants itself withitself halving with halving the amount the amount of waste of thatwaste goes that goes and convenienceand convenience stores storesthrow awaythrow 27 away million 27 million to landfills.to landfills. WRAP launchedWRAP launched the campaign the campaign “Love “Love tonnestonnes of food of annually, food annually, representing representing wastage wastage Food - FoodHate -Waste” Hate Waste” in 2007 in which, 2007 which,by January by January valuedvalued at €28.6 at billion€28.6 billion($41.9 ($41.9 billion). billion). On top On top2009, had2009, already had already saved €337saved million €337 million($493 ($493 of this,of consumers this, consumers waste anwaste additional an additional 25.9 25.9 million).million). The scheme The scheme persuaded persuaded two million two millionUK UK millionmillion tonnes tonnes of food of annually. food annually. householdshouseholds to take to steps take to steps reduce to reduce food waste food waste and stoppedand stopped 137,000 137,000 tonnes tonnesof food of from food being from being thrownthrown away. away.

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1.2.2 Retailers’ current non-technology approaches (food donation programmes, organic composting and recycling initiatives)

Retailers are faced with a difficult dilemma - they do not want the costs and social stigma associated with food waste but they also want to maintain availability at their stores. A simple solution would be to enter into food donation programmes and simply give away the surplus food at the end of each day. Unfortunately the costs involved and the scrutiny that fresh in particular has to go under before it is re-sold 3 Marketing Tools or given away makes this virtually impossible

© WRAP © for retailers. Such schemes also don’t take WRAP’s “Love Food - Hate Waste” campaign was launched in 2007. into account the environmental impact of over producing food. The success of WRAP’s “Love Food - Hate Waste” Retailers of course want to remove the campaign convinced Australia’s Department economic burden of food waste but also of Environment, Climate Change and Water want to make the right social decisions to adopt the concept. It focuses heavily on around their business. Walmart has a global the emotional side of food waste, using subtle goal of creating zero waste. Even if it just messaging and statistics to nudge consumers achieved an 80% reduction in waste in the into changing their behaviour. It focuses on four US alone it would prevent more than 11.8 key ways to prevent food waste: million tonnes of carbon dioxide emissions • Buy It - for great ideas on food shopping. annually - equivalent to taking more than two million cars off the road for a year. To • Cook It - to find out how much food you achieve this, the retailer looks to convert really need and for nutritious recipes that food to energy and enters into food donation use up leftover ingredients. programmes. This is something that is • Save It - for information on keeping your mirrored around the globe. food fresh and prevent it from ending up in the bin. Sainsbury’s, the UK-based retailer, runs a scheme that converts food waste into • Love food - to learn about the issues electricity. Almost 42 tonnes of waste food and how wasting less food helps our from 28 Sainsbury’s locations in Scotland are environment. delivered weekly to a biomass power plant for In the Netherlands, the government is processing and generates enough electricity committed to reducing food waste by 20% to power around 500 homes. Sainsbury’s has by 2015, with the country throwing away an a long-term plan to send zero waste to landfill estimated €2.4 billion ($3.5 billion) per year. and will roll out the scheme across the UK. The Dutch campaign was instrumental behind the creation of a global campaign called www. tastethewaste.com.

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In the USIn grocerythe US groceryretailer SuperValuretailer SuperValu donated donated Often subtleOften and subtle simple and solutions simple solutions are the mostare the most 22,000 tonnes22,000 oftonnes food (37.5of food million (37.5 meals)million meals)effective effective ways of waystackling of tacklingmajor problems, major problems, to Feedingto FeedingAmerica America in 2010. in Feeding 2010. FeedingAmerica America by educating by educating or nudging or nudgingconsumers, consumers, retailers retailers has morehas than more 200 than food 200 banks food across banks the across the can workcan with work them with to themprevent to preventfood waste. food In waste. In country countrydesigned designed to aid the to distributionaid the distribution of ofconjunction conjunction with UK withgrocer UK Waitrose grocer Waitrose celebrity celebrity food waste.food 72%waste. of 72%the food of the donated food donated by by chef, Deliachef, Smith, Delia created Smith, thecreated ultimate the ultimate SuperValuSuperValu was fresh was food. fresh food. ChristmasChristmas cake kit cakefor €11.50 kit for ($16.10)€11.50 ($16.10) that that came withcame ready with weighed ready weighed ingredients. ingredients. To buy To buy The companyThe company is in the isprocess in the processof expanding of expanding the ingredientsthe ingredients in individual in individual packets packetswould have would have the schemethe schemeacross its across retail its estate retail and estate has and has cost consumerscost consumers €27 ($37.81), €27 ($37.81), so not only so notdid onlyit did it already managedalready managed to achieve to achievezero waste zero waste reduce foodreduce waste food but waste saved but customers saved customers money. money. classificationclassification at two ofat its two Albertson of its Albertson stores stores in Santain Barbara, Santa Barbara, California. California. The two Thestores two storesManaging Managing consumption consumption or preventing or preventing

3 Marketing Tools are successfullyare successfully diverting diverting 95% of their95% wasteof their wastecustomers customers from buying from unwanted buying unwanted or unneeded or unneeded through throughrecycling, recycling, food donation, food donation, organic organic goods isgoods possible is possiblethrough throughloyalty card loyalty card compostingcomposting and other and means. other means. information.information. For example, For example, a simple a reminder simple reminder when shoppingwhen shopping online that online you that may you already may already The onusThe should onus not should solely not rest solely with rest retailers with retailers have a certainhave a productcertain productcould go could a long go way a long in way in to reduceto food reduce waste. food Instead waste. thereInstead should there should preventingpreventing food waste. food waste. be more beof morea co-operation of a co-operation between between retailers retailers and consumersand consumers in doing inso. doing A new so. tactic A new tactic retailers retailerssuch as Tescosuch asand Tesco Sainsbury’s and Sainsbury’s in the in the UK are pursuingUK are pursuing is the ‘buy is theone ‘buy get one later’get one later’ promotion.promotion. Sainsbury’s Sainsbury’s calls the callsmarketing the marketing promotionpromotion ‘Buy Now, ‘Buy Free Now, Next Free Time’. Next Customers Time’. Customers receive areceive coupon a atcoupon the checkout at the checkout offering theoffering the chance tochance claim toa secondclaim a item second during item their during their next shop,next rather shop, than rather pick than it out pick immediately. it out immediately. ConsumersConsumers have two have weeks two to weeks redeem to theredeem the vouchersvouchers and only and four only items four involved items involvedin the in the scheme canscheme be used can beper used transaction. per transaction.

TraditionalTraditional ‘buy one, ‘buy get one, one getfree’ one offers free’ have offers have long beenlong criticised been criticised for wastage. for wastage. While many While many people buypeople items buy – particularlyitems – particularly food – when food it– when it is on specialis on offer, special they offer, are they unable are to unable use the to use the quantityquantity provided. provided. This contributes This contributes to additional to additional householdhousehold waste. The waste. UK government’sThe UK government’s Food Food 2030 report2030 in report August in 2009August was 2009 especially was especially critical ofcritical retailers of retailersencouraging encouraging people to people buy to buy goods theygoods don’t they need don’t through need throughmarketing marketing initiatives.initiatives. With the With new the‘buy new one ‘buy get one getlater’ one later’ approaches,approaches, retailers retailersallow customers allow customers to defer to defer food purchases,food purchases, helping tohelping drive toloyalty drive to loyalty their to their

stores andstores reduce and food reduce waste food at waste the same at the time. same time. © NDFS © NDFS Awareness Awarenesscampaigns campaignsincrease the increase public’s the attention public’s to attention the to the problem of problemfood waste. of food waste.

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2. Technology-based approaches bring new dimension to store pricing

Even though retailers are already taking some measures to reduce food waste, they do not take full advantage of technology that can help to tackle the problem. Technology can help them to reduce food waste by optimising order Coop expands automated ordering to fresh forecasts in such a way that the gap between produce predicted and actual sales is reduced to a minimum. With this, retailers can avoid food Swiss grocery retailer Coop began automating waste at the earliest possible stage. the ordering of its fresh produce range in April 2011. Already in 2005, Coop started 2.1 Automated replenishment based using forecasting software to automate the on sophisticated forecast avoids ordering process for its ambient range. With overstocks this, the Swiss retailer was able to reduce

inventory in its stores by 8% and at the same 3 Marketing Tools Over the last few years, major retail groups time managed to increase on-shelf availability. have managed to significantly reduce Due to this success, Coop decided to use overstocks by implementing automated automated forecasting for its fresh produce replenishment based on software that is able category too. Following a pilot with 30 dairy to predict sales at item level. However, this products, the retailer started to roll out the technology, which is highly successful for solution to the rest of the dairy category, as ambient ranges, is hard to deploy in product well as meat, convenience products, fruit and categories that have a short shelf life such vegetables, fresh bakery products and plants as fresh produce. Nonetheless, retailers in April 2010. Coop plans to have automated are constantly working on this topic and the ordering for around 230,000 stock keeping are continuously looking to improve their units across its various channels in 2012. forecasting solutions for fresh items. Additionally, the retailer plans to implement automated replenishment in its distribution centres by 2012.

In order to secure the supply of necessary amounts and to prolong the response time for suppliers, Coop plans to establish pre- ordering for fresh produce 72 hours before the anticipated delivery to the store. 48 hours before the products are supposed to be delivered to the store, a mandatory order will be sent to the supplier. There will also be the opportunity to manually override automated orders in stores. This could be important if, for example, the store managers know that there will be a street festival close to the outlet, something of which the centralised forecasting solution could not be aware of. In this case, the store manager could increase the order amount for items such as beer, soft drinks or barbecue meat. Overall, though, this override functionality is very rarely used, especially in ambient categories. In fact, Coop employees only alter 0.7% of automated orders.

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For replenishmentFor replenishment automation, it automation, is crucial it is crucialReplenishment Replenishment automation for automation fresh produce for fresh produce that a retailer thathas accuratea retailer inventoryhas accurate data. inventory indata. order to avoidin order food wasteto avoid should food bewaste a topic should be a topic Due to this, CoopDue abolishedto this, Coop the abolishedmultiplication the multiplicationfor every groceryfor everyretailer. grocery Recent retailer. examples Recent of examples of key at its checkouts.key at itsThis checkouts. is to avoid, This for is to avoid, forretailers investingretailers into investingthis technology into this include technology include example, differentexample, flavours different of chocolate flavours being of chocolate UK-based being MarksUK-based & Spencer, Marks which & Spencer, chose a which chose a booked under bookedthe same under GTIN the (Global same TradeGTIN (Global newTrade software newsolution software to manage solution its toinventory manage its inventory Identification IdentificationNumber, formerly Number, known formerly as an knownforecasting, as an replenishmentforecasting, replenishment and order planning and order planning EAN code). Today,EAN code).Coop’s Today,scanning Coop’s accuracy scanning accuracyneeds for its foodneeds division for its infood early division 2010. in early 2010. stands at 99.85%.stands at 99.85%. The new technologyThe new forecasts technology demand forecasts at item demand at item Since 2005, CoopSince has 2005, been Coop gradually has been rolling gradually levelrolling for everylevel store. for Buying every store.decisions Buying are decisions are out its order forecastout its order solution. forecast By the solution. end of By the madeend of based onmade current based stock on levels,current as stock well levels, as well 2006, some 7,0002006, SKUs some including 7,000 SKUs spirits, including soft spirits,as daily soft sellingas patterns, daily selling product patterns, life-cycle, product life-cycle, drinks, wines anddrinks, textile wines products and textile were products ordered wereseasonality, ordered projectedseasonality, waste, projected target servicewaste, target service 3 Marketing Tools automatically. automatically.This figure went This up figure to over went 30% up to levelsover 30%and inventorylevels andavailability. inventory availability. of the store’s itemof the orders store’s by item 2008. orders Since by 2010, 2008. Since 2010, Sainsbury’s in Sainsbury’sthe UK aims in to the improve UK aims its to improve its the retailer’s entirethe retailer’s ambient entire range, ambient frozen range, frozen replenishmentreplenishment automation with automation weather with weather food and mostfood of the and non-food most of productsthe non-food are products are forecasts. In summerforecasts. 2010, In summer the retailer 2010, the retailer ordered automatically.ordered automatically.Per week, the Persolution week, the solution announced its announcedinvestment its in investmenta new technology in a new technology now generatesnow around generates five millionaround automated five million automated that should helpthat it shouldreduce helpby around it reduce 15% by around 15% orders. Additionally,orders. around Additionally, 90,000 around products 90,000 for products for the amount ofthe food amount that went of food unsold that due went unsold due Coop’s DIY storesCoop’s and DIY 60,000 stores textiles and 60,000 will be textiles will be to periods of unexpectedto periods of weather. unexpected The real-weather. The real- switched to automatedswitched toordering automated soon. ordering soon. time supply chaintime technology supply chain will technology enable will enable Automated replenishmentAutomated replenishmentalso affected Coop’s also affected Sainsbury’s Coop’s toSainsbury’s monitor exactly to monitor what foodexactly is what food is entire supply chain.entire Thesupply system chain. enabled The system the enabledselling the on a minute-by-minuteselling on a minute-by-minute basis, allowing basis, allowing retailer to planretailer deliveries to planat a deliveriesmuch earlier at a stage, much earlierthe companystage, tothe know company exactly to whatknow goodsexactly to what goods to which also improvedwhich alsostaff improved scheduling staff and scheduling route andsend route to individualsend stores to individual each day. stores With each this day. With this planning. Consequently,planning. Consequently,Coop was able Coop to reduce was ablesystem, to reduce Sainsbury’s system, will Sainsbury’s be able to willreact be to able to react to its truck fleet itsfrom truck 485 fleet to 450 from vehicles. 485 to 450 vehicles.changes in buyingchanges patterns in buying on the patterns same day. on the same day. This will reduceThis the will risk reduce of shelves the risk being of shelvesfull being full with barbecuewith meat barbecue for the weekend meat for whenthe weekend when unexpected rainunexpected occurs. rain occurs.

Coop started automatedCoop started replenishment automated for freshreplenishment produce infor the fresh produce in the dairy department. dairy department.

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2.2 Accurate2.22.2 AccurateAccurate stock levels stock stock levels levels Real-time Real-timeinventoryReal-time inventorymanagement inventory management management not only not not only only at all timesatat all all times times helps retailershelpshelps to retailers retailersoptimise to to theoptimise optimise amount the the of amount amount of of instore-producedinstore-producedinstore-produced pastries in pastries linepastries with in in theline line with with the the Retailers haveRetailersRetailers done have ahave lot doneover done athe alot lotlast over over ten the theyears last last ten ten yearscurrent years demand,currentcurrent butdemand, demand, also enables but but also also them enables enables to them them to to to improveto theirto improve improve order their quantitiestheir order order quantitieswith quantities the help with with the the help changehelp priceschangechange of productsprices prices of of accordingproducts products accordingto according how to to how how of softwareof ofthat software software is able that thatto forecastis isable able to salesto forecast forecast by sales sales by by they sell. theyThisthey dynamicsell. sell. This This pricingdynamic dynamic is especiallypricing pricing is is especially especially item. One item.necessaryitem. One One necessarycondition necessary forcondition condition the success for for the the success successuseful for usefulperishablesuseful for for perishables perishablessuch as fruit such such and as as fruit fruit and and of replenishmentofof replenishment replenishment automation automation automationis the accuracy is isthe the ofaccuracy accuracyvegetables of of vegetables vegetableswhere retailers where where try retailers retailers to minimise try try to to theirminimise minimise their their stock levelsstock stockin the levels levels systems. in in the the Now,systems. systems. some Now, Now,retailer some some retailer retailerlosses fromlosses losseswrite-offs. from from write-offs. write-offs. are going areoneare goingstep going further one one step step by furtheralso further monitoring by by also also monitoring themonitoring the the stock levelstock ofstock parts level level of of their of parts parts assortment of of their their assortment assortmentduring during during the coursethe ofthe thecourse course day, of ideallyof the the day, day,in real-time.ideally ideally in in real-time. real-time. 2.3 Dynamic2.32.3 DynamicDynamic pricing pricing enablespricing enables enables price changespriceprice changes changes according according according

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Itbackroom. can be theIt Itcan case,can be be theespecially the case, case, especiallyin especially in forin example,forfor example,are example, very difficult are are very very to difficult difficulthandle tofrom to handle handle from from larger stores,largerlarger that stores, stores, a certain that that producta acertain certain is product out- product is isout- out-a retailer’sa perspectivearetailer’s retailer’s perspective perspective as it is very as as hardit itis is veryto very hard hard to to of-stock onof-stock of-stockthe shelf on on butthe the isshelf shelfstill butavailable but is isstill still available available forecast howforecastforecast they howwill how sell. they they If will theywill sell. sell.arrive If Ifthey theyat thearrive arrive at at the the in the store’sinin the stockroom.the store’s store’s stockroom. stockroom.With real-time With With real-time real-time store and storearestore too and and green, are are too theytoo green, green, will not they they sell will willvery not not sell sell very very inventory inventorymanagement,inventory management, management, the store managerthe the store store manager managerwell. The samewell.well. Thewould The same same be thewould would case be be if the theythe case case are if ifthey they are are can identifycancan such identify identify a situation such such a andasituation situation replenish and and replenishthe replenish too the the ripe. Applestootoo ripe. ripe. as Appleswell Apples can as asbe well welltricky can can frombe be tricky trickya from from a a shelf accordingly,shelfshelf accordingly, accordingly, thus generating thus thus generating turnover,generating turnover, turnover,forecasting forecasting forecastingperspective. perspective. perspective. Even though Even Even they though though have they they have have which mightwhichwhich have might mightotherwise have have otherwisebeen otherwise lost. been Real- been lost. lost. Real- Real-a long shelfa a longlife, long shelfit shelfis difficult life, life, it itis to isdifficult difficultknow the to to knowexact know the the exact exact time inventorytimetime inventorymanagement inventory management management can also avoid can can also also avoid avoidtime whentime theytime when havewhen they to they be have markedhave to to be down.be marked marked down. down. perishableperishable productsperishable beingproducts products brought being being from brought brought from from This is whereThisThis real-timeis iswhere where real-timeinventory real-time inventorymanagement inventory management management the stockroomthethe stockroom tostockroom the shopfloor to to the the shopfloor too shopfloor early iftoo too early early if if and dynamicandand pricingdynamic dynamic come pricing pricing into come play come andinto into helpplay play and and help help they do nottheythey sell do asdo not predicted.not sell sell as as predicted. Furthermore, predicted. Furthermore, Furthermore, retailers toretailers retailersfurther toreduce to further further write-offs reduce reduce write-offsin write-offs the fresh in inthe the fresh fresh in combinationinin combination combination with a forecasting with with a aforecasting forecastingand and and food department.foodfood department. department. If the products If Ifthe the areproducts products already are are already already replenishmentreplenishmentreplenishment tool, real-time tool, tool, real-timeinventory real-time inventory inventory on the shelvesonon the theand shelves shelves are in and dangerand are are inof in dangerexpiring, danger of of expiring, expiring, managementmanagementmanagement could also could be could used also also to be optimisebe used used to to optimise optimise retailers canretailersretailers at least can can secure at at least least a proportionsecure secure a aproportion ofproportion of of orders to theordersorders retailer’s to to the the distributionretailer’s retailer’s distribution distributioncentres for centres centres for for their originallytheirtheir originallyexpected originally salesexpected expected by marking sales sales by bydown marking marking down down the next storethethe next deliveries.next store store deliveries. deliveries. prices. Thisprices. prices.is what This This Albert is iswhat what Heijn Albert Albert has Heijntested Heijn has inhas tested tested in in the Netherlands.thethe Netherlands. Netherlands.

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AlbertAlbert Heijn Heijn

Albert HeijnAlbert marks Heijn downmarks prices down for prices fruit for fruit and vegetablesand vegetables

Dutch groceryDutch groceryretailer Albertretailer Heijn Albert tested Heijn tested mark downmark optimisation down optimisation to reduce to lossesreduce losses from spoiledfrom fruitspoiled and fruit vegetables and vegetables in one of in one of its storesits in stores Amersfoort. in Amersfoort. The project The wasproject was 3 Marketing Tools launchedlaunched in early in2010 early with 2010 mark with downs mark downs

communicatedcommunicated to shoppers to shoppers via large via electronic large electronic Capgemini © Capgemini © displaysdisplays in the store. in the store. With screensWith in thescreens fruit inand the vegetables fruit and vegetablesdepartment, department, Albert Albert Heijn’s customersHeijn’s customersin Amersfoort in Amersfoort were informed were about informed marked about marked down prices.down prices. In order Into orderreduce to food reduce waste food in wastethe store in the to astore to a minimum,minimum, Albert Heijn Albert continuously Heijn continuously compared compared The reasonThe for reason this wasfor thisthat was Albert that Heijn Albert Heijn predictedpredicted and actual and sales actual of fruitsales and of fruit vegetables and vegetables considered considered the price the for price the colour for the displays colour displays- - and analysedand analysed expected expected deliveries deliveries and current and currentapproximately approximately €300 ($439) €300 per ($439) item per - as item being - as being stock levelsstock to levelsavoid tooverstock avoid overstock or out-of-stock or out-of-stock too high.too With high. up Withto three up toproducts three products promoted promoted situations.situations. Prices were Prices marked were downmarked according down according on one screen,on one thisscreen, amounted this amounted to around to €100around €100 to the calculationsto the calculations of a price of optimisation a price optimisation engine engine($146) per($146) price per shown. price Inshown. order Into orderreduce to the reduce the and wereand communicated were communicated via Wi-Fi via to Wi-Fi92 full to 92 full costs, thecosts, retailer the consideredretailer considered 32-inch displays32-inch displays colour 15-inchcolour displays,15-inch displays, which either which reflected either reflected which wouldwhich have would been have able been to show able tomore show more the company’sthe company’s standard standard design for design pricing for or pricing for or pricesfor onprices one display. on one Nevertheless,display. Nevertheless, a planned a planned promotions.promotions. However, However, local management local management in the in theextension extension to three tomore three trial more stores trial was stores shelved was shelved stores werestores also were able also to override able to overrideprice changes price changesand Albertand Heijn Albert has Heijn decided has decidedto discontinue to discontinue the the with a custom-madewith a custom-made mobile solution mobile solutionwithin a within aproject forproject the time for the being. time However, being. However, the Dutch the Dutch predefinedpredefined time-frame, time-frame, in case they in case did theynot did not grocery retailergrocery hasretailer changed has changed its IT provider its IT provider and and agree withagree the withsuggested the suggested price changes. price changes. is currentlyis currently working workingon a new on solution. a new solution.

New pricesNew were prices automatically were automatically transferred transferred to the to the merchandisemerchandise management management system. system.Shoppers Shoppers using mobileusing self-scanning mobile self-scanning devices receiveddevices received The approachThe approach currently currently pursued pursuedby two by two updated updatedprice information price information as well as as cross-selling well as cross-selling technology technology providers providers could remove could removethe need the to need to offers directlyoffers ontodirectly their onto handhelds. their handhelds. invest ininvest relatively in relatively expensive expensive colour displays. colour displays. The conceptThe conceptstudy that study was that presented was presented at at The foodThe waste food reduction waste reduction programme programme received received computer computer expo CeBIT expo for CeBIT the first for the time first in 2010time in 2010 many positivemany positivereactions reactions and won and the wonEHI theRetail EHI Retailhas alreadyhas attractedalready attracted the interest the interestof German of German Institute’sInstitute’s Retail Technology Retail Technology Award for Award ‘Best for ‘Bestretailer Metroretailer Group. Metro However,Group. However, contrary contrary to to Instore Solution’Instore Solution’ in 2010. in Even 2010. though Even originalthough originalAlbert Heijn,Albert the Heijn, concept the conceptstudy has study selected has selected plans foresawplans foresawthe expansion the expansion of the solution of the solution ElectronicElectronic Shelf Labels Shelf (ESL) Labels and (ESL) shopper’s and shopper’s to other toperishable other perishable products products beyond fruitbeyond and fruit andsmartphones smartphones as the means as the of means communication of communication vegetables,vegetables, the project the wasproject discontinued was discontinued after afterfor markedfor markeddown prices. down This prices. promises This promises to be a to be a almost 14almost months 14 inmonths January in January2011. 2011. more cost-effectivemore cost-effective solution. solution.

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2.4 ESLs and smartphones Similar to the alert for underperforming communicate price products, the store manager is also warned of overperforming products which vend better changes than anticipated. While the latter is certainly

In the concept study from SAP and SAF, several good for the retailer in terms of sales, it can instore technologies enable the retailer to turn into a problem when it results in out-of- monitor sales of fresh produce throughout stock situations. the day and mark down prices accordingly if In addition to communicating prices to ESLs products do not vend as well as anticipated. The and shoppers’ smartphones, the technology solution is currently being tested at SAP’s Future providers are also considering digital signage as Retail Center in Regensdorf, close to Zürich. a means of communication. Additionally, they

Using an automated forecasting and ordering are currently in talks with providers of scales

system, it compares actual sales during the that could also be used to inform customers 3 Marketing Tools course of the day at product level with a about mark downs and promotions. This could continuously updated forecast, and identifies be especially helpful at manned counters for significant deviations. The system alerts the meat, cheese or fish, where an employee retailer to products that will be overstocked can verbally alert shoppers to the latest price or out of stock at the end of the day. Staff on changes or promotions. the shop floor can then carry out appropriate This approach goes beyond store level and also measures such as applying price reductions or includes the supply chain. The solution foresees automated discounts at the checkout. that additional technologies such as RFID tags

Store managers are equipped with tablet PCs and temperature sensors on pallets deliver which show a dashboard with a list of alerts additional data which is then shown within the sorted by urgency. Messages such as ‘the dashboard on the shop manager’s tablet PC. If private label strawberry yoghurt does not sell the temperature for a certain batch of yoghurt as expected today’ are sent to the dashboard. has, for example, fallen below the mandatory Together with the alert, the store manager temperature during transportation, an alert receives recommendations on what measures would be sent to the store manager. He could he could take such as marking down the price then either decide not to sell the yoghurt at all for the strawberry yoghurt and communicating or to mark down the price if it is still saleable. the new price to the store’s ESLs or to In addition to data from the supply chain, shoppers’ smartphones. For the latter, shoppers historical data such as how certain promotions have to be holders of a loyalty card and have done over the course of time are visualised download a special app. Alternatively, the store on this dashboard. This facilitates decision manager could also select a promotion which making for the shop manager and enables him could be sent to customers’ mobiles. Contrary to carry out the appropriate measures. to the Albert Heijn approach which marks down prices automatically, this solution addresses the For the time being, this approach exists only store manager who then triggers the necessary in SAP Research’s laboratory in Switzerland actions on the shopfloor. and has not been tested at a retailer’s store. However, there have already been several meetings with Metro Group which is very interested in the solution and was, according to the technology providers, very enthusiastic about it at CeBIT.

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2.5 Shoppers’ mobiles offer For mobile self-scanning, customers usually upselling opportunities have to sign up for a retailer’s loyalty card programme. Retailers can take advantage of The solution showcased in Regensdorf, this and use information about shoppers and For mobile self-scanning, customers usually 2.5Switzerland Shoppers’ already incorporatesmobiles offer shoppers’ their past purchases to further increase sales have to sign up for a retailer’s loyalty card upselling opportunities and compensate for losses from marked down smartphones to which price alerts and specialprogramme. Retailers can take advantage of Thediscounts solution areshowcased sent. Retailers in Regensdorf, can also go one this andproducts. use information They canabout provide shoppers customers and with Switzerlandstep further already and useincorporates customers’ shoppers’ mobiles for their pasttailor-made purchases discounts,to further increase coupons sales and promotions smartphonescross-selling to promotions. which price alerts With and the special latter, and compensatefor products for losses they mightfrom marked not have down on their discountsretailers are can sent. increase Retailers sales can of also full-priced go one itemsproducts. current They canshopping provide list, customers but which with they have stepto counterbalance further and use customers’lower sales mobiles from formarked tailor-madebought discounts, previously. coupons and promotions for products they might not have on their cross-sellingdown products. promotions. With the latter, retailers can increase sales of full-priced items current Forshopping example, list, butif a which customer they havehas logged a special to counterbalance lower sales from marked bought previously. 3 Marketing Tools However, this level of interaction requires that diet in their profile such as vegetarian or vegan down products. retailers also offer self-scanning with mobile For example,or a preference if a customer for has certain logged products, a special they will However,devices thisor shoppers’ level of interaction smartphones. requires If that this is diet in theirbe immediately profile such alertedas vegetarian once hisor vegan favourite retailersthe case, also retailers offer self-scanning can send messageswith mobile such or a preferenceveggie burgerfor certain or vegetableproducts, they is being will discounted. devicesas ‘Would or shoppers’ you like smartphones. to buy some If spaghetti this is as be immediately alerted once his favourite thewell?’ case, to retailers any customer can send who messages decides such to buy a veggie burger or vegetable is being discounted. asdiscounted ‘Would you tomatoes like to buy and some self-scans spaghetti asthem. well?’ to any customer who decides to buy a discounted tomatoes and self-scans them.

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Rather than custom-made promotions for 2.6 The GS1 Databar facilitates individual shoppers, a retailer can also segment automated mark-downs at customers into different groups according to their demographics and previous shopping the checkout baskets and send out price alerts, coupons and Since October 2010, and following on from its promotions to a group of shoppers. discontinued project with price displays (see above), Albert Heijn is testing another way to Finally, retailers can also use information tackle the problem of food waste. The retailer about a customer’s past purchases to alert automatically reduces the prices of game and them if they want to buy a product they poultry products in one store in Zaandam with already acquired during a previous shopping the help of the GS1 Databar. On the day of trip. For example, if a customer wants to expiration, checkouts at the store automatically purchase tomato ketchup, the retailer could apply a 35% discount to the normal price

send a reminder such as ‘Are you sure that 3 Marketing Tools of these products. This works because the you want to buy a bottle of ketchup? You GS1 Databar does not only carry the Global already purchased one yesterday.’ These Trade Item Number (GTIN) but can also store alerts may reduce food waste generated information such as serial numbers, lot numbers at shoppers’ homes and may improve the and expiry dates. Products from the game and retailers’ image as being sustainable and poultry range are promoted instore with their socially responsible. However, this kind of normal prices, with mark down prices also reminder can be counterproductive when it promoted on the day of expiration. comes to every retailer’s objective of selling as much as possible. Therefore, retailers While this seems to be quite a simple approach have to think twice if they want to potentially to automatically carry out discounts in order to sacrifice sales for the sake of preventing food avoid food waste, there is also a drawback. Not waste outside their stores. all retailers are ready to scan the GS1 Databar at the checkout. The global retail standards-setting organisation GS1 originally set a date of 1 January 2010 for the global adoption of this new barcode type. However, due to not all retailers being prepared, the date was pushed back to 1 January 2014. So, as of 2014, all manufacturers worldwide will be able to label their packages with the GS1 Databar as an alternative to the GTIN used today.

However, even when all retailers can read the GS1 Databar, there will still be the question of how to communicate price changes in the store. Customers will want to know which products are discounted before they head to the checkout. Overall, the GS1 Databar approach to mark

© GS1CH down perishables is certainly a more cost- In addition to the GTIN, the GS1 Databar can also store serial or lot numbers and expiry dates. effective solution. Nonetheless, it marks down prices only at the day of expiry and therefore does not offer the same possibilities as more comprehensive approaches such as the one communicated to shoppers’ smartphones.

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3. 3.Conclusion Conclusion and and outlook outlook

Looking Lookingahead, technology ahead, technology solutions solutions that help that helpAside fromAside the from pure the financial pure financial benefits, benefits, there there to avoid tofood avoid waste food will waste become will becomeincreasingly increasingly are otherare clear other reasons clear reasonswhy retailers why retailers should should importantimportant for retailers. for retailers. Quite simply, Quite anysimply, any invest ininvest tackling in tacklingthe issue. the Firstly, issue. retailersFirstly, retailers opportunityopportunity to reduce to waste reduce will waste have will financial have financial are emphasisingare emphasising their credentials their credentials through through benefitsbenefits for retailers for retailersat a time at whena time already when razoralready razortheir freshtheir produce fresh produce offer. Customers offer. Customers expect anexpect an thin marginsthin marginsare coming are undercoming growing under growingpressure. pressure.extensiveextensive and lush and product lush productoffer of fruitoffer andof fruit and vegetables,vegetables, meat, fish meat, and fish dairy and products dairy products at at The mostThe obvious most obviousapproach approach to reduce to foodreduce food all times.all Having times. aHaving well-stocked a well-stocked fresh produce fresh produce waste iswaste to optimise is to optimise order forecasts order forecasts through through departmentdepartment will give will a retailer give a aretailer key advantage a key advantage automatedautomated replenishment replenishment systems systems in such in such over lessover efficient less efficient rivals. rivals. a way thata way the thatgap thebetween gap between predicted predicted and and actual salesactual is salesreduced is reduced to a minimum. to a minimum. The The Secondly,Secondly, food waste food reduction waste reduction measures measures past decadepast hasdecade seen has leading seen groceryleading groceryretailers retailers improve improve the retailer’s the retailer’s public image public when image it when it

3 Marketing Tools achieve achievesignificant significant improvements improvements in terms in of terms comesof tocomes sustainability to sustainability and social and responsibility. social responsibility. inventoryinventory optimisation optimisation through throughinvestment investment Most retailersMost retailers already alreadytake some take measures some measures in these insystems. these systems. However, However, their impact their hasimpact hasin this area,in this including area, including donating donating food to goodfood to good typicallytypically been limited been tolimited the ambient to the ambient and and causes andcauses recycling. and recycling. However, However, these initiatives these initiatives processedprocessed chilled food chilled ranges. food ranges.The adoption The adoption of typically of typically occur after occur wastage after wastage occurs and occurs the and the new technologiesnew technologies to help theto help optimisation the optimisation of ofretailer isretailer still impacted is still impacted by the financial by the financial costs costs inventoryinventory in the key in thefresh key produce fresh produce category category is ofis wastage.of wastage. Adopting Adopting the new the technologies new technologies now firmlynow onfirmly the agendaon the foragenda retailers. for retailers. identifiedidentified above can above help can retailers help retailers avoid and avoid and limit foodlimit before food it before gets to it thisgets stage. to this stage. AlthoughAlthough automatic automatic replenishment replenishment can help can help close theclose gap, the there gap, will there always will bealways some be excess some excessWith betweenWith between 50-60% 50-60% of sales ofin salesa supermarket in a supermarket supply insupply the fresh in the produce fresh producedepartment. department. Other Otherbeing derivedbeing derivedfrom the from perishable the perishable category, category, it is it is technologiestechnologies where investment where investment will help will limit help limitestimated estimated that between that between 5-7% of 5-7% perishables of perishables are are the impactthe ofimpact wastage of wastage where it where occurs it include occurs includelost to poorlost management.to poor management. This wastage This wastage could could real-timereal-time inventory inventory management management systems, systems, impact upimpact to 4% up of to overall 4% of sales, overall with sales, only with a only a which canwhich be used can beto usedenable to dynamic enable dynamic pricing pricingsmall proportionsmall proportion being recouped being recouped through throughmark mark accordingaccording to current to stockcurrent and stock sales and forecasts. sales forecasts. downs. Asdowns. consolidation As consolidation and competition and competition within within AffectedAffected products products can quickly can bequickly identified be identified and andthe grocerythe groceryindustry industry intensifies, intensifies, and margins and margins the pricethe changed price changed accordingly. accordingly. Increasingly, Increasingly, facing constantfacing constant downwards downwards pressure, pressure, the issue the issue such changessuch changes will be communicated will be communicated to shoppers to shoppers of wastage of wastage should be should addressed be addressed as a priority as a bypriority by through throughrelatively relatively cost-effective cost-effective methods methods such suchgrocery groceryretailers. retailers. as ESLs asand ESLs smartphones. and smartphones. Going forward, Going forward, deploymentdeployment of the new of thebarcode new barcodeGS1 Databar GS1 Databar will enablewill retailers enable retailers to offer automatedto offer automated mark mark downs ondowns products on products reaching reaching their expiry their date. expiry date.

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