Oliver Wyman: Improve freshness to reduce waste

27 July 2015 Consultancy.uk

Of the seven truckloads of the fresh perishable food delivered to a supermarket, one is thrown out. This waste is known as the ‘shrink’ and, besides being a waste of food and the resources used to produce it, costs supermarkets a considerable margin. A report from Oliver Wyman highlights the importance of freshness that perishables bring in and considers moves retailers can make toward reducing waste and improving customer satisfaction.

In the ‘A Retailer’s Recipe: Fresher Food and Far Less Shrink’ report from Oliver Wyman, the consequences of freshness and shrink are considered in relation to customers and the bottom line. The study involves an online survey conducted by Oliver Wyman and Ipsos Interactive of 8750 consumers.

Freshness counts
In the study, a key message comes to the fore: consumers are put off by food that is not fresh, with nearly two-thirds of customers changing their shopping behaviour as a result of bad products on display or unsatisfactory purchased foods. In terms of what is important to food shoppers in their shopping journey, freshness comes out far ahead of other considerations, at 60% agreeing it is the most important. The second most important, price, is only seen as the most important driver of satisfaction for less than 15%. Variety comes in third in terms of importance to shoppers and staff last. 

Importance of freshness

The importance placed on freshness comes with consequences for retailers as costs of shrinkage are high. The Oliver Wyman report finds that freshness, by attracting customers as well as managing shrinkage, can save $10 billion a year. Customers that are satisfied with freshness spend more than a third more in the produce department of their primary store compared to those who are not satisfied. At the same time, customers will spend 8% more of their total grocery spend exclusively with the retailers whose produce they are pleased with than the shoppers who are not happy with that store’s produce.

Solving the problem
According to the researchers, many executives and shareholders often do not know that the problem of shrinkage exists or its size. “If retailers’ shareholders were to know this – and see how shrink reduction can make or break profitability in perishables – retail executives would be far more likely to look at the problem anew.”

Reducing shrink in a North American grocer

The problem is difficult to tackle, however the consulting firm notes that progress can be made. By developing a rigorous analytic understanding of the issues across the whole company, and setting key metrics for improvement, it is “possible to rapidly build up a quantitative, cross-company picture that no single executive has probably ever seen.” Furthermore, by getting company executives to tackle the issue and by creating a strategy towards improving freshness waste management, with the appointment of a ‘Chief Freshness Officer”, considerable gains can be made

As an example, Oliver Wyman relates that a North American retailer that started taking the issue seriously, and actively worked towards improving the situation, was able to save $10 million in the first year. After three years of cumulative efforts, the firm was able to realise $100 million in annual benefits. At the same time, there was a measurable increase in the freshness of the product and in the customers’ satisfaction.

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