Originally printed in the February 2020 issue of Produce Business.
It may be the cost of doing business, but savings can be obtained by diligence, technology and proper training.
Shrink is a good thing when it means a trimmer waist size. In produce departments, shrink, or the costs associated with throwing out rather than selling fresh fruits and vegetables, isn’t good for business.
Yet, shrink is widely accepted as a normal part of doing business when it comes to perishable products. Case in point: while total store shrink averaged 3.1%, according to the Food Retailing Industry Speaks 2019, published by the Food Marketing Institute (FMI), headquartered in Arlington, VA, fresh departments with the exception of dairy experienced much higher shrink. Specifically, produce averaged 5.3% shrink in 2018. This compares to deli (8.7%), bakery (8.5%), fresh prepared foods (8.1%), seafood (7.6%) and meat (5.7%).
“Shrink at retail has always been a problem,” says Dick Spezzano, president of the Monrovia, CA-based Spezzano Consulting Service, — who served as vice president of produce and floral for the Vons Companies for 17 years prior to the chain’s purchase by Albertsons. “That said, I would say most retailers have reduced their shrink over the past 15 years due to a variety of reasons such as good cold chain practices by growers, better delivery equipment from growers/ports of arrival to the produce distribution center, more frequent deliveries to retail and better retail equipment. However, for many retailers shrink in the past five years has flattened out or has gone up slightly.”
What is the optimal percent of produce shrink at retail? There’s not one industry standard. However, retailers agree this number should not be zero.
“The object is to optimize the shrink, not control shrink. When you try to control shrink, the unintended consequence is you control sales,” explains Mike O’Brien, vice president of sales and marketing for Monterey Mushrooms, in Watsonville, CA, who worked for more than 30 years, nearly half of these as vice president of produce and floral, at St. Louis-based Schnuck Markets. “How? For one, you control the produce available for sale, which impacts your variety and fresh produce image. Secondly, your clerks are afraid to cull and pitch, thereby leaving poor quality product on the shelf or rack. That’s why I use the term optimize.”
CAUSES & CURES
1. ORDERING: “Ordering is by far the leading cause of shrink in a produce department today. If a produce manager or buyer over-orders for a store or group of stores it can increase shrink very quickly,” says Mike Roberts, director of produce operations at Harps Food Stores, an 81-store chain based in Springdale, AR.
“Our most effective shrink program is just simply making sure that we order correctly at store level and at the buyer’s level. Sometimes it isn’t always knowing how much to buy, but what to buy. You don’t have to take advantage of every deal that comes across your desk, but instead take advantage of the ones that make sense for your stores or market area,” he says.
Roberts adds that he encourages produce managers to make out their orders on the sales floor after a thorough inventory of product in the backroom. He also coaches staff on the use of tools that show weekly movement on items and movement compared to the same time a year ago.
“It’s important to have technology that can aggregate orders to multiple suppliers,” says Todd Bernitt, vice president of managed services for Eden Prairie, MN-headquartered Robinson Fresh, which offers its Managed Procurement Services (MPS). The product is a customized solution for inbound supply and outbound distribution along the entire supply chain that provides key components, such as order management, contract management and data control and analysis. “Companies have access to data that tracks performance over time, creating the fact base for long-term initiatives to maximize sales and minimize costs and waste, including shrink.”
Technology and logistics have probably been the biggest contributors to reducing waste, according to Maria Brous, director of media and community relations for Publix Super Markets, a 1,239-store chain headquartered in Lakeland, FL. “Technology has greatly improved forecast accuracy at a retail level, which in turn rolls up to the buyers and ultimately the suppliers. We have the ability to work with our farmers on projected needs in the future.”
Optimizing ordering is especially important looking forward, adds Bernitt. Customers increasingly expect fresh foods delivered in multiple ways, from traditional brick-and-mortar, to in-store pickup and increasingly, via online shopping. In fact, in the next two to five years, it’s predicted 70% of grocery shopping will be done online. With this many shopping and delivery mediums, it will become even more important for retailers to be able to accurately predict where and how much product inventory is needed without increasing shrink.
2. EMPLOYEE TRAINING. Poorly trained produce clerks can increase shrink.
In particular, improper rotation at the store or warehouse level can cause massive amounts of shrink very quickly, according to Harps Food Stores’ Roberts. “We coach our produce managers on rotation. While a 100% rotation is the best method, you have to live in the real world also, so in some larger volume stores we teach a side-to-side rotation to improve efficiency. However, the main importance at any location is we have to rotate on every fill.”
Additionally, train clerks in proper culling, recommends Monterey Mushroom’s O’Brien. “What is good quality? It’s very subjective. Dated product is easy. Bulk items not so much. Would you buy it? Off times you see poor quality on the shelf and good product in the cooler. The clerks want to sell the product on the shelf before they restock with the product in the cooler. This will increase shrink and kill your sales.”
Overall, “train on the topics of proper merchandising temperature and storage zones, proper handling, display inventory levels, rotation, culling, ordering etc. Shrink management is a system, where many of the moving parts can impact others if not managed properly,” says Jonathan Raduns, founder, Merchandise Food, Retail Food Consulting, in Cherry Hill, NJ.
3. ALLOCATION & ASSORTMENT. Consumer demand for greater variety, with the number of produce department SKUs increasing from 300 to more than 1,000 in the past three decades, can make shrink management tougher than ever.
“We work hard to offer an assortment of fresh seasonal, flavorful fruits and vegetables to exceed our customers’ expectations. In the pursuit of flavor and new and interesting products, we’re consistently sourcing new varieties and unique offerings to pique our customers’ interest. Although the strategy is successful, additional cost can be incurred due to the increased variety,” notes Publix Super Markets’ Brous.
Poor product or poor commodity allocation is one area that gets overlooked as a major cause of shrink, according to Harps Food Stores’ Roberts.
“Improper allocation can cause shrink or affect several key areas: lost sales, increased shrink and can even affect the department’s labor percentages. Consequently, proper allocation of items and commodities is one of my main areas to check. We are lucky enough to have five field merchandisers who check this regularly at our locations. They look at sales on key items and key commodities to make sure we are allocated properly at each location. Each location has to be looked at differently because not every customer base is the same. So, while the store may be set up the same or have the same fixtures, it could have a totally different look.”
Beyond this, consider assortment.
“Evaluate duplicate SKUs. Do you need a conventional and an organic kohlrabi? Keep the organic and discontinue the conventional,” suggests Monterey Mushrooms’ O’Brien.
A number of years ago, Safeway did what they call reengineering of their bakeries, floral, fish and deli departments as all of these are very high shrink departments, explains Spezzano Consulting Service’s Spezzano. “They found out variety in these departments was no way near as important as large displays of high-volume items. They also discovered they could move some of the variety they discontinued back to the stores on a limited bases and at better retail prices. This all leads to a significant reduction in shrink in all of these departments.”
4. COLD CHAIN. Utilize great refrigeration, says Monterey Mushrooms’ O’Brien. “Refrigeration is your friend.”
Cindy Jewell, vice president of marketing for California Giant Berry Farms, in Watsonville, CA, agrees. “I think the best defense against shrink is proper rotation and cold chain management, which means using refrigerated displays for berries. The old saying is ‘one hour out of refrigeration results in a loss of one day of shelf life.’ I still believe this is very true.”
Many of the new and specialty items are packaged, which in addition to being refrigerated helps reduce shrink. Yet, one of the areas that hasn’t improved for most chains is the apple category, according to Spezzano Consulting Service’s Spezzano. “Apples require temperatures of 34 to 36 degrees Fahrenheit, yet most chains display them on non-refrigerated displays. This increases the shrink, and more importantly the consumer will keep the apples unrefrigerated at home and it will reduce the shelf life and eating experience.”
5. SUPPLY PARTNERS. Variables like weather and logistics all play a part in shrink, but perhaps an even bigger element prior to produce arriving at retail lies with the supply partners.
A good example, recounts Rick Stein, FMI’s vice president of fresh foods, who enjoyed a 26-year career in retail with Safeway, most recently as vice president of retail merchandising and marketing execution, starts with a retailer ordering 120 cases of avocados for a Super Bowl promotion. “If the fruit comes in rock hard, then Monday morning you could be sitting on 119 cases of unripe shrink. So, you start with a 2/$3 discount, then 99-cents each by Wednesday, 2/$1 on Thursday, then $4/$1 at the weekend or moving to a salad bar or in-store guacamole program, if a retailer is able to do this. In the end, you still could be down 35 to 40 cases lost, not to mention the additional sales lost because of discounted product.”
“Having strong suppliers who know your specs helps keep shrink in check,” says John Savidan, senior director of produce and floral for Gelson’s Markets, a 27-store chain based in Encino, CA. “In fact, to reduce shrink you have to start with good suppliers who deliver high quality products, price these products competitively enough to avoid insult pricing, and then you must merchandise for turns.”
Involve your supply partners in your shrink optimization planning, recommends Monterey Mushrooms’ O’Brien. “Hold them accountable. But share your scan data with them so they can be your partner.”
6. HAVE A PLAN. “We have a shrink program in place at store level, and we monitor them from the home office.” says Roberts of Harps. “This is a simple program, which mandates the produce manager log items each day that are being thrown away. We have improved this system by being able to scan PLU and UPC items. The produce manager, merchandiser, buyer, district manager or whomever, would want to look at the store or the company by any date range they choose to see what our top shrinking items are for that period. It’s a good measure, and one that we use daily to make decisions.”
7. PROGRAMS. One of the best solutions for unsold produce that is still fit for consumption is finding other outlets, says Gelson’s Markets’ Savidan. “Some top performers are in-house cut-fruit and veg-programs, transferring to another department within the store, or using some type of a markdown vehicle.
Composting, cross-usages, food banks and “ugly” programs may, or may not, help control shrink.
Some large retailers have a composting program, according to Spezzano Consulting Service’s Spezzano. “They contribute produce that is still good as well as bakery and other perishables. In addition, they box up all of their bad produce and trimmings, and either an outside company picks it up or it goes back to their produce distribution center for pick up to a composting company. When I was at Vons, we initiated this program, and it was very successful. We eliminated 80% of our store trash pickup, reduced our landfill impact, paid a charge to the composting company, and we worked with our organic and conventional growers to provide them with compost. And, in fact, we developed our own bag and sold it as Von’s Organic soil mix. It turned out to be profitable, but, more importantly, we had a nice marketing story to tell our customers.”
Food banks are a great resource to help prevent food waste. But, says Monterey Mushrooms’ O’Brien, it won’t help your shrink. You should do it, because you are helping people. But, if you optimize your shrink well, you may give less to the food bank. Similarly, ‘ugly’ produce has its place. But it’s not for every store or demographic. You may be adding an SKU at a reduced retail, and your customer either buys down or you add to your shrink.”
