The retail grocery industry has never been more in flux. Amazon’s purchase of Whole Foods transformed the landscape as the online giant planted its foot squarely in the food segment and cut prices, forcing other grocers to follow suit and kicking off a price war. Newer market entrants like Lidl and Aldi are further forcing down prices. Changes in trucking laws relating to electronic logging devices (ELDs) are likely to drive the cost of shipping and goods higher. Then there’s the issue of the increasing scope of e-commerce with curbside pick-up and delivery models, with InstaCart seemingly partnering with everyone and Target purchasing Shipt. It’s almost the perfect storm.
What’s the immediate impact of this on retail grocers? They are all trying to control prices to win business in this hypercompetitive market – and margins are feeling the squeeze.
So—isn’t this going to have an impact on the customer? A recent Wall Street Journal article, Grocers Absorb Rise in Food Prices to Keep Customers From Straying (subscription required), reported that, while food costs are increasing, consumer prices aren’t. The article states that, while the food portion of the producer-price index went up 3.5% annually in November, consumers paid just 0.6% more for groceries. This is the widest spread in the two numbers seen in more than three years.
This means that grocers are trying to figure out how to manage shrinking margins while retaining customers. They’re trying to cut costs. Some are fining suppliers for late or incomplete deliveries. (This isn’t a viable long-term solution by the way. More on that in a future blog.)
Analysts say they expect retailers’ margins to suffer if they keep this up. Ryland Maltsbarger, associate director of the Agriculture Pricing and Purchasing Service at IHS Markit, says that “Grocers will have to cut more costs to absorb the expense. They are having to get much better at negotiating with their suppliers. They are going to have to go after them.”
Why not work with the suppliers instead of “going after them”…especially if by working with them you can cut costs?
Working with suppliers, especially when it comes to fresh produce, can really have an impact on ROI. According to the NRDC’s updated report Wasted, about 10-12% of fruit and vegetables are wasted at the retailer – tossed in the garbage or perhaps recycled. In either case, it is profit margin being tossed into the dumpster.
It doesn’t have to be that way.
One reason so much food is wasted is that it is not properly handled and managed in the supply chain. Temperature variations impact the remaining shelf life of the produce from harvest to the retailer. From our experience with growers and retailers, one-third of the produce delivered to retailers doesn’t have enough remaining shelf life to make it to the consumer because it lacks sufficient freshness. As it sits on the shelf, it goes bad, forcing retailers to cull it and toss it.
Much of this waste can be avoided. Technology today allows us to dynamically calculate the remaining shelf life for each pallet of produce from harvest to distribution center to the retailer to maximize value and freshness. By working with suppliers, we can track and monitor the handling and quality of each pallet from the field and enable the seamless matching of the retailer’s freshness needs with the actual produce freshness.
This means that the produce retailers receive has sufficient shelf life for the retailer and consumer and waste is dramatically reduced – by up to 50% or more. This directly benefits retailers’ profit margins.
So, if you’re trying to cut costs and improve margins, consider starting in your produce department by reducing waste. Not only will your margins improve, but you’ll also be providing your customers with fresher produce that keeps them coming back to your store.