Transcript Slide 1

Relationship of Packaging to
Unsaleables
Presented by:
Paul Weitzel
Managing Partner - Willard Bishop
&
Mike Stuckey
Director of Marketing, Food Packaging - MWV
Topics
• New Insights on the Real Cost-to-Serve the Grocery
Store
• Implications for Packaging
• Research into Unsaleables
Grocery Store Realities
For a Typical Food/Drug Grocery Store:
• There are more than 200 categories in the store
– 1 in 4 categories lose money today
• There are 40,000 SKUs in the center store
– 57% of center store SKUs lose money = 23,000 SKUs
• Many SKUs sit on the shelf
– 56% of SKUs sell less than one unit per week
– 95% of center store demand is covered by 46% of the SKUs
Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
Retailer ABCs to Shelf
Average Grocery ABC Per-Unit Sold
(Through Retailer Warehouse)
$0.35
$0.35
Store
Occupancy
Store
Inventory
$0.13
37.1%
$0.00
0.0%
$0.22
$0.17
PER UNIT
$0.04
$0.03
$0.03
Whse
Labor
Whse
Storage
Whse
Inventory
Whse
Transport
$0.02
5.7%
$0.01
2.9%
$0.00
0.0%
$0.01
2.9%
$0.02
Store
Store
Direct Labor Indirect Labor
$0.13
37.1%
Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
$0.05
14.3%
Retailer ABCs to Shelf
Average HBC ABC Per-Unit Sold
(Through Retailer Warehouse)
$1.28
$1.32
$0.55
$0.37
$0.06
PER UNIT
$0.09
$0.11
$0.13
Whse
Whse
Whse
Whse
Labor
Storage
Inventory
Transport
$0.06
4.5%
$0.03
2.3%
$0.02
1.5%
$0.02
1.5%
Store
Store
Direct Labor Indirect Labor
$0.24
18.2%
Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
$0.18
13.6%
Store
Store
Occupancy
Inventory
$0.73
55.3%
$0.04
3.0%
Retailer Profit After ABCs to Shelf
Supermarket True Profit If Unit Sold
Grocery
HBC
Price
Cogs
AGP
$2.28
$1.62
$0.66
$4.45
$3.07
$1.38
ABCs
True Profit
$0.35
$0.31
$1.32
$0.06
Gross Margin*
True Margin
28.9%
13.6%
31.0%
1.3%
* Includes promotional monies, slotting RDAs, etc.
Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
Retailer Profit After Unsaleables
Retailer Profit After Unsaleables
Grocery
HBC
Price
Cogs
AGP
ABCs
True Profit (TP)
Unsaleables
TP After Unsaleables
$2.28
$1.62
$0.66
$0.35
$0.31
$0.02
$0.29
$4.45
$3.07
$1.38
$1.32
$0.06
$0.04
$0.02
TPM% After Unsaleables
12.6%
0.3%
* Includes promotional monies, slotting RDAs, etc.
Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
Product Gets to
the Store Many Ways
Typical Grocery Store Gets More than 80 Deliveries a Week:
• 65+ DSD Deliveries a Week
• 10+ Warehouse Deliveries a Week
• 5+ Distributor and Other (UPS) Deliveries
Product Is Also Handled Many Ways
In the Backroom…
• Backrooms can look like parking lots and receivers serve as
traffic cops
– Daily Delivery Storage
– Promotional Volume Storage
– New Item Storage
– Surplus DSD Inventory Storage
– Lockup Storage
– Seasonal Storage
• Cases are often ripped open and verified
Product Is Also Handled Many Ways
In the Backroom…
• Backrooms can look like parking lots and receivers serve as
traffic cops
–
–
–
–
–
–
Daily Delivery Storage
Promotional Volume Storage
New Item Storage
Surplus DSD Inventory Storage
Lockup Storage
Seasonal Storage
• Cases are often ripped open and verified
• We have to deal with cold, heat, pallet jacks, lifts, elevators,
and obstacles that test packaging design and strength
Product Is Also Handled Many Ways
On the Sales Floor…
• Product is often double and even triple handled
– Night stocking crew often can’t complete their work, lack of
time creates excess damage
– Packout rules are often violated, lack of >1.25 packout
creates excess handling and increases damage
• When we stock, we have to deal with…
– Flat shelves, dividers, pegs, gravity, spring-loaded pushers,
rear load, doors, pallets, cases, trays, and other obstacles
• Increasing interest to reduce labor costs
– Front-facing fixtures gaining attention
– Increasing interest in retail-ready and one-touch
merchandising
Packaging Plays an
Important Role in Reducing Costs
Share of Unsaleables
(By Type)
Other, 10%
Damaged, 41%
Out-of-Code,
27%
Discontinued,
22%
Source: The Impact of Sales & Procurement on Reverse Logistics Management, GMA/FMI 2010
Looking Ahead
What are the Implications for Packaging?
• ABCs show there is no room for waste, we have to continue to
tackle this $2.5B industry opportunity
• Need to improve packaging materials
• Need to reconsider case
pack size changes
– Increasing pressure
to reduce inventory
– Leverage to grow in
alternative channels
Unsaleables Trend
30%
27%
25%
20%
20%
15%
22%
22%
17%
2003
13%
2008
10%
2010
5%
0%
Discontinued
Out-of-Code
Source: The Impact of Sales & Procurement on Reverse
Logistics Management, GMA/FMI 2010
Average Grocery Store
Inventories Dollars on Shelf
Avg. Inventory $
in Food/Drug Supermarket
Grocery
GM
Pharmacy
HBC
Liquor
Deli and Foodservice
Frozen
Meat
Dairy
Produce
Bakery
Seafood
Packaged Deli
Floral
Total
$384,000
$214,000
$205,000
$202,000
$187,000
$146,000
$65,000
$47,000
$40,000
$39,000
$20,000
$19,000
$15,000
$7,000
24.2%
13.5%
12.9%
12.7%
11.8%
9.2%
4.1%
3.0%
2.5%
2.5%
1.3%
1.2%
0.9%
0.4%
$1,590,000
100%
Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
Average Grocery Store
Days-of-Supply
Avg. Days-of-Supply
Across Food/Drug Supermarket
Department
Avg. DOS
HBC
69
GM
63
Deli and Foodservice
31
Liquor
27
Pharmacy
25
Grocery
18
Seafood
15
Frozen
15
Packaged Deli
12
Floral
12
Meat
9
Bakery
9
Dairy
7
Produce
6
Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
Average Grocery Store
Days-of-Supply
High DOS Grocery Categories
in Typical Food/Drug Supermarket
Natural and Organic Baking Supplies
Ethnic/Specialty
Asian
Meat Snack
Dry Mix
Shelf Stable Milk and Milk-Like Bev
Tea
Natural and Organic Prepared Foods
Cake Decorating
Mexican
Kosher
Spices
Dessert
Canned Meat Hashes and Stews
Dog Food
Fabric Softener
Drink Mix
Jelly
Gum
Coffee
Nuts
109
94
84
77
67
57
50
50
48
43
42
40
37
35
34
34
32
31
30
30
28
Vinegar
Dry Bean Veg and Rice
Pickle
Fruit Snacks
Baby Food
Salad Dressing
Chili
Condiment
Prepared Entrees and Kits and Sauces
Dry Packaged Dinners
Packaged Milks and Modifiers
Oil
Syrup
Cookie
Potatoes Packaged
Canned Fish
Baking Ingredients
Candy
Pancake Mixes
Tortilla
Baking Mixes
Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
28
28
28
28
27
27
26
26
26
26
26
25
25
25
24
24
23
21
21
21
21
Typical
Grocery
POGs are
Developed
Based on
7 DOS
Looking Ahead
What are the Implications for Packaging?
• Need to plan for increasing use of front-facing fixtures
– Increasing pressure to reduce labor costs
– Eliminates afternoon pulls but, often increase damage
• Need to plan for more retail-ready handling
– Full pallets, half pallets, shippers, trays, etc.
• Increasing use of shopper insights will drive more shelf changes
and packaging will need to keep pace
Damaged Packaging Research
Unsaleables Background
• Unsaleable products cost the food industry $15 billion annually
– Average unsaleables rate is .8% of gross sales for food manufacturers and 1.2% of gross
sales for food retailers
• While these costs are significant, they are only part of the story
– Substantial resources associated with managing, handling, transporting and reclaiming
these products
– Reproducing the wasted food has a major environmental and economic impact
• Product packaging is a major component of unsaleable products
– Increasing use of “eco-friendly” CRB packaging
– Certain packaging configurations simply cannot withstand the stress of the supply chain,
resulting in increased damage rates
• Given the financial implications to manufacturers and retailers, MWV
regularly conducts research to understand how material selection affects
product damage
Source: GMA, FMI and Deloitte Consulting LLP 2008 Unsaleables Study Results
Research Process
• Three different testing methods employed
• GENCO’s Damage Research Team
• Physical testing of products at Michigan State University
• Perception Research Services
Source: GMA, FMI and Deloitte Consulting LLP 2008 Unsaleables Study Results
Paperboard Packaging 101
• Three different testing methods employed
• Physical testing of products at Michigan State University
• GENCO’s Damage Research Team
• Perception Research Services
Source: GMA, FMI and Deloitte Consulting LLP 2008 Unsaleables Study Results
Performance materials
Solid Bleached Sulfate (SBS)
•
•
•
•
•
Bleached paperboard for use in
packaging and printing applications
Aseptic board for non-refrigerated food
and beverage packaging
Specialty paperboard for food and
healthcare applications
Premium coated liner and bleached
display liner for corrugated boxes
Uncoated board for use
in foodservice and office products
Performance materials
Coated Unbleached Kraft (CUK)
•
Used in beverage multi-packs, food
folding cartons, and filter frames
•
Superior wet tear strength substrate
for beverage packaging
•
High strength folding cartonboard
with a smooth printing surface
engineered for demanding markets
such as frozen foods
Performance materials
Coated Recycled Board (CRB)
•
Lowest cost per ton of any substrate
•
Mostly used for dry foods (cereal,
crackers, cookies, etc.) and
applications that don’t require high
strength requirements. Occasionally
used in frozen food applications.
•
Perception of sustainability since
made with 100% recycled content
Study Scope
• Purpose: Document the percentage and types of damage of various substrate materials
at Gulf Coast retail store outlets
– CNK, CRB, SBS, SUS
Retailer
Store Count
• 100 retail stores across multiple chains
Wal-Mart
22
Winn-Dixie
20
• Gulf Coast United States
Publix
17
Albertson’s
11
• 28,000+ packages inspected
Market Basket
8
Baton Rouge, LA
Tallahassee, FL
New Orleans, LA
Port Arthur, TX
Corpus Christi, TX
Gainesville, FL
Lake Charles, LA
Target
HEB
Kroger
Adriens Supermarket
Brookshire Brothers
Calandros Supermarket
Food Lion
Le Blancs
Mathews Supermarket
Piggly Wiggly
Rouses Market
Save A Lot
Sweet Bay
TOTAL
5
4
3
1
1
1
1
1
1
1
1
1
1
100
Study Findings
Damage Rate By Material Type
Material
Total crushed
Open Units and open units Damage Rate
Units Inspected
Crushed Units
CUK 1
3,255
4
0
4
0.13%
CRB
5,265
22
6
28
0.53%
SBS
11,202
21
14
35
0.32%
CUK 2
8,566
8
11
19
0.22%
TOTAL
28,288
55
31
86
0.31%
100% of the units on the shelf were inspected
In-Store Damage Research
• GENCO Supply Chain Solutions is a third party logistics company
– Leader in Damage Research & Prevention
• MWV commissioned a study in June of 2009 to assess damage frequency
– Examined over 28,000 frozen food packages in 100 retail stores
Damage per 100,000 Cartons
600
500
400
300
200
100
0
CUK 1
CUK 2
SBS
CRB
Product packaged in CRB is 4x more likely to suffer damage than Custom Kote
Freeze-Thaw Compression Strength
• MWV commissioned the research with Michigan State University in 2005
• Compression strength is the ability of a carton to hold its shape and form
• For food manufacturers, this translates into how well the paperboard used
withstands freeze-thaw moisture
70
60
50
40
30
CNK
20
10
SBS
CRB
0
Peak
Force
(lbs)
Ambient
After 5
Conditions Freeze-Thaw
Cycles
Custom Kote retains 46% of its original strength; CRB retains only 27%
Consumer Behavior
• MWV commissioned a study with Perception Research Services
– Independent research firm that utilizes a variety of techniques to understand shopper’s
perception of damaged products
• Findings
– 75% of shoppers will push a damaged package aside
– If a slightly damaged package is the last one on the shelf, 45% will leave the brand and
29% will buy another brand
– If a highly damaged package is the last one on the shelf, 55% will leave the brand and
36% will buy another brand
– For competitive shoppers, “Brand you trust” perception drops from 73% to 41% with
even slight damage
– 25% of the most brand-loyal shoppers question the safety of the product when the
package is only slightly damaged
– 72% viewed the retailer displaying damaged packaging as offering lower value products
than their competitors
Damaged packaging diminishes brand and retailer trust
Research Summary
• Michigan State study revealed that MWV's Custom Kote has a significant
compression strength advantage over competitive products in a freeze
thaw environment
• Genco Unsaleables Study found that Custom Kote is 4x less likely to be
damaged than products packaged in CRB
• Perception Research Consumer Behavior study confirmed that damaged
products have a quantifiable impact on the shopper and their perception
of the brand and the retailer
MWV’s Custom Kote is the benchmark packaging material to help protect against
the lost sales and diminished trust associated with damaged packaging