relationship of packaging to unsaleables
DESCRIPTION
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. - PowerPoint PPT PresentationTRANSCRIPT
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)
Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
Whse Whse Whse Whse Store Store Store StoreLabor Storage Inventory Transport Direct Labor Indirect Labor Occupancy Inventory
PER UNIT $0.02 $0.01 $0.00 $0.01 $0.13 $0.05 $0.13 $0.005.7% 2.9% 0.0% 2.9% 37.1% 14.3% 37.1% 0.0%
$0.02 $0.03 $0.03 $0.04
$0.17
$0.22
$0.35 $0.35
Retailer ABCs to Shelf
Average HBC ABC Per-Unit Sold(Through Retailer Warehouse)
Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
Whse Whse Whse Whse Store Store Store Store
Labor Storage Inventory Transport Direct Labor Indirect Labor Occupancy Inventory
PER UNIT $0.06 $0.03 $0.02 $0.02 $0.24 $0.18 $0.73 $0.044.5% 2.3% 1.5% 1.5% 18.2% 13.6% 55.3% 3.0%
$0.09$0.06$0.11
$1.32
$0.13
$0.37
$0.55
$1.28
Grocery HBC
Price $2.28 $4.45Cogs $1.62 $3.07AGP $0.66 $1.38
ABCs $0.35 $1.32True Profit $0.31 $0.06
Gross Margin* 28.9% 31.0%True Margin 13.6% 1.3%
Retailer Profit After ABCs to Shelf
Supermarket True Profit If Unit Sold
* Includes promotional monies, slotting RDAs, etc.Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
Retailer Profit After Unsaleables
Retailer Profit After Unsaleables
* Includes promotional monies, slotting RDAs, etc.Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
Grocery HBC
Price $2.28 $4.45Cogs $1.62 $3.07AGP $0.66 $1.38ABCs $0.35 $1.32True Profit (TP) $0.31 $0.06Unsaleables $0.02 $0.04TP After Unsaleables $0.29 $0.02
TPM% After Unsaleables 12.6% 0.3%
Product Gets tothe 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
Damaged, 41%
Discontinued; 22%
Out-of-Code; 27%
Other; 10%
Share of Unsaleables(By Type)
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
0%
5%
10%
15%
20%
25%
30%
13%
22%20%
17%
22%
27%
200320082010
Discontinued Out-of-Code
Unsaleables Trend
Source: The Impact of Sales & Procurement on Reverse Logistics Management, GMA/FMI 2010
Average Grocery Store Inventories Dollars on Shelf
Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
Avg. Inventory $ in Food/Drug Supermarket
Grocery $384,000 24.2%GM $214,000 13.5%Pharmacy $205,000 12.9%HBC $202,000 12.7%Liquor $187,000 11.8%Deli and Foodservice $146,000 9.2%Frozen $65,000 4.1%Meat $47,000 3.0%Dairy $40,000 2.5%Produce $39,000 2.5%Bakery $20,000 1.3%Seafood $19,000 1.2%Packaged Deli $15,000 0.9%Floral $7,000 0.4%
Total $1,590,000 100%
Average Grocery Store Days-of-Supply
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
Avg. Days-of-Supply Across Food/Drug Supermarket
Average Grocery Store Days-of-Supply
Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
Natural and Organic Baking Supplies 109 Vinegar 28
Ethnic/Specialty 94 Dry Bean Veg and Rice 28
Asian 84 Pickle 28
Meat Snack 77 Fruit Snacks 28
Dry Mix 67 Baby Food 27
Shelf Stable Milk and Milk-Like Bev 57 Salad Dressing 27
Tea 50 Chili 26
Natural and Organic Prepared Foods 50 Condiment 26
Cake Decorating 48 Prepared Entrees and Kits and Sauces 26
Mexican 43 Dry Packaged Dinners 26
Kosher 42 Packaged Milks and Modifiers 26
Spices 40 Oil 25
Dessert 37 Syrup 25
Canned Meat Hashes and Stews 35 Cookie 25
Dog Food 34 Potatoes Packaged 24
Fabric Softener 34 Canned Fish 24
Drink Mix 32 Baking Ingredients 23
Jelly 31 Candy 21
Gum 30 Pancake Mixes 21
Coffee 30 Tortilla 21
Nuts 28 Baking Mixes 21
High DOS Grocery Categories in Typical Food/Drug Supermarket
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
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
• 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
Solid Bleached Sulfate (SBS)Solid Bleached Sulfate (SBS)
Performance materials
• 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
Coated Unbleached Kraft (CUK)Coated Unbleached Kraft (CUK)
Performance materials
• 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
Coated Recycled Board (CRB)Coated Recycled Board (CRB)
Study Scope
• Purpose: Document the percentage and types of damage of various substrate materials at Gulf Coast retail store outlets– CNK, CRB, SBS, SUS
• 100 retail stores across multiple chains• Gulf Coast United States• 28,000+ packages inspected
Retailer Store CountWal-Mart 22Winn-Dixie 20Publix 17Albertson’s 11Market Basket 8Target 5HEB 4Kroger 3Adriens Supermarket 1Brookshire Brothers 1Calandros Supermarket 1Food Lion 1Le Blancs 1Mathews Supermarket 1Piggly Wiggly 1Rouses Market 1Save A Lot 1Sweet Bay 1TOTAL 100
Baton Rouge, LA Tallahassee, FL
New Orleans, LA Port Arthur, TX
Corpus Christi, TX Gainesville, FL
Lake Charles, LA
Damage Rate By Material Type
Material Units Inspected Crushed Units Open UnitsTotal crushed
and open units Damage Rate
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
Product packaged in CRB is 4x more likely to suffer damage than Custom Kote
0
100
200
300
400
500
600
Damage per 100,000 Cartons
CUK 1 CUK 2 SBS CRB
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
0
10
20
30
40
50
60
70
AmbientConditions
After 5Freeze-Thaw
Cycles
CNK
SBS
CRB
Peak Force (lbs)
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