Opinion: The True Cost of Food Waste

Fixing food waste means understanding the true cost, and root cause

Food waste has become an increasingly hot topic in the UK in recent years. Farmers, manufacturers, retailers, politicians, and consumers alike have all recognised the unacceptable extent of food waste throughout the supply chain, in stores and at home. Thanks to the excellent work of organisations such as WRAP, food waste reduction has become a major commitment for most UK retailers through the Courtauld 2025commitment. The sad fact is that one third of the food the world produces goes uneaten - almost 1bn tons of food are thrown away each year - whilst 1 in 9 people are malnourished.

UK grocery retail leads the way in managing waste; most UK supermarkets waste less than 1% of the food that enters their depots and stores. Whilst the majority of waste (~70%) actually occurs in the home, shoppers still look to retailers to help them manage this waste and indeed even own it. In recent years Tesco has stood out by notably publishing how much food they waste and their plans to reduce it, with Morrisons recently following suit. Many of the major multiples have reduced, and even stopped, the number of bulk purchase multi-saves on fresh foods (2 for £x); partly in recognition of customer frustration about food waste at home when buying fresh items on deal, but also partly in response to the rise of the discounters. Such deals expand shopper basket and make them appear even more expensive against the EDLP offering in Aldi and Lidl.

These actions have sparked a mini revolution in the Flow of Goods between retailers and their suppliers. Taking action on waste is not just the right thing to do; it drives significant business results. According to WRAP, every £1 invested in waste management drives a £14 return. Selling ‘imperfect’ products, developing and delivering new lines, reducing the cost of waste, increasing sustainable availability to customers and making packaging more environmentally sustainable, all drive sales. Moreover, waste ‘know-how’ transforms more than just your retail and brand sales; it changes shopper perception and improves their image of the retailer. Store staff spend less time handling and reducing products to clear and more time serving customers, the right products make their way to the right store, and shopper perception of food quality improves, on produce and meat in particular.

To realise these opportunities an array of UK retailers, suppliers, trade organisations and local authorities have signed up to WRAP’s Courtauld 2025 commitment, to cut the resource needed to provide the food and drink the world population needs by one-fifth over ten years, in response to the challenges faced by the food sector:

Understanding the causes of waste, wherever it occurs, is of paramount concern for all of these organisations. Retailers have been gathering and assessing waste data within their business for over 20 years; monitoring and acting on waste, damages, and reduced to clear rates as part of their range and assortment decisions in order to influence the choice that they offer to shoppers. Understanding the true cost of waste however, and the drivers which impact it - still proves complex, time-consuming and worryingly opaque to many retailers. They often rely on disconnected data silos feeding tabular reports and spreadsheets to power understanding and decision-making. Whilst all grocery retailers determine waste cost as a percentage of sales, and can measure the value of waste versus budget, their ability to assess the true cost and its effect on product margin remains elusive for most.

Indeed, many retailers assess and manage their waste almost exclusively on the infamous ‘Waste Budget’, which (in common with many such budgets) is often seen as an acceptable target rather than the worst acceptable case. Negotiating budgets at the start of the year, Fresh Food directors have been heard to utter that they have a ‘good’ or a ‘soft’ waste target for the year. Store managers relax when a new range is launched with a ‘sufficient’ waste budget to ensure that they can stock (and potentially overstock) a range to attract the shopper’s eye without worrying about the impact of reduced-to-clear on operating margin. Yet gross margin and operating margin are very definitely impacted by the lazy, aggregated approach to waste that such (sub)category budgets encourage.

This sort of thinking is outdated. We have to take responsibility for the food that we waste; as retailers, suppliers, shoppers and consumers. We need to use information in a more responsible, effective and actionable manner. Instead of meeting a waste budget, we should be beating it consistently with the aim of tending towards zero waste. We should be identifying the impact that waste has on sales, margin and customer perception, and looking at the steps we can take to reduce total waste on an item-by-item basis.

The challenge for most organisations and individuals is how to deal with the vast amounts of data required to identify primary waste drivers using the analytical tools and techniques in place. Traditional business intelligence tools require substantial IT involvement and a protracted implementation project. Spreadsheets can only shed light on aggregated data, leading to aggregated actions - a product line that exceeds its waste target is rarely given an opportunity for improvement, it just gets delisted.

This challenge isn’t isolated in waste analysis but is true of most of the decision-making in retail commercial teams today; if you can’t determine why product performance is poor then the simplest solution is to get rid of it.

So how can you collate, analyse, present and act upon large and complex datasets, simultaneously retaining access to fine-grained data, avoiding complex IT projects and empowering commercial decision makers with simple, intuitive tools? Modern technology offers a solution in the form of guided visual analytics; a blend of machine learning and data visualisation which provides the necessary power and speed whilst maintaining simple and effective engagement to enable informed, data-driven decisions.

A Waste Manager application developed this way can provide a rapid path from products which are responsible for generating excess waste, via their performance over time and across the country, through identification of waste drivers - pricing, markdown, distribution, code life, packaging, case size etc. - to specific actions which protect products when and where they do perform well  but remove them where the don’t.

This form of guided visual analytics, driving actionable insight, allows commercial decision makers to pinpoint reasons for excessive waste and target appropriate actions, with confidence and supporting evidence.

As margin metrics are combined with sales and waste data, buyers become aware of the impact that waste has on (theoretical) commercial gross profit, the real ‘discount’ you are giving to customers (through markdown from expected price), and what you should do about it; if nothing else does, this will focus buyers’ minds. The approach results in an objective “ability to sell” - a clear picture  of what sells where, within the code life of the product, given its case size, and how you can influence this to reduce waste and achieve that theoretical gross margin.

Visualising your waste data

This is incredibly valuable across buying, merchandising and supply chain teams. Instead of just removing a product, everyone can see if waste is being driven by promotional activity, an incorrect price position, whether it is ranged in the wrong stores or formats, or if it simply down to the case size or a recipe change affecting its code life. You can see where your product works across the country, in different store types, or formats, or within certain demographics and make a data-led decision on where best to stock it. As a last resort - if the product performs poorly across all factors - then the evidence for a GSCOP-compliant delisting is at hand. Now you can make an informed decision, at speed, and reduce your waste by up to 20%, without impacting shopper choice, and improving quality perception.

Buyers and Supply Chain managers who have used this visual approach have become evangelical about it; they aren’t just saving time and removing the pain of ‘spreadsheet hell’, they are identifying new patterns and trends in the underlying causes of waste, changing store listings (in compliance with GSCOP), and generating significant savings. More importantly they are meeting the expectation of their customers in helping them to waste less; how many times have you bought something that has been reduced to clear only to dispose of it yourself at home as the expiry date glares balefully at you from the fridge?

When you are well-informed, delisting really does become the action of last resort rather than a blunt instrument. You can instead collaborate with your suppliers to address the issues and make the changes that the product really needs. Working together everyone benefits: from producers, through manufacturers and retailers, to shoppers and consumers. Global waste reduction initiatives, such as Courtauld 2025, require clarity of purpose driving informed action - this way we can collectively reduce not only the impact of waste on the bottom line but also across the globe.

Ian started his career as a buyer at Tesco, followed by several years in grey-market procurement and supply, as well as branded sales roles. He has been Commercial Director at Atheon Analytics for 12 years.

Atheon help FMCGs and Retailers to make better use of their ‘Flow-of-Goods’ data through their service SKUtrak®

ian hall