Retailers typically sell 97% of the food they stock. But it’s the last 3% – ie the food that doesn’t sell – that might be reducing profit margins way more than most people realise.
This week, ECR Retail Loss published my latest research on the true cost of managing unsold food in grocery retail. We found the handling cost of unsold food could reach 1.8% of sales revenue. For every £1,000 of sales, retailers should factor in £18 of hidden costs.
As well as the ‘visible’ costs of purchasing and redistributing unsold food, retailers should also include all of the ‘hidden’ costs, including staff time, exit costs and management oversight in their management information.
Mitigating these costs can unlock margin improvements. Particularly on high-waste, low-margin lines.
Doing the right thing always comes at a cost
Retailers have made real progress on food waste, as The Grocer regularly highlights.
But behind each of those schemes is a process that takes time, people, training, equipment and oversight.
Often, these are the elements that are not being measured.
Our research, which breaks down the costs for retailers in the UK and Europe, found even ‘ethical’ exit routes from charity donations to staff schemes all come with different costs attached. Staff donations are often the most cost-effective way to exit unsold food, despite not being widely used globally.
When unsold food isn’t recorded properly because teams are under pressure, or systems don’t talk to each other, retailers face unknown shrink, missed tax opportunities, or worse, accusations of greenwashing.
The 3% isn’t just food. It’s margin
One thing came through clearly: while the volume of unsold food may be small, the cost impact isn’t. Every SKU that goes unsold has already incurred a cost to serve. The risk is that buyers, merchandisers and finance teams are not building in sufficient allowance for the cost of unsold food when making inventory decisions.
That’s a big problem when it comes to improving profits. It may lead to skewed assumptions, missed forecasts, and even friction between teams.
Which is why one of our core recommendations is: treat food waste as a margin risk, not just a sustainability issue.
That means bringing waste into the core financial model. Getting the right information leads to better decisions – and higher profits.
Six takeaways for retailers
Reducing food waste isn’t easy. And it comes at a cost.
We identified six practical ways to tackle the real cost of unsold food.
- Build cross-functional teams to manage your food waste: Loss prevention, buying, operations, sustainability and finance need to work off the same data
- Tell a clearer story externally: Customers assume it costs nothing to donate food. It doesn’t. You need to factor in how you communicate this to all your key stakeholders
- Choose exit routes wisely: Donating to staff may be more cost-effective than other options, depending on your systems
- Align your KPIs: Waste KPIs need to be linked to margin and buying goals, not tracked in isolation
- Get better at record keeping: What you don’t record costs you twice, operationally and reputationally. Check you’re capturing all the data you need, and you’re sharing it with the right people
- Don’t let compliance become the ceiling: Mandatory reporting may be coming. But try to think beyond it. The end goal should always be better decision-making
You’ll never eliminate these costs. But you can reduce them. And grow your profits.
In a business where small margins matter, tackling the hidden costs of food waste could make a big difference.
Lisa Jack, professor of accounting in the Faculty of Business & Law, University of Portsmouth
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