Relationship of Packaging to Unsaleables Presented by: Paul Weitzel Managing Partner - Willard...

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)


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)


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

http://media.photobucket.com/image/ups%20truck/pilot_spoon/ups_truck.gif?o=5

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


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


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


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


Avg. Days-of-Supply Across Food/Drug Supermarket

Average Grocery Store Days-of-Supply


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

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


Paperboard Packaging 101• Three different testing methods employed

• Physical testing of products at Michigan State University

• GENCO’s Damage Research Team

• Perception Research Services


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)


• 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)


• 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

Study Findings

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

Relationship of Packaging to Unsaleables Presented by: Paul Weitzel Managing Partner - Willard...

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