Relationship of Packaging to Unsaleables Presented by Paul Weitzel Managing Partner Willard Bishop amp Mike Stuckey Director of Marketing Food Packaging MWV Topics New Insights on the Real CosttoServe the Grocery Store ID: 764157
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Relationship of Packaging to Unsaleables Presented by:Paul Weitzel Managing Partner - Willard Bishop&Mike StuckeyDirector of Marketing, Food Packaging - MWV
Topics New Insights on the Real Cost-to-Serve the Grocery StoreImplications for Packaging Research into Unsaleables
Grocery Store RealitiesFor a Typical Food/Drug Grocery Store: There are more than 200 categories in the store 1 in 4 categories lose money todayThere are 40,000 SKUs in the center store57% of center store SKUs lose money = 23,000 SKUsMany SKUs sit on the shelf56% of SKUs sell less than one unit per week95% 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
Retailer ABCs to Shelf Average HBC ABC Per-Unit Sold(Through Retailer Warehouse ) Source: Willard Bishop Total Store Grocery SuperStudy™ 2009, 2010
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
Product Gets tothe Store Many Ways Typical Grocery Store Gets More than 80 Deliveries a Week:65+ DSD Deliveries a Week10+ Warehouse Deliveries a Week 5+ Distributor and Other (UPS) Deliveries
Product Is Also Handled Many WaysIn the Backroom… Backrooms can look like parking lots and receivers serve as traffic copsDaily Delivery Storage Promotional Volume StorageNew Item StorageSurplus DSD Inventory StorageLockup StorageSeasonal StorageCases are often ripped open and verified
Product Is Also Handled Many WaysIn the Backroom… Backrooms can look like parking lots and receivers serve as traffic copsDaily Delivery Storage Promotional Volume StorageNew Item StorageSurplus DSD Inventory StorageLockup StorageSeasonal StorageCases are often ripped open and verifiedWe have to deal with cold, heat, pallet jacks, lifts, elevators, and obstacles that test packaging design and strength
Product Is Also Handled Many WaysOn the Sales Floor… Product is often double and even triple handledNight stocking crew often can’t complete their work, lack of time creates excess damagePackout 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 attentionIncreasing interest in retail-ready and one-touch merchandising
Packaging Plays an Important Role in Reducing Costs Share of Unsaleables(By Type)Source: The Impact of Sales & Procurement on Reverse Logistics Management, GMA/FMI 2010
Looking AheadWhat are the Implications for Packaging? ABCs show there is no room for waste, we have to continue to tackle this $2.5B industry opportunityNeed to improve packaging materialsNeed to reconsider case pack size changesIncreasing pressure to reduce inventory Leverage to grow in alternative channels 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
Average Grocery Store Days-of-Supply 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 High DOS Grocery Categories in Typical Food/Drug Supermarket Typical Grocery POGs a re Developed Based on 7 DOS
Looking AheadWhat are the Implications for Packaging? Need to plan for increasing use of front-facing fixturesIncreasing pressure to reduce labor costsEliminates afternoon pulls but, often increase damageNeed to plan for more retail-ready handlingFull 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 annuallyAverage unsaleables rate is .8% of gross sales for food manufacturers and 1.2% of gross sales for food retailersWhile these costs are significant, they are only part of the storySubstantial resources associated with managing, handling, transporting and reclaiming these productsReproducing the wasted food has a major environmental and economic impactProduct packaging is a major component of unsaleable productsIncreasing use of “eco-friendly” CRB packaging Certain packaging configurations simply cannot withstand the stress of the supply chain, resulting in increased damage ratesGiven 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 employedGENCO’s Damage Research TeamPhysical testing of products at Michigan State UniversityPerception Research Services Source: GMA, FMI and Deloitte Consulting LLP 2008 Unsaleables Study Results
Paperboard Packaging 101 Three different testing methods employedPhysical testing of products at Michigan State UniversityGENCO’s Damage Research TeamPerception 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 packagingSpecialty paperboard for food and healthcare applications Premium coated liner and bleached display liner for corrugated boxesUncoated board for use in foodservice and office products 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)
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)
Study Scope Purpose: Document the percentage and types of damage of various substrate materials at Gulf Coast retail store outletsCNK, CRB, SBS, SUS100 retail stores across multiple chainsGulf Coast United States28,000+ packages inspected Retailer Store CountWal-Mart 22 Winn-Dixie 20 Publix 17 Albertson’s 11 Market Basket 8 Target 5 HEB 4 Kroger 3 Adriens Supermarket 1 Brookshire Brothers 1 Calandros Supermarket 1 Food Lion 1 Le Blancs 1 Mathews Supermarket 1 Piggly Wiggly 1 Rouses Market 1 Save A Lot 1 Sweet Bay 1 TOTAL 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 Units Total 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 companyLeader in Damage Research & PreventionMWV commissioned a study in June of 2009 to assess damage frequencyExamined over 28,000 frozen food packages in 100 retail stores 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 2005Compression strength is the ability of a carton to hold its shape and formFor food manufacturers, this translates into how well the paperboard used withstands freeze-thaw moisture Peak Force (lbs) Custom Kote retains 46% of its original strength; CRB retains only 27%
Consumer BehaviorMWV commissioned a study with Perception Research Services Independent research firm that utilizes a variety of techniques to understand shopper’s perception of damaged productsFindings75% of shoppers will push a damaged package asideIf a slightly damaged package is the last one on the shelf, 45% will leave the brand and 29% will buy another brandIf a highly damaged package is the last one on the shelf, 55% will leave the brand and 36% will buy another brandFor competitive shoppers, “Brand you trust” perception drops from 73% to 41% with even slight damage25% of the most brand-loyal shoppers question the safety of the product when the package is only slightly damaged72% 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