Food retailing is a tough business. Margins are tight and getting tighter, though there is some good news in that shoppers are shifting a proportion of declining disposable income from eating out to eating at home.
At the same time, AMR Research reports that “companies that have already embraced fresh item management (FIM) solutions have seen dramatic reductions in shrink, higher perishables department sales conversions and increased customer loyalty.”
The payback period for FIM is almost invariably in the range of six to nine months. This quick return on investment is achieved through improved on-shelf availability of fresh products, more efficient ingredient utilization, better in-store fresh item preparation, lower inventory, faster turn-rates and reduced shrink. This clearly drives both improved customer satisfaction as well as higher profitability for the retailer.
However, there is another issue—food safety—driving the move to FIM. This affects all in-store food preparation—from the bakery to the deli, from the meat counter to seafood. Increasing attention is being given to food safety by the federal government, driven by growing consumer concern and declining confidence in the FDA.
Within food safety, there are two separate but related issues:
•The need for more detailed product information such as country of origin, ingredients, preparation, storage, shelf life, etc. In other words, an optimal set of information to reassure the consumer that they are as fully informed as possible about all aspects of the product they are buying.
•The desire for improved traceability. Food safety responses today are akin to using a sledgehammer to crack a nut. Since problems cannot be readily contained to a specific range of items, recalls are typically indiscriminate.
The ability to pinpoint specific batches, where and when they were deployed, how they were used and who consumed them would have dramatic benefits: Problems could be isolated earlier, selectively targeted more quickly and removed more discretely.
While legislation to address failure is necessary from the perspective of the consumer and makes clear business sense to grocers needing to bolster public confidence in the integrity of the food industry, proactively assuring shopper safety through “track and trace” technologies both promotes wellness in the consumer’s family and improves the grocer’s bottom line.
The potential benefits from FIM are clearly substantial. “Early deployments among a small cadre of fresh-centric grocers have led to 35% to 65% reductions in perimeter shrink, 15% sales lift in some perishable categories (bakery and cut fruit were noted), a 30% slash in inventory and 2% and 4% margin improvements,” were the findings of Scott Langdoc of AMR back in late 2004. “An average store generating $20 million in revenue with 40% coming direct from perishable sales could see 25% to 33% improvements in total bottom-line profitability with FIM technology,” he noted at the time.
Yet, takeoff has been slow until recently. Why? Well, one reason seems to have been that some of the early results—such as a dramatic reduction in meat shrinkage—seemed simply too good to be true. The need to adopt a more rigorous category management model also presented challenges—particularly given the relatively short lifecycles of fresh produce—as did the need for much more rapid feedback and action required to make discernable improvements. Also, major process and workflow changes stimulated a negative reaction from users.
It needs to be said, however, that these technologies exist and they are now proven and effective. They offer substantial benefits to all the stakeholders in the supply chain and have been shown to drive significant and rapid payback. Given the pressures to better assure the quality of the fresh item supply chain, to rapidly isolate and contain problems and the need to better inform and educate the consumer on the source and content of their purchases means that FIM solutions are really complementary to legislative solutions, yet clearly focus on fixing the problem, rather than fixing the blame.
So what should a retailer do?
•Take a leadership position by supporting legislative improvements, while adopting systems that have been proven to deliver effective results and minimize liability risks.
•Make certain organizational alignment exists at every level, so that food safety issues can be rapidly identified, addressed and contained at the earliest possible opportunity.
•Ensure there is comprehensive product traceability by pressing for transparency in the supply chain, while ensuring your own systems accurately track ingredient usage throughout and all the way to the consumer’s table via fresh item management systems adoption.
Desmond A. Martin is managing partner of The Actionable Intelligence Group, which was founded to help bridge the gap between user-oriented business intelligence tools, data warehousing and the management of business process change in the retail industry.