On Jan. 8 of this year, 32 people embarked on the 16-week Food Industry Management (FIM) Program at USC’s Marshall School of Business.
The students were divided into six teams to work on capstone projects, each team tackling an industry issue or opportunity that will be important in the next five to 10 years. The teams purposely brought together different personality types and different industry segments (retailer, wholesaler, manufacturer).
All six teams presented their research on April 24 during USC’s “Education Day”; two were chosen to present their projects at the Western Association of Food Chains (WAFC) convention in May in San Antonio. This month, we cover Team Waste to Wealth; next month, Team Healthness.
Turning food waste into money
Team Waste to Wealth devised a way to streamline how food waste is managed, getting consumers involved through a digital marketplace.
Colin Cavanaugh of Niagara Bottling asked the audience to think about another digital marketplace that has made life easier for many people.
“Let’s go back 10 years. You need a ride to the airport? You have to call a taxi—remember those? Taxi comes in 45 minutes, and you’re already late. Today, you take out your phone and request an Uber. Within five minutes—seven minutes on a bad day—you’re on your way. That’s because Uber discovered waste in terms of open car seats. They created a digital marketplace to connect passengers with drivers.”
Likewise, “Airbnb discovered waste in terms of open rooms and they created a digital marketplace to link those rooms with people needing accommodations,” he said.
“Both these companies fundamentally changed consumer preference and behavior to create a competitive advantage. They monetized waste.”
In the U.S., food waste is estimated to be a $218 billion issue, with grocery retailers responsible for $57 million of that.
The Waste to Wealth team is proposing the creation of a digital marketplace that would reduce food waste by 20 percent.
“Today, we’re asking you to commit to reducing food waste; more specifically, to commit capital to develop a digital marketplace by the year 2020 which will reduce your waste by 20 percent within five years, decrease your shrink and increase your profit,” Cavanaugh said, adding that if the industry does not decide to address the issue of food waste now, eventually it will be forced to by consumers and/or the government.
Team member Anuradha Raja of Mondelez outlined other reasons why the time is right to create a digital marketplace to address food waste.
One is that consumers are increasingly becoming comfortable with less-than-perfect-looking food.
“What consumers are telling us is that ‘perfect’ is overrated,” she said. “Instead, they’re looking for real, authentic food—food with a story. The proof is really in the produce with this one, because imperfect produce has come on the grocery scene offering produce that is 30-50 percent less (in price).”
Also, as consumers get accustomed to “flash sales” at fashion retailers, for example, grocery stores can use that principle when they have an abundance of produce or other product that they need to move quickly.
“These flash sales to turn their overstock or potential waste into revenue,” Raja said. “They say, ‘get it now, get it at a discount or it will be gone.’ They create that excitement and thrill of the deal with their consumer.”
In the U.S. today, the average adult spends 5.6 hours on digital media, and over half of that is on mobile, she added. So “mobile is…a key piece of our digital marketplace.”
Team member Chad Bersie of Cub Foods said that the U.S. has a head start in creating a food waste digital marketplace because they already exist in Europe.
“NoFoodWasted and FoodLoop are two examples of companies that have connected global grocery stores with consumers, putting close-dated products on sale on a creative marketplace,” Bersie said.
NoFoodWasted, which is based in Denmark, reported that during an eight-month trial period, 20,000 people signed up for the service, and stores that participated reduced food waste by 18-25 percent.
“And perhaps more importantly, stores were reporting increased loyalty with these consumers as they are identifying with the reduced waste in society,” Bersie said.
Team member Ria Gray of Supervalu said the digital marketplace will “connect consumers with your close-dated product.
“How we envision this happening in store is you select a shrink clerk who is very entrepreneurial and will own this from beginning to end. Each morning they will walk the department, pull close-dated product and push it to the digital marketplace. Your consumers have enabled their push notifications and they are eagerly waiting every morning for what is going to be on that digital marketplace. They either quickly purchase the product or they see the quantity is quickly dwindling or they come into your store and pick it up before it’s all sold out. If they buy it in the digital marketplace, your shrink clerk will take it and put it aside. If they come into your store, what better way to have them add an item to the basket than to cross-merchandise? For example, you have some imperfect strawberries in the backroom; you put these on your digital marketplace, you cross-merchandise Reddi-Wip and pie shells for a quick dessert. Not only have you driven customers to your store for an additional trip, but you’ve added items to the basket with additional gross profit.”
This, the team believes, is a better way to handle close-dated product than putting an “ugly Manager’s Special sticker on it. We stick it in a little dingy cooler because we don’t really want anybody to see it because we think it gives us a bad image. But what if we were to rebrand it? What if we were able to do this and have a destination in the store? There is an example of this in the fashion industry. Nordstrom uses HauteLook, a digital marketplace, to push excess-quantity clothing.
“While our industry isn’t as glamorous as the fashion industry, why can’t we harness people’s current obsession with food and loop our waste to wealth? And how can we be transparent with our consumers that we’re doing something great for the environment and taking our waste and no longer putting it in landfills but selling it and making profit?”
Team member Robert Ascencio of Northgate Gonzalez Markets, said that wholesalers and suppliers also have a role to play in the food waste digital marketplace.
“If you are a CPG company or a supplier, there are digital marketplaces that currently exist that may help you as well,” he said.
One example of this is FoodMaven, which connects local businesses to other businesses looking to move excess-quantity, close-coded or even imperfect product to other retailers, food manufacturers or restaurants.
FoodMaven goes one step further to address food waste. If a sale is not found, FoodMaven will connect the business with local charities, “helping reduce hunger in their communities and also eliminating the need for costly food disposal,” Ascencio said.
He added that retailers like Lidl, Tesco and Aldi have virtually eliminated food waste going to Irish landfills.
“Local grocery stores will post their food waste to a portal in the digital marketplace. Local charities sign up for that product, go to the store, pick it up and deliver it to those in need, reducing hunger and food disposal costs,” he said.
“With the digital marketplace there are many values up and down the supply chain,” Ascencio said. “To the consumers, it’s convenience and increased value; for a retailer, you’re gaining loyalty and increased profits; and for a supplier, you’re getting better use of your trade dollars and finding cross-merchandising opportunities…the financial benefits of this program far outweigh the costs of implementation and design.”
Team member Mario Cruz of Costco crunched the numbers on the food waste digital marketplace.
“We’re expecting a strong financial return and to generate a net savings of $10.2 million with an initial investment of $290,000; payback period of 15 months,” he said. “In our model, we’re using a 100-store chain at $500,000 weekly sales per store, with total store shrink of 2.7 percent and a food waste rate of 1.1 percent. This will allow us to deliver $15.7 million of savings at a cost of $5.5 million, with labor being approximately 80 percent of that cost. We used a very conservative forecast to allow for retailers to gradually save in year one 3 percent and progressively get better, moving up to 20 percent of savings by year five. That doesn’t take into account the additional savings we didn’t place in our model such as waste disposal and transportation costs, which could also be significant savings.”
There are four steps that should take about 18 months (estimated launch by 2020):
• Gain support and resources for the marketplace.
• Build the digital marketplace, which requires in-store assets as well as web development. Testing must take place at the stores to make sure everything is correct before launching.
• Do the marketing. Two essential elements are in-store signage and external marketing to help build awareness and trial.
• Labor and maintenance of the marketplace.
He pointed out that Millennials and Gen Z have been brought up in a digital environment; they embrace technology; and they embrace social consciousness and transparency. The digital marketplace for food waste is at the crossroads of all of those.
“Last year the grocery industry was responsible for $57 billion of waste, all while 1 in 8 Americans does not know where their next meal is coming from,” Cavanaugh said. “In the great state of Texas (where the conference was taking place), that number goes to 1 in 7. We firmly believe that the creation of the digital marketplace combined with your expertise is going to be far better than any legislation levied against us.
“We’re asking you to commit the capital to create a digital marketplace that pays for itself in 15 months; reduces waste by 20 percent over the next five years. We are a for-profit industry, but yet we throw food and money away each and every day.”