Food manufacturers, distributors, and retailers are well aware of the reality that, for a variety of reasons, not all products will be sold to customers. To remedy this, companies have strategies for recovering value from unsold inventory, such as through donation and liquidation markets.
The tricky part is - unlike appliances or other shelf-stable, consumer goods - food’s quality is constantly changing and requires different management practices depending on where it falls on the spectrum of freshness, quality, and usefulness. Pumpkin pie is in high demand in October and November but somewhat “useless” to have in stock in December and January.
A company must therefore take a holistic approach to managing unsold inventory and defining processes for moving this product across various channels. In our work, we have experienced a variety of terms and definitions for these efforts, which in turn impacts how a company develops, implements, and communicates its strategies to recover value from goods - before sending them to the landfill.
Reflecting on what it takes to establish a holistic food recovery and waste diversion program, we put together a short glossary of 3 ‘must-know’ terms for product classifications in the food manufacturing, distribution, and retail sectors.
Inventory refers to ingredients or finished product a company has on hand (often in its physical warehouses) that it intends to sell to a customer (either in its current state or through additional processing). Unsold inventory is the product that an organization intends to sell but - for whatever reason - has been unable to do so.
We do not refer to this product as food waste or wasted food because it is often NOT waste NOR being wasted. Instead, it’s more often than not, perfectly good product without a market and aggregated in one central location. What’s difficult about unsold product is that it is often variable in generation and influenced by demand forces outside a business’ control, such as weather patterns or customer purchasing fluctuations.
Consequently, despite being saleable, large quantities of unsold product ends up in the landfill. Recognition of which product categories are applicable for donation, liquidation, and animal feed markets is a healthy first step for scoping a company's food recovery or waste diversion program.
Comprised of: discounted product, donations, inventory losses, shrink, unsaleables.
Distressed product is a subset of a company’s unsold inventory that is in jeopardy of being wasted if not managed or redistributed appropriately. This is often driven by expiration dates and either 1) clauses within customer contracts mandating a certain number of days of shelf-life, or 2) commitments by the supplier to only offer the freshest, most aesthetically-pleasing product available.
Businesses typically look to different outlets for different “extremes” of distress. For example, a food manufacturer might be comfortable offering product with 90 days till expiration at a 20 to 40 percent discount to its existing customers as an “opportunistic buy”. Anything between 30 and 90 days, on the other hand, might be discounted 50 to 70 percent and sold exclusively to outlets and liquidation markets, so as not to cannibalize sales with its existing customers.
In almost all food industry verticals, distressed product doesn’t get the same “love” from a company’s sales reps as non-distressed product. This is because - more often than not - distressed product is discounted product, and sales reps are motivated by commissions. Therefore, finding ways to streamline the discounted sales process or incentivize sales reps to manage this product better are two effective strategies for recovering value from this inventory.
Alternatives: salvage; discounted; near expiration; sunset; discontinued; value channel; b-grade; aged.
Shrink can have different meanings depending on whether it’s used in the farming, manufacturing, distribution, or retail sectors. In the farming world, shrink often refers to the actual contraction in size of product from exposure to temperature or moisture variations, whereas in the retail sector, shrink can refer to theft of product (by customers or employees).
In our work, we most often see shrink referring to finished goods that distributors or manufacturers cannot and will not sell to anyone. This can be due to product spoilage (or surpassing a product's expiration date), product damages (such as in warehouses with forklift misoperation or breached packaging), quality considerations (such as produce aesthetics), or simply overproduction.
What these definitions of shrink all have in common is a loss of inventory, or at the very least, a loss in revenue potential from this product (in the event product is donated). Gaining a clearer understanding of what percentage of inventory is currently ‘shrink’ will help a business to establish a baseline for improvement.
Alternatives: inventory losses; spoilage; expired product; theft; unsaleables.