The challenges with the German Pact Against Food Waste…

A little over two months ago, 14 German retailers (including the likes of Lidl, Edeka, and Rewe) signed a voluntary agreement in Berlin to reduce food waste by 30% by 2025 and 50% by 2030.

As part of this agreement, they have all committed to a series of core actions, including:

1. Continuously developing their processes around redistributing unsold or surplus food still fit for consumption;
2. Prioritizing the avoidance of food waste before recovery; and
3. Training relevant employees on the best practices around shelf life, such as reducing prices for products near expiry dates.

Whilst these are noble and needed steps, they are also challenges that the food retail industry has been trying to solve for a long time. The problem is that there is a very fine balancing act retailers must undertake to achieve these goals and remain profitable.  

If we take availability as an example, it’s natural to want to maximize sales across all of your products. This requires a consistently high level of availability to ensure customers can buy what they want, when they want. 

To achieve this, you need to balance your inventory records, online and offline operations, as well as prioritize your staff to the most beneficial actions.  

Job done? Not quite, this focus on product availability will always lead to an increase in waste levels, something this pact is looking to avoid. 

It’s unfortunately never black and white, and even within this availability scenario, the levers you are trying to balance are challenges in their own right: 

• 60% of inventory records are inaccurate. Not surprising considering the manual nature of audits, theft, damaged products, and incorrect deliveries quickly skewing the data. This then causes complications with replenishment and product availability.
• Our own research has identified that 90% of retailers use static markdowns, with 12% not discounting expiring items at all. As a result, many retailers will lose revenue from poor sell-through, will not be able to identify near-expiry items, and will struggle to ensure a food waste reduction.
• Store labor has a finite capacity. So, you need to ensure that they focus on the most pressing opportunities, freeing them up to serve and sell.  

So, what must these 14 retailers do to accelerate their solutions to these perennial problems? The answer will most likely lie in the adoption of artificial intelligence (AI) or machine learning (ML) driven technology - in-house or through a partner. There are a lot of innovative solutions out there, including cameras and robotics, that can look to solve these problems. 

However, it's important to note that many of these solutions lack an appreciation of the art of retail, and this is key. The successful solutions are built on a fundamental understanding of the nuances and complexities that come with the retail industry. Without this, they are destined for a short shelf-life.  

At Retail Insight we refer to this approach as cognitive technology, the art of augmenting complex learning models with human subject matter expertise.  

This approach allows us to realize latent opportunities within retailers’ data to address the complex ecosystem of challenges. From balancing waste and product availability to improving staff productivity, we leverage data-led insights to create scalable and easy-to-integrate solutions.  

Our cognitive technology approach has enabled our customers to realize a myriad of benefits including: 

• An incremental sales uplift of $218m as a result of addressing availability challenges;
• Up to $25m incremental sales uplift as a result of identifying phantom inventory leading to an improved restock rate of up to 27%;
• The reduction in waste by one-third with a dynamic markdown process; and
• A 10% reduction in store labor by focusing on the important tasks and automating process steps.

I think this approach would serve to benefit all German retailers, not just those involved in the pact. So, it will be fascinating to see how they evolve their thinking.  

If you would like to learn more about Retail Insight and our answer to balancing high availability with waste reduction, you can visit us at the ECR days in Frankfurt on the 13th and 14th of September 2023, by following this link.