OUR WORLD. Our People. Our Stories. OLIVER WYMAN

Transcription

1 OUR WORLD Our People. Our Stories. 11 OLIVER WYMAN

2 Copyright 2011 Oliver Wyman. All rights reserved. This report may not be reproduced or redistributed, in whole or in part, without written permission of Oliver Wyman and Oliver Wyman accepts no liability whatsoever for the actions of third parties in this respect.

3 SHRINKAGE Up to 1 in 7 truckloads of fresh food delivered to supermarkets gets thrown away. That shrink represents a huge cost by itself. But it s just a symptom of deeper problems in grocery aisles everywhere. Our World. Our People. Our Stories. 9

4 The CEO of a major supermarket chain stared at the presentation in surprise. A team of our consultants had just shown him that as much as 20 percent of the fresh food delivered to some of his stores was thrown away, either because it had reached its expiration date or because it was rejected by customers. Matthew leads the retail and consumer packaged goods practice within Oliver Wyman s C&IVT business unit out of our Dubai office. He has overseen two of the three highest-profile transformations in global retail over the last five years and he holds a master of arts and a master of engineering degree from Cambridge University, where he studied natural sciences and chemical engineering. What music groups do you listen to? Röyksopp, Boards of Canada, Air When you were growing up, who or what did you want to be? I still haven t figured out the answer to that question. That s why I went into consulting out of university, as it broadened my options. An increasing number of supermarket executives are discovering a similar, inconvenient truth: Even as they trumpet their stores topquality produce, they are wasting food, disappointing customers, and losing money because of deeply rooted problems in their business. Stores love to dazzle shoppers with sky-high displays, but there s a flip side to these mouth-watering scenes. At the end of each day, an enormous amount of fruit, vegetables, and other perishables land in the trash. For years, grocery chains could overlook their freshness problem and expand their way to growth, says Matthew, the head of Oliver Wyman s retail practice, part of our Consumer & Industrial Value Transformation (C&IVT) business unit. But increased competition and a tough economic climate are forcing them to confront this challenge head-on. The problem of wasted food, known in the industry as shrink, has taken on an additional dimension as global food prices have soared to record levels. The whole industry is getting to grips with what it needs to do at a higher standard, Matthew says. 10

5 This realization represents a major opportunity for our retail practice to reshape an industry and to improve the shopping experience for consumers around the world. Helped in part by fresh-related work, C&IVT was one of our fastest-growing business units in In recent years, Matthew has worked with many major retail chains to drive their businesses forward, including improving the freshness of their produce, which surveys show is one of the key drivers of customer satisfaction at supermarkets. Matthew s team recently began a multiyear freshness project for a European retailer that ranks among the firm s biggest wins ever. They are also working on a transformation project with one of the largest supermarket operators in the United States. Tackling the freshness problem is a highly complex process that requires a broad range of skills. Computer servers are used to analyze huge data sets to anticipate how customers buying patterns would change if, for example, the selection of apples were reduced from 15 varieties to 12. In some cases, shoppers will happily substitute one variety for another, resulting in fewer wasted apples; in others, it leads to lower sales and customer defections. Supply chains need to be revamped and the ordering processes improved to forecast demand more accurately and reduce delivery time. In a typical supermarket, a full day might pass between an order and a delivery from the warehouse. This window can often be narrowed to a few hours, meaning fish gets to the display case that much fresher. Improving freshness also means debunking myths, especially in North America where many retail managers still believe that selling produce requires gargantuan product displays the pile em high, watch em fly school of thought. But where a manager might see an alluring pyramid of peaches, Matthew sees a problem: Why have five days of inventory for a product with a three-day shelf life? When you stack peaches 12 high by hand, Matthew says, it s not without significant implications for the peaches. Our World. Our People. Our Stories. 11

6 The United Kingdom s chief scientist has called for the world s food waste to be cut in half by Shrink and freshness are inextricably linked. The fresher the food, the less will be left on the shelves to be thrown out. 12

7 Freshness and shrink, managed together, can add as much as $60 million a year to a $10-billion chain s earnings. While perishables make up about 30 percent of total store sales, they can be responsible for up to 80 percent of total store shrink. Our World. Our People. Our Stories. 13

8 Despite grocers aggressive marketing claims to superior freshness, customers continue to be disappointed. More than four-fifths of consumers have noticed bad produce on display where they shop 14

9 but only 17 percent of shoppers annoyed by poor freshness complained to the store about it. Our World. Our People. Our Stories. 15

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