UNSALEABLES DATA TRENDS A VIEW FROM PALLET TO PANTRY

UNSALEABLES DATA TRENDS A VIEW FROM PALLET TO PANTRY Rob Small Senior Director, Supply Chain Network /Inmar

Inmar benchmark database 450,000,000+ returns units consumer units reviewed Consumers surveyed shippers assessed consumer units included in benchmark application unit loads analyzed retail distribution center studies retail store studies 2

Data collection points Manufacturer locations Retailer locations Supplier Plant RDC RDC Store Returns center Product quality Process compliance Waste reduction Policy development 3

Grocery Dollar Mass Pet specialty Merchandise Auto Drug Convenience Channels represented in study 4

Retail shelf trends from 2008-2014 Rates of damage Rates of expired 0.60% 2.50% 0.55% 2.00% 0.50% 0.45% 1.50% 0.40% 1.00% 0.35% 0.50% 0.30% 0.25% 2008 2009 2010 2011 2012 2013 2014 0.00% 2008 2009 2010 2011 2012 2013 2014 Source: Inmar Supply Chain Data 2008--2013 5

Expired: The leading contributor to overall unsaleables 35% Damaged 65% Expired 22% Damaged 78% Near-expired /Expired 2014 Inmar, Inc. All Rights Reserved. Source: Inmar Supply Chain Data 2008--2013 6

Product freshness analysis 7

Shoppers / consumers are Inmar s shopper research 1 on freshness: Among some of the most profitable shopper segments, availability of high quality, fresh products is the #1 factor driving choice of a retailer. 82% of shoppers always check freshness / expiration dates when they shop. 67% of shoppers wish there were a better way to know if food is fresh. Only 35% of shoppers believe that the freshness / expiration dates on products are always accurate Source: Inmar Shopper Behavior Study 8

Shoppers really do check date codes I consistently check for expiration or "best by" dates on these items that I purchase. 82% 69% 39% Grocery items Over-the-counter medicines Beauty or personal care products Source: Inmar Shopper Behavior Study 9

If you check the dates, how much shelf life must be remaining for you to purchase? 15 or more weeks (More than 3 months) 10-14 weeks (approx three months) 5-9 weeks (one to two months) Snack food (cookies, crackers, chips) Box of cereal 3-4 weeks 1-2 weeks Less than 1 week 60-day supply of vitamins 20-pound bag of pet food 0.00% 10.00% 20.00% 30.00% Source: Inmar Shopper Behavior Study 10

Product freshness is improving Retail Expired 32% Source: Inmar Supply Chain Data 2008--2013 11

Days shelf life remaining: Dry Inbound to Retailer 0.01% 0.01% 0.01% 0.06% 0.25% 0.74% 2.37% 2.71% 5.62% 8.60% 10.02% 17.71% 21.20% 30.69% Expired 1-30 Days 31-60 Days 61-90 Days 91-120 Days 121-150 Days 151-180 Days 181-210 Days 211-240 Days 241-270 Days 271-300 Days 301-330 Days 331-360 Days 361+ Days In Pick/Reserve Areas 49.73 0.03 0.17 0.53 1.4 3.26 5.1 6.93 8.08 10.36 8.15 6.27 Expired 1-30 Days 31-60 Days 61-90 Days 91-120 Days 121-150 Days151-180 Days181-210 Days211-240 Days241-270 Days271-300 Days 300+ Days Retail Shelf 44.71 1.04 0.75 1.82 2.84 4.13 6.31 6.73 7.57 7.88 7.7 8.53 Expired 1-30 Days 31-60 Days 61-90 Days 91-120 Days 121-150 Days151-180 Days181-210 Days211-240 Days241-270 Days271-300 Days 300+ Days Source: Inmar Supply Chain Data 2008--2013 12

Days shelf life remaining: Chilled Inbound to retailer 98.13% 0.06% 0.00% 0.00% 0.00% 0.22% 1.59% Expired 1-7 Days 8-15 Days 16-23 Days 24-31 Days 32-39 Days 40+ Days In pick/reserve areas 82.66% 0.01% 2.65% 0.40% 1.41% 3.85% 9.02% Expired 1-7 days 8-15 days 16-23 days 24-31 days 32-39 days 40+ days Retail shelf 69.19 0.46 7.51 2.51 3.14 5.44 11.74 Expired 1-7 Days 8-15 Days 16-23 Days 24-31 Days 32-39 Days 40+ Days Source: Inmar Supply Chain Data 2008--2013 13

Days shelf life remaining: Frozen Inbound to retailer 81.78% 66.92 Retail shelf 0.94 0.8 1.31 1.8 3.68 7.66 8.46 4.31 2.44 2.34 3.15 0.08 0 0.46 1.89 3.68 8.6 9.44 3.97 3.05 0.98 0.92 0.00% 0.00% 0.00% 0.00% 0.31% 0.32% 3.33% 1.60% 1.35% 1.37% 2.79% 4.50% 2.64% Expired 1-30 Days 31-60 Days 61-90 Days 91-120 Days 121-150 Days 151-180 Days 181-210 Days 211-240 Days 241-270 Days 271-300 Days 301-330 Days 331-360 Days 361+ Days In pick/reserve areas Expired 1-30 Days 31-60 Days 61-90 Days 91-120 Days 121-150 Days151-180 Days181-210 Days211-240 Days241-270 Days271-300 Days 300+ Days 63.12 Expired 1-30 Days 31-60 Days 61-90 Days 91-120 Days 121-150 Days151-180 Days181-210 Days211-240 Days241-270 Days271-300 Days 300+ Days Source: Inmar Supply Chain Data 2008--2013 14

Days Shelf Life Remaining 450 400 350 300 Remaining Days of Shelf Life 426 369 351 346 329 309 250 200 Dry Chilled Frozen 150 100 50 92 73 71 0 Inbound DC Retail Source: Inmar Supply Chain Data 2008--2013 15

Product Rotation: 2014 All Channels 74.47% % of Sample 12.63% 12.90% Rotated Mixed Reverse Rotation Source: Inmar Supply Chain Data 2008--2013 16

Expired Rate by Product Rotation Exp Rate 1.94% 1.88% 0.69% Rotated Mixed Reverse Rotation Source: Inmar Supply Chain Data 2008--2013 17

Expired/Near-Expired Rate by Product Rotation Exp/Near Exp Rate 2.78% 2.78% 1.66% Rotated Mixed Reverse Rotation Source: Inmar Supply Chain Data 2008--2013 18

Who do shoppers hold responsible for expired? Retailer / Store 77% Both Brand & Retailer 21% Brand / Manufacturer 2% Source: Inmar Shopper Behavior Study 19

Expired product: At retail by channel 1.66% 2013 2014 0.06% 0.09% 0.33% 0.44% 0.47% 0.39% 0.26% 0.09% 0.73% 1.34% 1.04% 1.01% 0.96% 1.43% 1.16% Club Convenience Dollar Drug Grocery Grocery Mass 20 Specialty Pet Source: Inmar Supply Chain Data 2008--2013 20

Most consumers want a fresh version of the same product in the case of expired If you return a product to the store because it is expired, which of the following would you most like to receive from the retailer? 60.60% 27.80% 6.00% 4.40% 1.20% A fresh version of the same product Cash back for the product Store credit for the product A similar item from another brand An apology for the inconvenience Source: Inmar Shopper Behavior Study 21

What are the drivers of expired product? 2014 Inmar, Inc. All Rights Reserved. 22

SKU Proliferation Inventory Optimization Shelf management Promotional activity Inventory turns Store velocity Shelf life Pick methodologies Pantry life New item performance Reorder quantities 23

Case study CHALLENGE: Expired rates for a CPG manufacturer with high sku counts drove nearly 95% of their unsaleables. 24

Case study CHALLENGE: Expired rates for a CPG manufacturer with high sku counts drove nearly 95% of their unsaleables. ACTION PLAN: Collaborated with retailers to determine root causes. Conducted data analysis through audits and POS data. Adjusted inventory levels at shelf. Adjusted reorder thresholds. Increased shelf life where possible. 25

Case study CHALLENGE: Expired rates for a CPG manufacturer with high sku counts drove nearly 95% of their unsaleables. ACTION PLAN: COLLABORATED with retailers to determine root causes. CONDUCTED data analysis through audits and POS data. Adjusted PROMOTION STRATEGY. RATIONIONALIZED SKU offering. Increased shelf life where possible. RESULTS: Overall expired reduced by 70%. 26

Product damage analysis 27

CONSUMER UNIT damage rates at the retail shelf 5% Source: Inmar Supply Chain Data 2008--2013 28

Damage at retail shelf 0.60% 0.55% 0.50% 0.45% 0.40% 0.35% 0.30% 2008 2009 2010 2011 2012 2013 2014 Source: Inmar Supply Chain Data 2008--2013 29

Do shoppers care if packages are damaged? I select items from the shelf based on the condition of the packaging, even if it does not impact the quality of the product inside. Strongly agree Agree Neither agree nor disagree Disagree Strongly disagree 3.2% 10.4% 29.2% 18.4% 38.8% 68% Agree or Strongly agree Source: Inmar Shopper Behavior Study 30

Damage conditions: DC 4.38% 4.22% 4.02% 3.84% 3.48% 3.14% 2.71% Crushed: Vertical Crease Crushed: Horizontal Crease Torn Missing Expiration Date Torn (MFG) Ding Body Dent Seam Splits Bonding Appearance: Package 8.26% 17.95% 17.43% Source: Inmar Supply Chain Data 2008--2013 31

Leading defects: Retail 9.52% 7.49% 7.49% 6.32% 6.29% 4.78% 4.35% 3.73% 3.69% Torn Flaps Torn Open Appearance: Package Crushed: Horizontal Crease Crushed: Vertical Crease Body Dent Bonding Closure: Other Ding Label: Torn or Damaged 12.67% Source: Inmar Supply Chain Data 2008--2013 32

Shelf damage by channel 0.70% 0.60% 0.50% 0.40% 0.30% 2013 2014 0.20% 0.10% 0.00% CLUB CONVENIENCE DOLLAR DRUG GROCERY GROCERY WHOLESALE HARDWARE MASS SPECIALTY PET 33

Who do you hold responsible for damaged products encountered at the retail store shelf? Retailer / store 59.60% Both brand and retailer 37.00% Brand / manufacturer 3.40% Source: Inmar Shopper Behavior Study 34

What are the drivers of DAMAGE? 2014 Inmar, Inc. All Rights Reserved. 35

Manufacturing Shelf fixtures Material practicesstore traffic handling Pick operations Pilferage Climate conditions Shipment Case packaging quality Consumer unit Unit load packaging construction 36

Case study CHALLENGE: CPG manufacturer showing missing date code as leading defect and overall damage at > 2x benchmark. 37

Case study CHALLENGE: CPG manufacturer showing missing date code as leading defect and overall damage at > 2 benchmark. ACTION PLAN: AUDIT to identify: The specific products Manufacturing sites by production code RAISE AWARENESS by sharing results within organization. REFOCUS on printer maintenance programs, both components and frequency. 38

Case study CHALLENGE: CPG manufacturer showing missing date code as leading defect and overall damage at > 2 benchmark. ACTION PLAN: AUDIT to identify: the specific products manufacturing sites by production code RAISE AWARENESS by sharing results within organization. REFOCUS on printer maintenance programs, both components and frequency. RESULTS: Missing code issue improved by 95%. Overall damage decreased 55%. 39

Success is more attainable then ever! Analyze Review all available data, benchmark where possible, and prioritize approach Collaborate External: Work with trading partners to gain a more complete understanding of issues, risks, and impact of change. Work with industry peers to gain knowledge. Internal: Utilize cross-functional approach toward addressing the issues to maximize benefit. Implement Take action to realize success. Follow-up and be persistent. Measure Assess results, adjust as needed, repeat! 40

Additional focus areas for 2015 Product availability at shelf Monitoring new item launches The impact of haz management on unsaleables policies Promotions compliance measurement Package type comparisons Sustainability and damage Shopper returns and the impact on unsaleables Innovative policy alternatives Watch for upcoming surveys, blogs and webinars on these topics and more! 41

Rob Small rob.small@inmar.com (336) 631-2500 @RobWSmall

Click the survey button found on the session page.