New Industry Benchmarking Report Reveals Impact of Unsaleables on Bottom Line Jul 27, 2000 WASHINGTON, DC - July 27, 2000 - Significant opportunities exist for the grocery industry to improve profit margins by getting a grip on the cost of unsaleable products, now costing the entire grocery industry more than 1 percent in annual sales, according to a new unsaleables benchmarking report released by Food Distributors International, Food Marketing Institute (FMI)and Grocery Manufacturers of America (GMA)The 2000 Unsaleables Benchmarking Report analyzes the relationship between unsaleables costs and the industry's profitability, revealing a slim margin between the cost of unsaleables and overall profits. Retailers and distributors surveyed averaged less than 1 percent profit after taxes, but also lost 1 percent in sales on unsaleables costs. Manufacturers fared slightly better, with a profit after taxes at 12 percent and 9 percent of those profit dollars going toward unsaleables costs.The report marks the first industry-wide effort to track the rate of unsaleables - products that were destroyed, returned, donated, or placed with salvage operations - at the manufacturer, retailer, and distributor levels. The newly revamped study compiled data on unsaleables from 50 manufacturers and 36 retailers/distributors, and was produced this year by the Center for Food Marketing at St. Joseph's University in Philadelphia."The 2000 benchmarking study takes our joint industry efforts launched in 1999 a step further, by actually benchmarking the cost of unsaleables across the entire grocery industry and analyzing how unsaleables can take a chunk out of every company's profits,¨ said Michael Ghassali, Manager, Unsaleables, Lipton and Chairman of the Joint Industry Unsaleables Committee. "While we've come a long way in improving how we track and manage unsaleables costs, we still need to do a better job of fixing the root causes that lie beneath the surface.¨Key findings in the 2000 Unsaleables Benchmarking report include:„h Retailers/distributors report unsaleables cost, as a percentage of retail dollars, were at a rate comparable to manufacturers (1.01 percent as reported by retailers/distributors vs. 1.11 percent as reported by manufacturers).„h Self-distributing retailers, distributors, convenience stores, and drug stores are the most expensive channels for unsaleables. „h Unsaleables are highest in the convenience store channel (1.44 percent), followed by supermarkets at 1.3 percent and drug at 1.22 percent. The lowest channels are club stores with 0.9 percent and foodservice with 0.6 percent.„h Plastic containers have the highest unsaleables rates throughout all channels.The report also pinpoints several industry issues impacting unsaleables rates, including a lack of trust between trading partners that often results in the use of redundant third-party processing facilities ¡V one for distributors/retailers and one for manufacturers. An increase in channels is also contributing to the complexity of unsaleables management, as is continued industry consolidation, which oftentimes results in less retail coverage and higher unsaleables rates. Companies that implement fair unsaleables policies and form viable alliances with their trading partners to work on uncovering root causes and help control the entire unsaleables process end up lowering their overall costs of doing business and increasing their profitability, according to the report. Sharing appropriate information with associates working in the various segments of the industry, including proper handling practices, was deemed one of the most effective management practices.Companies that have been benchmarking unsaleables for years are faring the best,¨ said Bruce Trippet, Operations Manager, SUPERVALU and Co-Chairman of the Joint Industry Unsaleables Steering Committee. "They understand the costs associated with unsaleables, are committed to understanding root causes, and are implementing fair and sound policies that encourage better performance throughout the supply chain. The bottom line? When the industry works together, costs go down.¨ To order copies of the report, call the GMA Publications Fulfillment Center at 1-800-382-0602.