Over the past 12 months, three major E. coli outbreaks decimated sales of Romaine lettuce, rearranging and upsetting the salad bowls of America. Numerous salmonella scares caused recalls of eggs, chicken and turkey—not to mention nearly 20 million pounds of ground beef—from a number of different suppliers. And that’s just a fraction of fresh food recalls that made the news in 2018, and it doesn’t touch on recalls of packaged, frozen or prepared foods.
Taking a look at the current list of food recalls from the U.S. Department of Agriculture is enough to make a retailer sick—and that’s not from the contaminants involved. Since grocery stores start with rather low margins on food items, they have to make up it with sheer sales volume. A recall, be it for fresh, frozen, packaged or even pet food, puts a dent in that volume, if not shutting some of them off altogether. And repeated recalls like the ones last year make a tight situation even tighter.
Product recalls are completely outside the grocer’s control, of course. But while it’s virtually impossible for grocers to completely isolate themselves from product recalls, there is something they can do to reduce the impact these recalls have on their margins.
Paying twice for bad lettuce—but which lettuce?
Even if a retailer owned the entire supply chain for an item—say, it packages and stocks its own store brand of canned vegetables—food contamination can happen, resulting in a recall. But most grocers don’t create the items they sell. A typical grocery store contains tens of thousands of items, with hundreds of different suppliers. For example, you might have half a dozen suppliers for iceberg lettuce alone—we won’t even talk about Romaine—and the same for other types of produce, meats, bakery products eggs and more. The more suppliers you have, the greater the potential exposure to a recall event.
To make matters worse, most suppliers’ policy is that “all sales are final.” Once a retailer accepts a shipment, the supplier is no longer responsible for the items. While not all suppliers enforce this, those that do mean the cost of goods affected by a lettuce, poultry, or any other recall falls squarely on the grocer’s shoulders.
It’s almost like getting charged twice. The retailer eats the cost of the recalled foods, even if they end up in the dumpster or incinerator—unable to cover any of the cost at all.
So, how are retailers to protect the bottom line from events over which they have no control?
Don’t let one bad apple spoil the lot
Grocers hit with recalls might be throwing out more food than necessary, meaning that they could be inadvertently hurting their own margins. How? Say you have four different chicken suppliers. When a recall for salmonella for whole fryers is announced, you don’t have to pull fryers from the shelves, unless they are from the affected supplier. Even if they are, chances are that only certain lots are being recalled. The same goes for all your other fresh food items, and even canned and frozen items.
With effective margin management and risk management solutions, retailers can potentially reduce the financial pinch of food recalls. For one thing, these systems can accurately track which item lots came from which supplier and location, and which warehouses and stores have taken possession of the items. You’ll know which, if any, items in your stores are affected by a recall, with no guessing involved. That prevents you from throwing out perfectly fine food, due to inability to easily determine the need to do so. And, if you do need to pull affected items from the shelves, the produce aisles, refrigerators or the meat market, take comfort knowing that doing so in a timely fashion lowers the chance of liability and even bad press.
Want to know more how margin management and risk management solutions can help protect your bottom line from product recalls? We’ve compiled Four Mindsets for Maximizing Grocery Store Profit Margins: