Last week, in this space, we took a look at the results of a trade association's report about private label. Let's continue in the same vein now by looking at another association report, this one about unsaleables.
Unsaleables are those forlorn goods that for one reason or another -- and for reasons that usually aren't so pretty -- will never find a home in consumers' pantries since they can't be sold at retail. Unsaleables don't get too much attention, but they are quite important since to distributors they represent a cost of about 0.76% of gross sales. Compare that to the net profit margin of many supermarket retailers and the importance comes into clear focus. For manufacturers of consumer-packaged goods, the cost of unsaleables is a little more than 1%. The total-industry cost is estimated to be $2.5 billion.
For our look at unsaleables, let's rely on the recently issued "2005 Unsaleables Report," a work commissioned by Grocery Manufacturers Association and Food Marketing Institute, both in Washington. The study was executed by Raftery Resource Network, Antioch, Ill. The data already presented here were drawn from the study, and were the subject of two previous articles in SN, in the issues of July 18, 2005, and July 25, 2005.
Apart from the numbers presented in those news articles, and earlier in this column, though, there's an instructive analysis of common characteristics of manufacturers that are experiencing declines in unsaleable rates.
Here are some of those characteristics:
- An increased management focus on data that define the problem.
- Introduction of a swell allowance, which provides fixed-rate indemnification for warehouse-delivered product.
- Dialogue with customers, and increased customer compliance with policy.
- Improvements in pallet fit and in packaging.
- Use of markdown programs for discontinued items.
Observe that more benefits derived from the "soft" means of attacking the problem, such as inspiring greater retailer participation in seeking solutions, than "hard" means, such as revamping pallet loads or changing product packaging.
Now let's look turn this over and see what characterizes manufacturers that are moving in the wrong direction, that are experiencing increasing costs:
- Product discontinuations.
- New products, with packaging changes.
- Seasonal recalls and returns.
- Internal complacency, and lack of focus.
So, in this situation, "hard" effects of events such as returns, new packaging and so on had a downside effect and there was no offsetting "soft" benefit.
Responses from distributors failed to show much difference between those experiencing declining unsaleable costs and those with increasing costs. But here are a few concerns mentioned by some:
- Managing discontinued lines, and setting new ones.
- Costs of reclamation centers.
- Lack of manufacturer involvement in cost reductions.
- Poor packaging.
- Lack of management and accounting data.
- Deterioration in vendor relations.
The last bullet point brings us to the overarching point: A much-needed improvement in trade relations could work a huge improvement in this and a host of other industry problems.