WASHINGTON -- The cost of unsaleables, the products whose condition renders them unfit for sale at retail, declined last year to 1.06% of sales for the average consumer packaged goods manufacturer, according to a new report.
The drop in average manufacturer unsaleables costs -- calculated as the average of all individual company rates -- marked the second consecutive year that a decline was reported, after three straight years of rising costs. Among responding manufacturers, 56% reported a year-to-year decline in unsaleables.
The "2005 Unsaleables Benchmark Report," sponsored by Grocery Manufacturers Association and Food Marketing Institute, both based here, was released last week at the Joint Industry Unsaleables Management Conference in Vancouver, British Columbia. The annual report, based on input from 50 manufacturers and 26 distributors, was prepared this year by Raftery Resource Network, Antioch, Ill.
The report also addresses unsaleables costs for food distributors, albeit based on a smaller sample size than that for manufacturers. For the average distributor, unsaleables costs declined to 0.76% of sales in 2004 from 0.84% the previous year. Comparable data was not available for prior years.
In another calculation of manufacturers' cost -- the industry-weighted average, whereby total unsaleables costs from all companies are divided by sales -- the rate declined to 0.88% of sales. This was the lowest industry average since the industry began calculating unsaleables in 1996.
The total industry cost of unsaleables last year, based on the industry-weighted manufacturer figure, was determined to be $2.52 billion. This cost is based only on warehouse-delivered product and excludes direct-store-delivery products, fresh meat, bakery, produce and deli products.
The report's overall figures apply to CPG products sold at all retail classes of trade, not just food retail. However, among retail channels, food retail experienced the steepest decline in manufacturer unsaleables, to 1.05% from 1.36% the previous year, which capped a three-year climb.
Despite the declines in unsaleables, the report noted that "success is not simple, guaranteed or enduring without some type of focus on improvement." The report includes some examples of how manufacturers and retailers have been able to reduce their unsaleables. (See "The Unsaleables Paradox," SN, July 18, 2005.)
The report also addressed the method by which retailers are reimbursed for unsaleables. Invoice deductions were employed for 39% of total payments, followed by the combination of swell and adjustable rate allowances, used in 38% of payments. Other methods included reclamation center invoices (21%) and store claims (2%).
The growth in allowances, which are payments determined up front by manufacturers prior to shipment of products, has continued to be a divisive issue for retailers and manufacturers. "The trading partner relationship is a little more strained than it has been in the past," said Dan Raftery, president of Raftery Resource Network.
Fifteen distributors submitted data showing that the gap between their unsaleables reimbursements from manufacturers and their actual costs increased to 6.7% in 2004 from 6% the previous year.