SAN DIEGO -- From the back room to the front end, the path to produce profits is littered with the potholes caused by shrink.
Through poor product handling, inadequate temperature control and cashier mistakes, produce executives are losing a significant chunk off the bottom line. And the more diverse and complex the department gets, the more likely shrink will tear into the department's undercarriage.
A panel of two produce retailers and a supplier offered their perspectives on the problem of shrink, and proposed some solutions, at the Produce Marketing Association's annual convention and exposition here last month.
"By controlling shrink better than your competitor, you can gain a competitive edge that will let you run hotter ads, increase your percent of sales distribution, and just make the whole store's bottom line more profitable," said Mark Luchak, director of produce and floral operations for Rice Food Markets, Houston, one of the panelists.
Basic, common-sense policies regarding shrink need to be reinforced, Luchak said. Rice Food Markets has such policies in place, and Luchak said he used to think his stores didn't have a real shrink problem because those policies existed.
"Then I ventured out with a camera to prepare myself for this presentation. And, oh my gosh, was I surprised when I walked in some of my stores unannounced," he said.
There was definitely shrink to be found. Luchak recounted loads of culled produce, which employees said were shoved in the back room "for later."
Apples that could easily be used for juice had been thrown in the trash.
After his surprise -- and surprising -- visits, Luchak decided to put teeth behind the policies already in place.
"The key is accurate ordering. That's the most important thing a produce manager does," he said. "Without this, shrink begins immediately."
The proper checking-in of produce after delivery is important, as is a clear understanding with suppliers on credit and return policies.
Produce managers need quick and proper temperature and storage control, along with accurately code-dated products, he said.
Never ripen more products than potential sales warrant, Luchak also advised. And weights and price look up codes need to be updated constantly.
"Check the scales daily in produce and check stand areas for accuracy," Luchak said. "And include a scale in the back room to check the weight of items received." Putting accurate signs up at all times is another basic rule, he said.
"Maintain attractive displays that are fresh and abundant looking," he said. "But control the depth and width, according to your sales. We're using a type of system that allows a false bottom, but retains refrigeration." Luchak said produce managers should also appreciate the amount of skill needed to correctly prepare value-added items in-store.
"In the meat department, meatcutters are known as butchers," he said. "In the produce department, that skill is more needed, and those people should be actually considered chefs or surgeons. Precise, precise treatment of the fruits and vegetables is needed."
Getting front-end cashiers back to the produce department is always a bonus.
"Whenever you have a checker in your produce department, you have an upper hand in educating that checker to what the product is," he said.
"Maintain good communication with checkers and front-end people by educating, showing, tasting and inviting them to walk through and learn about the produce aisle."
Judy Farniok of Supervalu, another panelist, agreed with his points about communication down the line. Farniok is an instructor at Supervalu University, the Minneapolis-based wholesaler's management and training program.
She estimated the level of shrink in produce departments at about 6%. One percent occurs during receiving, another 1% arises from ordering problems and 1.5% is due to miscellaneous factors. The remaining 2.5% is attributable to the front end, she said, and is usually due to identification errors.
Tackling the identification issue during training is one way to reduce shrink, she said. And produce managers need to be involved in that training.
"I think that the produce manager has a direct, vested interest in protecting the bottom line of the produce department," Farniok said. "By having that person involved in the training process, you're going to increase the effectiveness of the program overall."
Computer-based training is becoming an increasingly important training tool. "We at Supervalu have a test program of computer-based training," Farniok said. "The preliminary results, while not scientific, look very good."
The most exciting finding from computerized training so far has been a tendency toward reduced turnover, she said. According to Farniok, most people leave their jobs because they didn't know what was involved with the position to begin with, or because they developed a sense of dissatisfaction with the position. Computer-based training seems to alleviate that.
With turnover rates between 120% and 180%, any program that helps reduce turnover helps pay for itself, she said.
Continuing to implement the standardized PLU codes in produce will also be very helpful, she told the audience.
"When training leads to greater profit, it's hard to disagree with," she said. "When the shrink dollars drop the bottomline cost, you can also start to justify some of those training dollars that are necessary."
John Burge, vice president of value-added sales for Dole Fresh Vegetable, Salinas, Calif., said installing proper equipment is the easiest way to reduce shrink on value-added items.
"Upright refrigerated cases are state-of-the-art," he said. "These are the only refrigerated cases designed to maintain 34 to 35 degrees. In and of itself, these racks will reduce your shrink by more than 50%. It is the best investment anyone could make."
During a slide presentation, Burge showed a dramatic graph that illustrated the relationship between the two.
In a completely controlled distribution system, with temperature constantly maintained at 35 degrees, a value-added salad has a 21-day shelf life, his graph showed. When exposed to 50-degree temperatures, that shelf-life shrinks to nine days. And at 80 degrees, the shelf-life of a value-added salad plummets to one day.
"Your shrink is completely within your control," Burge said. "The issue here is temperature, temperature, temperature."
He asked the audience how often they have seen clerks stocking shelves and leaving the products sitting out at room temperature for a half hour or an hour.
"With every hour above 60 degrees, you're generally taking a day of shelf life away from the consumer," he explained. "And the consumer is the one who is going to decide whether to come back and buy this product again."
Knowing that a constant 35 degrees is not realistic, Dole assumes a 10- to 12-day shelf-life when code-dating products. Those code-dates need to be watched, he said.
"You need to train your merchandisers to watch these code dates, to rotate the product, and to stock the shelves with new product in the back," he said. Burge added he is not a real fan of the retailers' practice of marking down products when the code date approaches, in order to move them quickly.
In response to a question from the audience, he said, "I think customers do lose confidence when you mark down items that are close to the code date.
"I think you have to use [markdowns] very judiciously, if you do that. The consumer of value-added products is not incredibly price-sensitive."