UNSALEABLES COSTS UP IN GMA/FMI STUDY

SAN FRANCISCO -- Manufacturers' costs for warehouse-delivered unsaleable products -- those that arrive at stores but cannot be sold -- increased slightly in 2002 across retail channels to $2.6 billion, from $2.5 billion the previous year.That was the bottom-line result from a new study sponsored by the Food Marketing Institute and Grocery Manufacturers of America. The study, the 2003 Unsaleables Benchmark

SAN FRANCISCO -- Manufacturers' costs for warehouse-delivered unsaleable products -- those that arrive at stores but cannot be sold -- increased slightly in 2002 across retail channels to $2.6 billion, from $2.5 billion the previous year.

That was the bottom-line result from a new study sponsored by the Food Marketing Institute and Grocery Manufacturers of America. The study, the 2003 Unsaleables Benchmark Report, was released here 10 days ago at the Joint Industry Unsaleables Management Conference, also sponsored by FMI and GMA. The report, written by industry consultant Ann Lightburn, covers only CPG products, excluding those delivered via DSD, as well as perishables and pharmacy products.

The average company cost of manufacturer unsaleables overall increased to 1.18% of sales, from 1.14%. (The industry-weighted cost for manufacturers, used to compute the $2.6 billion total, was slightly lower -- 0.99%, up from 0.95%) The average company average for distributors, primarily from the supermarket channel, rose to 1% from .92 % in 2000 (distributor results were not reported for 2001).

The manufacturer cost for supermarkets alone increased to 1.31% of sales, from 1.27%. The cost for drug stores continued to be the highest for any retail channel, climbing to 2.57% from 2.35%.

On the plus side, the industry-weighted average cost of unsaleables to supermarket distributors dropped to 1.12% of sales in 2002, from 1.17% in 2000. Dan Bushey, senior coordinator, industry affairs for GMA, said two of the reasons most often cited for that supermarket weighted-average decrease are improved trading partner collaboration and better store practices.

Also notable was the rise in participation in the 2003 study -- up 14% for manufacturers and 38% for distributors; the survey included seven of the top 10 food distributors.

Other findings of the Benchmark Report include:

Distributors reported participating with, on average, 20 trading partners on swell and adjustable rate reimbursements.

Adjustable rate reimbursements were used by 29% of manufacturers, up from 21%; the percentage using swell allowances remained at 52%.

Physical damage accounted for 58% of unsaleables at reclamation centers, while the balance was largely due to expired goods (22%), discontinued items (13%) and seasonal goods (6%).

Health and beauty care products were found to have the highest rate of unsaleables of any retail department -- just over 2% for distributors.

The percentage of retailers crediting their stores in the 91% to 100% range for unsaleables fell in 2002 to 28% from 41%.

While retailers tend to complain about swell and adjustable reimbursements, Bushey said that "a large percentage" of respondents indicated that swell allowances have led to a "more proactive approach" to managing discontinued products and inventory levels; increased monitoring of volume; and better procurement.

Dan Raftery, longtime unsaleables analyst and head of Raftery Resource Network, Antioch, Ill., said that adjustable reimbursements, which could be adjusted based on changes made in supply chain practices, were more effective than swell allowances.

Raftery observed that while there is "no silver bullet" for unsaleables, there is a "magic formula -- supply chain collaboration" between trading partners, conducted continually over time. Collaboration, he said, "is showing a lot of promise for those who do it, but not everyone is doing it."

Raftery said that the industry also needed logistics standards for such things as shipping containers to develop more uniform approaches to unsaleables.