What is Acceptable Shrink?

Food Waste: What is Acceptable?

Shrink is an ongoing and growing issue in the highly perishable produce industry. Consider that the average estimated retail shrink for total fresh fruit was 12.6 percent in 2011-2012, up from 11.4 percent in 2005-2006. Similarly, this average was 11.6 percent for fresh vegetables in 2011-12, up from 9.7 percent in 2005-06, according to the June 2016-published report, Updated Supermarket Shrink Estimates for Fresh Foods and Their Implications for ERS Loss-Adjusted Food Availability Data, by the U.S. Department of Agriculture’s Economic Research Service.

Reducing shrink can reduce businesses operating costs by 15 to 20 percent, or more, says Martin Gooch, Ph.D., chief executive of VCM (Value Chain Management) International, in Oakville, Ontario, Canada. In retail, a 1 percent reduction in shrink can produce financial benefits equivalent to a 4-plus percent increase in revenue because businesses are no longer subsidizing ineffective operations.

Therefore, the question is, optimally, how low should shrink go?

Shrink represents a missed opportunity and therefore, conceptually is never acceptable. In practice, some shrink will always occur, so reduce wherever possible without harming margins, profits, advises VCM¹s Gooch.

Jonathan Raduns, a Cherry Hill, NJ-based consulting partner Merchandise Food LLC, agrees. If you don¹t have any shrink then you are probably underselling your opportunity. It’s like a hotel that has 20 rooms. With only two rooms, you might be able to book fully continually and smile that you have 100 percent occupancy, but you¹ll never make as much money as the guy that takes a bit more risk and has 100 rooms that sometimes go unbooked.

However, some retailers are looking toward profitably achieving zero shrink by finding innovative ways to keep food waste from landfills. For example, Hannaford Supermarkets, a 180-store chain based in Scarborough, ME, is pursuing source reduction, hunger relief, feed for animals, industrial uses and composting, according to Eric Blom, external communications manager and spokesman. About a third of our stores send no food waste at all to landfills, and the remainder are much lower than industry norms in what they send to landfills.