Food Wastage as a New Source of Revenue
The cost of food is the second largest expense for restaurants after wages. Despite this fact and combined with the inability of the business to accurately predict demand, the sector continues to throw away tons of food every day. This article aims at drawing attention to this inconvenient issue that few decision-makers from international brands are willing to talk about.
From the difficulty to forecast demand
In order to grow a sustainable business, a manager needs to accurately forecast demand. This enables the creation of a schedule to prevent overstaffing while purchasing adequate quantities of supplies.
But restaurants’ demand is a difficult predictable variable depending on external factors (e.g. seasonality, weather, sports events, political events or tax time) as well as internal ones (workers’ health conditions, technology or equipment maintenance). Even with the most accurate monitoring tool and in order to ensure customer’ satisfaction and prevent food shortages, a manager will purchase larger food quantities than actually needed. This strategy leads to the production of food excess which, if not consumed, ends up as losses. Out of the total food bought by businesses, 3% are lost in full-service restaurants, 10% in fast food restaurants and up to 26% in convenience stores. The shortfall tied to this surplus not only represents a financial loss but also raises ethical, environmental and social concerns.
Food excess as a source of revenue
The catering sector is a low-profit-margin business. In order to help businesses optimize their revenue, I have been working during a semester in San Francisco on a start-up project called Mogo. The solution is grounded in connecting food excess from bakery and coffee shops to people. Through an online platform, businesses can upload their offers and customers can choose and pick up their order at a discounted price. It allows businesses to increase their revenue, boost their traffic and decrease their wastage. Customers can benefit from high-quality products at a discounted price while acting in an environmental-friendly way.
It gives businesses the possibility to generate money on food which would otherwise be thrown away, or even less likely donated to food banks. But many barriers prevent food surplus to be donated, because of supply chain constraints such as transportation, insufficient on-site storage and liability concerns in the case of intoxication or illness.
The project was conducted towards bakery and coffee shop brands, as they bake many perishable goods over a working day and generate 8 to 10% excess from the total food purchased. To assess the market, I conducted an in-depth research and interviewed food experts as well as local managers from international brands. Altogether, they estimate that bakery and coffee shops in San Francisco discard the equivalent of $40,000 of food per year. Considering that the average revenue of a bakery-coffee is $500,000 a year, the loss is equivalent to 8% of the annual revenue. The more businesses waste, the less income they generate and the greater amount they have to spend money on disposal fees, water and energy. Hence they pay twice: once they purchase food, secondly when they throw it.
Curious about how much supermarkets could generate, we contacted Trader’s Joe about their food donation program and in spite of a smaller loss percentage (in comparison with the total volume), we learned that the quantity represented a greater economic impact. Hereafter is a quote from their Customer Relations department:
Just to give you perspective on how much we actually donate, our smallest Trader Joe’s location donates over $500,000 of food to their local organization a year. That’s over $1300 worth of produce, bread, prepared foods, etc. each day. You can only imagine what some of the larger locations do. These donations are made on a daily basis, in some stores, twice a day.
Wastage is a problem experienced by all actors in the food chain. Because it is hard to predict demand and wastage is inherent to the business, we propose to transform the food excess into an additional source of revenue. Indeed, our unique proposition value is to sell every day at least 1 product out of 5 intended for wastage, which represents an additional revenue of $8,000 a year for an average bakery and coffee shop.
The role of decision-makers
Managers always seemed interested in the business idea and two of them even submitted a proposal to their headquarters. Nevertheless, their answer remained almost the same:
I really see the value in your product, it’s a win-to-win business which would greatly benefit to us. I need to contact my hierarchy to get their approval in joining your platform. But honestly speaking, I’m not sure they would accept, the problem you address requires a change in habits and decision-makers just don’t want to break their image.
Furthermore, during this semester in the Bay Area, my analysis determined that decision-makers seem to be stuck in their business-as-usual habits, to have a distorted view of the situation on the field and to misunderstand customers expectations. They tend to consider that talking about wastage could give a negative image of their business. Historically, the California Food Revolution has contributed to raising the awareness of Californians on some entirely new concepts — organic, sustainable or farm-to-table. Alice Waters, Joyce Goldstein or Orville Schell are at the roots of the food culture in California, and their legacy is still vibrant nowadays in people’s mind and culture.
Decision-makers should first come to admit they do generate wastage as their competitors do. Secondly, they need to build transparency around wasted quantities. Transparency would help emphasize a sustainable and positive image of their brands while increasing their revenue. Headquarters bear a responsibility and need to raise further their awareness on cost-effective benefits related to a zero waste economy.
Broader than the bakery, coffee shops and restaurants, it is the global food sector that needs to evolve and put efforts into adopting a bottom-up strategy approach. Bringing the sector to be more transparent on its policy will encourage stakeholders to better identify problems and opportunities along the food chain. Wastage amplifies inequalities in modern societies and with 16% of Americans living in food-insecure households, we can no longer stay quiet on this trend. For ethical, environmental, economic and social reasons, it is the responsibility of us all to contribute in valuing the food, from the farm to the plate.
“The Progressive Increase of Food Waste in America and Its Environmental Impact” K. D. Hall et al., 2009.
“Waste: uncovering the global food scandal” W. Martindale, 2010.
“Labor Scheduling, Part 1: Forecasting Demand” G. Thompson, 1998.
“Workforce Scheduling: A Guide for the Hospitality Industry” G. Thompson, 2004.
“Why Restaurants Fails” - Parts I to IV, H.G. Parsa et al., 2005 - 2013.
“Restaurant Revenue Management” D. Bertsimas and R. Shioda, 2002.