Apps on Apps: Tesco uses digitalization to tackle food waste
Tesco admitted wasting 30,000 tonnes of food in 2013. Now it is using apps, big data, and analytics to cut down on food waste and redistribute it to people in need.
Is a wasteful supply chain leaving 8 million people hungry?
In 2013, Britain’s largest supermarket, Tesco, confessed to throwing away almost 30,000 tonnes (30 million kg) of food in 6 months, half of which was still safe to eat [1]. This represents a loss of 60 million meals [2], while 8 million Britons struggle to put enough food on the table each day [3]. Moral and ethical reasons aside, businesses also have an economic incentive to reduce waste. A UN Sustainable Growth report found that every $1 companies invested in programs to reduce food waste yielded a $14 return [4].
Waste is the enemy of any efficient supply chain, so why is Tesco only now tackling its food waste problem? Put simply, meeting customer demand trumps the expense of carrying extra safety stock. Supermarkets commonly over-order to ensure they always have necessary items in stock [5]. Yet today, this excess inventory often ends up in landfills.
Fresh fruits and vegetables most often fall victim to waste because they must be sold and consumed by an expiration date. Speed of redistribution is essential in any effort to donate food to people in need. Sadly, many charities resort to stocking dry goods because they do not have the logistics infrastructure in place to retrieve the produce quickly enough [6].
To reduce food waste, Tesco must cut down on excess safety stock with improved order accuracy, integrate new players – such as food charities – seamlessly into the supply chain, and increase supply chain transparency to save food before it is lost. The recipe calls for a faster, more accurate, more connected supply chain solutions — in other words, a digital supply chain.
Current solutions: donations and accurate ordering
Short-term, Tesco has publicly announced its goals of achieving less than 1% food waste by the end of 2017 [7], and publishes data on its progress, as in the featured print ad [8]. They have prioritized donating food nearing its sell-by date to thousands of charities, and at a minimum converting it to bio-diesel. This endeavor demands a fast and reliable information transfer – the perfect challenge for a digital system. Tesco implemented the FareShare FoodCloud app [9], which allows them to promptly inform local charities of the amount of food ready for pick up that day. So far, they have given 10 million meals to 5400 charities [10].
Longer-term, Tesco aims to halve food waste in their own operations, their supply chain, and in the markets in which they operate retail stores by 2030 [11].
So, Tesco is investing in big data and analytics to improve their ordering by more accurately reading current customer behavior and forecasting consumer demand. Currently, Tesco uses analytics and clustering to group products by how people shop for the products, not by how people shop in-store or by how Tesco used to buy them [12].
Finally, Tesco is also working with suppliers to broaden their specifications to sell the less than visually perfect fruits and vegetables that are edible, but currently tossed out. The “Perfectly Imperfect” line of produce is priced lower and allows Tesco to take more crop from suppliers [13].
What’s next: Tesco will know what I’ll buy before I do
Tesco’s inventory management improvements are only the beginning. Tesco could more accurately predict demand by integrating more and different types of external data into their analytics engines. The pipedream would be knowing what people will buy before they do.
Tesco has embarked on this journey already, but seemingly in a manual and one-off fashion. Tesco noticed that warmer weather led to a bumper crop in strawberries. Thus they were able to sell larger strawberry boxes at discounted prices, benefiting both the customer, who received a discount, and the grower, because Tesco bought more from them [14]. By systematically analyzing more data, Tesco could automate and systematize this adaptive ordering practice to waste less and sell more – a win-win.
Additionally, Tesco should attempt vertically integrating the supply chain and deploying Internet of Things systems. The benefits of vertical integration are self-evident: the tighter and faster the information and product flow between farmers, wholesalers, retailers, and consumers, the less food will go to waste. Indeed, Tesco seems to be moving in this direction. In March, they announced the acquisition of the wholesaler, Booker [15]. To strengthen the impact, Tesco can deploy Internet of Things technology to improve real-time visibility into inventory availability, utilization, and shipment tracking throughout the system [16]. Increased transparency will spotlight waste in the system and enable quicker course corrections.
Will Tesco’s efforts be enough?
How much of Tesco’s ability to achieve its 2030 goals of halving supply chain food waste is dependent on its suppliers and their adoption of digital technologies? Will “zero-waste” catch on if the whole industry doesn’t move with Tesco?
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[1] “Tesco says almost 30,000 tonnes of food ‘wasted’,” BBC News, October 21, 2013, http://www.bbc.com/news/uk-24603008, accessed November 2017.
[2] At .5kg per meal. “Tesco food waste rose to equivalent of 119m meals last year,” The Guardian, June 15, 2016, https://www.theguardian.com/business/2016/jun/15/tesco-food-waste-past-year-equivalent-119-million-meals, accessed November 2017.
[3] Anna Taylor & Rachel Loopstra. “Too Poor to Eat: Food Insecurity in the UK,” The Food Foundation, May 2016, http://foodfoundation.org.uk/wp-content/uploads/2016/07/FoodInsecurityBriefing-May-2016-FINAL.pdf, accessed November 2017.
[4] Craig Hanson & Peter Mitchell. “The Business Case for Reducing Food Waste,” Champions 12.3, March 2017, p. 2.
[5] Ministry of Economy, Trade, and Industry, “6.42 million tons per year! – food loss and waste in Japan,” January 2016, http://www.meti.go.jp/english/mobile/2015/20151021001.html, accessed November 2017.
[6] Ben Schiller, “Food Charities Can Now Be More Like Food Companies With Just-In-Time Food Waste Logistics,” Fast Company, August 2014, https://www.fastcompany.com/3034376/food-charities-can-now-be-more-like-food-companies-with-just-in-time-food-waste-logistics, accessed November 2017.
[7] Tesco PLC, “Products – Food Waste, Actions and Targets,” https://www.tescoplc.com/little-helps-plan/products-food-waste/actions-and-targets/, accessed November 2017.
[8] Tesco PLC, “At Tesco, We Have No Time for Waste,” print ad, 2017.
[9] Megan Gibson, “The Food-Sharing App That Helps Hundreds of Irish Charities Just Went International,” Time, June 2015, http://time.com/collection-post/3908855/next-generation-leader-foodcloud-expansion/, accessed November 2017.
[10] Tesco PLC, “UK Food Waste Data,” https://www.tescoplc.com/little-helps-plan/products-food-waste/uk-food-waste-data/, accessed November 2017.
[11] Tesco PLC, “Products – Food Waste, Actions and Targets,” https://www.tescoplc.com/little-helps-plan/products-food-waste/actions-and-targets/, accessed November 2017.
[12] Brenden Marr, “Big Data At Tesco: Real Time Analytics At The UK Grocery Retail Giant,” Forbes, November 2016, https://www.forbes.com/sites/bernardmarr/2016/11/17/big-data-at-tesco-real-time-analytics-at-the-uk-grocery-retail-giant/2/#f3564d7504f3, accessed November 2017.
[13] Sarah Butler, “Tesco to launch ‘wonky veg’ range,” The Guardian, March 2016, https://www.theguardian.com/business/2016/mar/11/tesco-launch-wonky-veg-range-food-waste-fruit-vegetables, accessed November 2017.
[14] Tesco PLC, “Working with Suppliers to Tackle Food Waste,” https://www.tescoplc.com/little-helps-plan/products-food-waste/suppliers/, accessed November 2017.
[15] “Benefits of reduced food waste a factor in Booker deal, says Tesco boss,” Reuters, March 2017, http://www.reuters.com/article/booker-group-ma-tesco-waste/benefits-of-reduced-food-waste-a-factor-in-booker-deal-says-tesco-boss-idUSL5N1GG369, accessed November 2017.
[16] “The Value of Real-Time Visibility and Predictive Intelligence in Supply Chains,” International Data Corporation, October 2016.
Key Image Source: “Tesco food waste rose to equivalent of 119m meals last year,” The Guardian, June 15, 2016, https://www.theguardian.com/business/2016/jun/15/tesco-food-waste-past-year-equivalent-119-million-meals, accessed November 2017.
Very interesting and well-written essay. I think it’s interesting that we usually talk about safety stock as a good thing, but in this instance where the product has a short shelf life it’s pretty bad. In regard to your discussion questions at the end, I wonder how much Tesco’s efforts will matter in the grand scheme of things. France recently became the first nation in the world to implement a law that bans supermarkets from wasting food. Tesco’s 2030 goals are admirable, but I’m wondering if the UK will pass similar laws in the next 12 years that will force Tesco to dramatically accelerate it’s efforts.
Thanks for this insightful piece!
What struck me as a bit counter-intuitive about Tesco’s food waste reduction program is the “Perfectly Imperfect” designation of produce. If Tesco truly wanted to signal to consumers (and suppliers) that visually imperfect fruits and vegetables are just as edible and of comparable quality, the company should not be pricing these items lower or paying less to the supplier. Instead, Tesco should invest in education, marketing and communication across the full spectrum of the supply chain (farmers, distributors, wholesalers, consumers) to shift perceptions. Tesco can additionally harness digital data analytics to observe consumer purchasing patterns and identify potential geographic regions or markets that are more receptive to purchasing visually imperfect produce. For example, consumers closer to rural or agriculture-heavy regions may be more familiar with the natural imperfections of certain produce and thus more open to purchasing, compared to urban dwellers in London. This might enable Tesco to direct its supply chain to deliver more “Perfectly Imperfect” produce to these stores.
This is a fascinating area of study. I’m so curious to see what the future of this supply chain will look like – especially with the advent of many on-demand delivery and ‘subscription’ based food services. I’m curious how the internet of things, especially within the realm of smart home and smart cooking/refrigeration devices will eventually feed data back to retailers and grocery stores about what items are running low on supply in the home, what food usage habits exist in each household to help with demand forecasting
RE: Imperfect Produce: Supermarket discounts, especially when selling to price-sensitive consumers, incentivize consumers to create certain habits and beliefs. Discounting produce that isn’t perfectly round leads consumers to believe that produce may be lower quality, and stores may be able to reach the same goal by simply educating their consumers. I’m curious whether Tesco’s Perfectly Imperfect pricing team considered the costs of educating consumers about the benefits of not wasting “imperfect” produce that tastes and cooks the same as “perfect” produce. While I support the goal of selling this produce and reducing waste in the supply chain, I question why stores don’t also use dynamic pricing to sell soon-to-expire produce at discounted prices to homes that will use it immediately. Eventually, I hope that my smart home can communicate to Instacart or Blue Apron the timeframe within which I plan to use certain items, and those services can more efficiently manage soon-to-expire supply.
I also applaud the efforts that Tesco is pursuing to donate left-over supply that may not sell to those in need via the FareShare FoodCloud app.
This essay shows a good example of how optimizing supply chains through digital initiatives can create value for the company while solving an environmental and social problem.
I admire Tesco’s actions and their program and although I agree with some of the other comments that the “Perfectly Imperfect” is not the ideal solution in the long term, I think it is a way of beginning, of creating momentum and of showing customers and supply chain partners that those kinds of initiatives can generate value for all of the involved. I feel that If they started with marketing and education initiatives, adoption would be slower. In my opinion, the action was important to make people break their barriers of consuming the “Perfectly Imperfect” products. Once they have a robust customer base, they can invest more in marketing and education.
As for the question about how much Tesco is dependent of its suppliers, I think in order to fully achieve the benefits in the long term, it is necessary to involve the whole supply chain. With the collaboration of all stakeholders, waste generation can be optimized by ordering and producing only the necessary amount of products. But I feel that, as you mentioned, the benefits of digital initiatives such as Internet of Things is pretty straightforward and once the first supplier embrace the digital initiatives, the others will probably follow, since they will perceive the benefits. Therefore, I would not be that worried If I was Tesco and I would continue to pursue my goals.
A fascinating piece!
I really applaud Tesco’s vision. I cannot fathom the idea of fresh food in landfills while people are hungry. However, addressing your question, I see a huge issue that will arise from suppliers. If Tesco is more efficient in their ordering that means less demand from their suppliers who may push back on this change. In addition, suppliers know that if they are unable to satisfy the orders from a large account like Tesco, they may lose all of their business. If Tesco implements more dynamic ordering to match demand trends that they are seeing, which could continually change, it will incentivize their suppliers to overproduce, resulting in huge amounts of waste. I fear that with less sophisticated digital relationships with charities, the waste from suppliers will be more prone to going to landfills.
This is a very interesting topic. I am of the belief that as much as businesses try to “donate” the closed to expired foods, this is not a viable approach at a large scale for three main reasons. First, given the perishable nature of food, the company bares a lot legal risk by selling foods so close to their expiration date. Any health issues that can be traced back to the firm will have massive consequences. This leads to the next point which is that food producers want to preserve the firm’s brand image. Working for P&G, our policy was to never even give out the thousands of slightly defective products to the employees, who would gladly use them, for fear that this might damage their brand image and customer loyalty in the long term. The same principal holds true for foods to a much higher degree. Thus I think the producers would not go along with this approach. Finally, giving away or selling food is simply not profitable, thus it would be hard for this approach to gain traction on any scale.
I think predicting demand using digitization certainly has a much better appeal, though I think it too has its limitations. After all, humans are known to be irrational. With that said, I don’t know if we’ll ever be able to reach zero waste but I think advances in biotechnology can significantly increase the shelf life of perishable foods. New methods for packaging and storing foods can also help prolong the food’s shelf life. I think these new technologies, combined with better predictive analytics can have a marked effect on food waste in the long term and will provide economic incentives for mass adoption.