Expired Food: What retailers must do

This is the third and last installment of the 3-part series on Food Expiration:

• Expired Food Part 1: Is it illegal to sell?
• Expired Food Part 2: What Consumers should know
• Expired Food Part 3: What retailers must do

What is supply chain and how it defines product expiration 

A supply chain is a system of organizations, people, technology, activities, information, policies, procedures, and resources involved in moving a product or service from supplier to customer. In a more simplistic definition, its all about product distribution and how it is being accomplished. In a supply chain point of view, expired products are defined as consumer packaged goods on which a date code exists which has passed in time and which is meant to be the end of the distribution life of those products. It simply answer or attempt to answer the question, How are finished goods are distributed after they have been produced.

Why retailers sell expired products

Does selling expired food a good business practice?

Ask that question to grocery owners and you get almost a unanimous resounding response: Of course not! No business owner would agree with that fact. But,  the truth is: the very business groups that vehemently condemn such practices are the very ones that violate them. We all know from the last 2 articles I posted, that several well-known retailers have had involved in legal lawsuits and state penalties due to gross violations of food and health laws. So, we are left with one serious question: If those retailers had been repeatedly slapped with scores of penalties and charged with many lawsuits, why they still keep repeating the same mistake all over again? Here are some of the reasons:

• Manufacturers and retailers have almost complete powers over how merchandise are sold. Federal Law has no strict regulations. What we have right now are general guidelines on food handling and labelling. Not all States agree or implement a unified health laws. In fact, only 20 out of 50 states have required food dating. Other than that, all dating and labelling are left in the hands of manufacturers and retailers. Look at some examples of unscrupulous retailers who sell or used to sell products past their labelling dates: CVS, Rite Aid, Walgreens, Wholefoods, etc. Even if they have been repeatedly warned, fined, and slapped with lawsuits, and settlements, they still managed to sell expired foods and drugs. 
• Which brings us to the second reason: Crime of opportunity. This nobodys-watching-it-yet-so-lets-do-it attitude is an act that is committed when retailers have that opportunity and take advantage of it. Did you know that 7 out of 10 customers do not check at expiration labels when they are shopping? Customers do not really care about reading food labels, and normally do not report if there is an incidence, And because of that, some retailers take that situation and transform it into good money-making opportunities. The claim that retailers are not completely aware what is being sold on their sales floor is a complete LIE! The truth is: retailers are fully aware that there are expired food and drugs on their salesfloor and backrooms but they have to sell them anyway.
• Economic reasons. Retailers know that expired products are becoming a liability, and therefore, they have to find ways and means to sell those "becoming liabilities" into "becoming assets." Retailers think about expenses incurred (both labor, stocking fee, disposal and environment expenses, and potential profit losses from actual sales) when disposing of expired products from the sales floor. In these economic times, they want to avoid these instances as much as possible. 
• Retailers need to maximize merchandise shelf life. Most foods that past the Best Before, Best if Use by, Expired On, Best Until, etc. labels are still safe to eat. And retailers are aware of that fact. The quality of the food may not be at their optimum level but they are good and still safe to eat. Even your local health officer may categorically agree to this statement especially when there is no particular state law or local health ordinance that prohibits on the selling or banning of such absolescent products. 

4 factors believed to re-occur throughout the supply chain that can cause product expiration:

The truth of the matter is, Supply chain cannot eliminate product expiration. What it can is to reduce or minimize its occurrence.

1. Inventory rotation does not occur 100% of the time. Whether it is at the warehouse storage slot or the store shelf, newer product may not be inserted behind older product every time. And when it happens, newer products sell first than the older ones.
2. Product date-coding practices are not standardized or Case date-coding practices are also not standardized. Some products are “closed-coded.” i.e. the date can only be understood by someone who understands the coding system, such as 3064 which is the Julian date for 03/05/03.
3. Warehouse inventory management systems do not easily and accurately capture date-code data.
4. New product development practices may shorten available life remaining.

What retailers should do to reduce or minimize product expiration

1. Effective Product Rotation to maximize product freshness. Newer products should be be inserted behind older product every time. For consumable products and food with short shelf life, the FIFO principle applies well: Short shelf life merchandise that were received first, must sell first. Most stores will rotate stock by moving the products with the earliest dates to the front of shelving units, which allows them to be sold first and saving them from having to be either marked down or thrown away, both of which contribute to loss of profit.
2. Regular In Store Audits. Companies experienced with in-store audits report that their greatest successes come when the audit data are integrated with follow-up actions. They also include audits in larger initiatives involving remaining shelf- life inventory management.
3. Create Consumer Hotlines. Safety and product quality are the general issues often addressed during hotline conversations. Both manufacturers and retailers in this project treat safety questions as top priority for resolution and follow-up regardless of the type of date code used.
4. Clearly Implement Date Code Methods. Although not a guaranteed solution, open date codes are generally expected to improve product freshness. Whether a supply chain agree to an "open codes"(The date which product is to be removed from distribution is printed on the consumer package in a way that can be understood by consumers. For example: 03/05/03, or March 5, 2003),  over "closed codes," (*The date which product is to be removed from distribution is printed on the consumer package in a way that can only be understood by someone who knows how to read the coding system. For example 3064, is the Julian date for March 5, 2003.)
5. A close watch on Days of Life data. Supply chain management should increase their knowledge base of this data and increase their use of inventory management applications using Days of Life data. Days of life means a product’s expiration date minus today’s date. For example, Today's date is July 5, 2010. A product date-coded July 5, 2011 would have 364 days of life remaining before it expires and is removed from distribution (Please refer the diagram above from Joint Industry Unsaleables Steering Committee as an example of DOL data).
6. Proper storage practice is important. There are many ways to enhance best before and use-by dates. These include a better education of retailers and consumers on how to use, transport and store fresh food products, and improvements in domestic refrigerator performance. Also, they can be improved by adding to the package smart indicators such as digital or analog time temperature indicators. These either have a recording of the temperatures encountered during transit or have means of flagging excess temperature. Products that have some temperature excess can be evaluated and sorted for either rapid sale or, if needed, disposal.
7. Proper dating methods. Open Dating is the use of a date or code stamped on the package of a food product to help determine how long to display the product for sale. It is also beneficial to the customer and ensures that the product is at its best quality when bought. An Open Date does not supersede a Use by date, which should still be followed.

But what happened if stocks cannot be sold before their expiration?

Most stocks that are unlikely to sell and have greater chance to reach their expiration dates are those that are slow moving stocks, left over stocks, or over stocks. Most retailers have their own procedures and policies when disposing of or donating merchandise nearing their expiration. But for newer players, it is a bit challenging. If after assessing that you won't be able to sell them despite all promos and discounts have been done in your store. 

Donate and get Tax Incentives

About the incentives.

The following information are taken from IRS.gov website. It relates to tax incentives for donating obsolete, closeout or liquidation inventories. Congress provides incentives under the tax laws to encourage donation of inventory to non-profit organizations. These laws provide an incentive to businesses for donating slow-moving items prior to marking down the price. By donating items that today are collecting dust on a warehouse floor or a retail outlet shelf, donors can save the cost of other expenses related to maintaining the inventory, including the cost of warehousing, handling, and/or disposing of the items.

How it works.

Internal Revenue Code, Section 170e3 creates an enhanced deduction for corporationsto take a deduction up to twice the cost of producing an item (when the value is higher than the cost). Before the enhanced deduction was put in place, companies could only deduct an amount equal to their cost for an item donated to an IRS 501c3 public charity. However, the inventory or other property may have a fair market value higher than its cost. Under 170e3, an enhanced deduction allows the donor to take a deduction up to twice the cost/basis of the item if the value is higher than the cost.

Donated property under 170e3 must be used for the ill, needy or infant (using IRS definitions). Equipment used by a facility providing service to the needy also qualifies. The same acknowledgement requirements that apply for any donations still applies under 170e3 donations. Though materials that are donated under 170e3 cannot be resold, organizations may charge a “user fee, handling fee, or donation fee” to recoup their expenses.

Where do I donate my merchandise?

There are literally thousands of avenues and places to donate your merchandise: Food Banks, Privately-owned organizations, Not-for-profit retails such as Goodwill stores, Church organizations, etc. Check your local city for donation centers. You can also check the US Environmental Protection Agency (EPA) for more information. Or you can download its document on Donating Surplus Food to the Needy 

To get more information how and where to donate Seasonal Inventories, Re-stock Inventories, Salvage Inventories, excess inventories, RMA's, Surplus, Closeout, and discontinued inventories, etc. or any merchandise with near to expire products, please visit Waste To Charity

I think its about time for all retailers to look for the interest of others, and not only for your personal and business interest. The biggest benefit of pulling unwanted products from the shelves or sales floor is to reduce the amount of date expired and unsaleable products. When this happens, it results in increased consumer satisfaction with the total supply chain. 

You might also consider these: