There are many ways to optimise the quantities of bakery products produced, which inevitably leads to a reduction in return rates. The goal should be to maintain turnover and not allow any further sell-outs to occur, that is the well-known balancing act. We will briefly give you valuable tips on how you can increase your contribution margins and generate more turnover with the help of modern tools. In the first article of our series, we will give you tips on how to reduce the return rate in general.
Although bread is one of the most popular foods among Germans, baked goods are among the most frequently discarded foods. During production in the bakery, hardly any food waste is produced. Bakeries account for about 36% of the total bakery waste of 1.7 million tonnes per year, while retailers have a share of about 13%. The share of returns also shows that several hundred thousand tonnes of bread are not even given the opportunity to be consumed, but are directly processed into animal feed, used for energy in biogas plants or destroyed in waste incineration plants. The losses of bakery products caused by returns in Germany amount to about 600,000 tonnes per year.
Returns are not only a problem for business reasons, but also for ethical, ecological and social reasons, which every baker is confronted with every day.
Customers expect full shelves with 100% quality and freshness. But full shelves and oven-fresh bread shortly before closing time generate a high level of returns. The contractual obligations of bakeries in supermarkets and discounters, which maintain bakery shops in their checkout areas, contribute to generating surplus with clauses to show a high product presence until shortly before closing time. There is still no study that has collected the exact return figures for bread and baked goods for Germany. Bakeries speak of return rates of 10 %. In individual cases, even 20+ % are given as return rates (*Thurn, V., Oertel G.C. Taste the Waste). According to the Effizienzagentur NRW, the average return rate is 15%. Converted into figures, this means a loss of 100,000 euros per year for a bakery with 10 branches (according to the calculation of the NRW institution). Once example:
In a bakery with about 20 branches, about 750,000 rolls per year are returned to the bakery as returns. If the sales price per roll is 30 cents, the bakery could have increased its turnover by about 225,000 euros when selling off the baked goods. However, since the bakery owner expects his loss, he calculates it into the gross sales price of each individual roll. The gross sales price is made up of the following factors: Raw material and operating costs, risk, returns, profit and 7% VAT. Which means that the expected loss is borne by the bakery's customers. The bakery company misses out on a profit of around 100,000 euros due to the unsold rolls. The tax office collects about 25,000 to 30,000 euros less tax because the company can write off the returns as a loss.
With each lowered percentage, the company could save 7,000 euros a year in raw materials alone (plus personnel, energy and machine costs).
The first and decisive step to optimise returns is to record the status quo and thus measure the losses of bread and bakery products and analyse the causes. Customers expect fresh goods, high quality and a wide selection. Since the appearance and freshness of baked goods are decisive, pre-produced goods can usually only be sold on the same day. If customer demand is misjudged and too much is pre-produced, this creates an oversupply and thus the basis for returns.
The biggest losses occur the day before - directly during the ordering process.
3 Causes for high return rates are there:
According to the experts of the NRW Efficiency Agency, many bakeries do not pay enough attention to the amount of baked goods they throw away. The agency offers bakers a free initial consultation and then covers up to 50% of the costs.
Those who want to check their processes themselves should try to find out which factors (such as weather, day of the week, holiday, assortment design, etc.) influence returns. Precise evaluations of the quantities of bread and baked goods sold must be created and adjusted daily to the quantity of goods.
One solution would be to carry out an ABC analysis: The A-items, which account for 75 % of sales with 25-30 products, should be offered until closing time. For optimal turnover and no sell-outs, returns should be between 10-15%. The B and C items, on the other hand, should only be produced in small quantities and sold off promptly. The focus should be on the main assortment, which should be available to customers until closing time.
Less variety, fewer returns. A deliberately reduced assortment in the afternoon can also contribute to lower returns. With a narrow assortment, it is easy to build up merchandise pressure. In addition, you should be careful not to place A-items with low contribution margins so prominently. After all, the merchandise value for a disposed bread is much more acceptable than that of an expensive snack item.
However, focusing on A-items or reducing the variety of products on offer are only two ways to reduce returns. With the help of advice, evaluation of returns, analysis and cost transparency of the A-B-C articles as well as the use of the right technology, it is also possible to significantly reduce returns.
Wouldn't it be best if the staff in the branch knew on a daily basis how much merchandise they had to order for the following day? Sure - that's the ideal situation, which requires a lot of manual work and calculation. Evaluating return rates and analysing orders costs time and money. And that's where modern tools like software solutions can help.
We too can help you counteract challenges such as skill shortages and gut forecasts. Our solution optimises order planning and related sell-outs and returns using artificial intelligence. This results in a 100% automated ordering process, with 30% fewer returns and 20% fewer sell-outs. Our forecasting solution generates a new order recommendation for each shop and item every day and automatically sends it to the checkout. The store staff receive an optimal order suggestion directly, the orders are data-based, oriented to the sales trend, the weather, the season, the holidays and are no longer dependent on the gut feeling of an individual. The automated to-do list also makes it possible to provide targeted support to the staff throughout the day and thus creates freedom to focus more on sales and the customer again.
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