Structuring food closeouts can be a real challenge. Even more than non-perishable goods, closeout food presents difficulties in distance, time, and a unique buyer audience. But it also comes with unique benefits for CPG manufacturers and plenty of opportunity.
Let’s take a look at how food closeouts differ from other industries, and why a robust closeout program is important for your business.
The intricacies of food closeouts
Perishability is the single biggest factor that makes food unique in the closeout world. It drives ripple effects through every stage of the liquidation process. Let’s take a look at three specific factors that are worth considering:
With perishable goods, the clock is always ticking. Even food with a long shelf life will have a best by date or a customer guarantee date. That means there’s a much greater sense of urgency for food closeouts than other consumer goods. Unsold pairs of jeans or a set of kitchenware could sit in a warehouse for a year and still be sold later. We don’t recommend trying that with cases of milk.
Food also loses value as it gets closer to its expiration date, so moving quickly to get goods into the hands of your buyers is vital. Optimizing for speed provides a huge advantage to manufacturers, and provides benefits to buyers, too.
For the same reason, food liquidations are often dependent on location. In a world where every day counts, shorter freight routes mean food is delivered farther from its expiration date, and therefore has more value. Plus, temperature control can multiply the cost of transportation, making shorter routes more cost-effective.
Food closeout buyers can also be unique in their needs and capabilities. For one thing, there’s a variety of potential buyers, from national and regional chains to local “mom and pop” stores, as well as brokers and resellers. For another, some buyers are only able to purchase certain categories of product. For example, a store may have shelf space for dry goods, but lack cooler space for refrigerated or frozen items.
For that reason, it’s important that your buyer network matches the types of products you typically sell through closeouts. Making sure you have the right balance of buyers who can purchase your excess inventory will set you up for success.
The biggest advantage of a robust closeout program is its impact on your company's financials. By selling – even at a lower price than primary retail – instead of dumping, you’re recovering value and avoiding costly fees.
Cost recovery in closeouts is pretty simple. At its core, it’s about recouping some of the costs of manufacturing, transporting, storing and marketing your goods that have gone unsold. Even if your closeout channels don’t recover the full carrying cost of goods, you’re almost always bringing in more revenue than you would by donating or dumping.
By moving goods that would otherwise go unsold, you’re keeping your supply chains moving and freeing up warehouse space, making room for products that will sell through more quickly and bring in additional revenue. Carrying costs – the expenses related to storing unsold goods, including depreciation and opportunity costs – are typically estimated to be about 20-30% of all inventory costs for a business. Optimizing closeouts can help minimize those costs.
Avoiding fees and fines
One unique aspect of food manufacturing is that it often comes with much higher dumping costs than other goods. Eight states have now enacted laws against sending food waste to landfills, increasing fines for companies that landfill organic materials. These fines are added on top of standard transportation and tipping fees, making food waste an expensive proposition. Closeouts, in turn, reduce these costs and put money back in your pocket.
Aside from the financial aspect, a comprehensive food closeout program generates plenty of good – for the world, for the community, and for your company.
Food waste is one of the largest factors in climate change. In fact, Project Drawdown ranks reducing food waste as the number one solution for preserving the environment. When food breaks down in a landfill, it releases methane, a greenhouse gas far more potent than carbon dioxide.
Humans currently use about 1.4 billion hectares of land – about one third of the world’s total agricultural land – to grow food that is wasted. By selling that food to consumers who need it before it goes to waste, you’re preventing harmful emissions and land use. This can often contribute to corporate environment, social, and governance (ESG) goals.
There are over 30 million Americans who are food insecure, meaning that they struggle to put food on the table. In many cases, they turn to discount grocery stores for their weekly shopping trips, looking for deals on food that might break the budget at traditional grocery store prices. By selling into the secondary market, manufacturers can get food into the hands of consumers who need it, thereby helping to reduce food insecurity.
Both emissions and food insecurity can also play strongly into a brand’s image. As consumers grow more socially and environmentally conscious, they also expect more from the brands they support. By contributing to better environmental practices and helping to reduce food insecurity, brands can generate positive buzz and PR. Take, for example, the trend of more and more companies signing on with public commitments, like Champions 12.3 and the goal of cutting emissions in half by 2030.
This is also valuable for recruiting talent in a competitive market. In one survey, 65% of respondents said they would be more likely to work for a company with robust environmental policies.
The impacts of technology
Technology has continually revolutionized food manufacturing, logistics, sales and more. Now we’re seeing the benefits of digitizing the closeout process as well.
The first major area of optimization is speed. We’ve already established why moving quickly is so important with food. Software and technology have the ability to streamline processes, automating routine tasks and driving repeatability. Digital offer sheets mean no more scanning or faxing. Software allows you to sync offers with purchase orders and payment systems, minimizing manual input and time-consuming human error. Plus, less time spent doing routine tasks means more time on the strategic parts of your business, like building relationships with buyers.
Establishing a regular closeout cadence is crucial for building those buyer relationships. When you provide offer sheets on a regular basis, in a consistent format, buyers know what to expect from you and see you as more reliable. When you’re a trusted supplier, your relationship moves from purely transactional to strategic.
Cadence also helps to keep your internal accounting and forecast more accurate. Irregular offers make revenue much harder to predict. Finally, it can greatly impact your speed, and therefore your cost recovery. By waiting until you have a critical mass before you generate offer sheets, food is closer to expiration. When you operate on a regular cadence instead of waiting, you have more time to sell perishable product.
Detailed analytics from software platforms can also provide deep insights into your processes and business, helping you to continuously track progress, optimize results, and improve your approach. Detailed sales performance KPIs can be broken out by category, brand, SKU, location, channel, and more, letting you hone in on specific strengths and weaknesses.
Further, analytics can be used to trigger alerts that flag both risks and opportunities, keeping you ahead of the curve. Data can also provide optimization recommendations to help you recover even more value.
Selling closeout food can feel like a daunting task, especially given the tight turnarounds and impending expiration dates. But with a consistent approach – usually helped along by digital tools – you can impact your bottom line, help the planet, and build strong relationships with your buyers.
For more on streamlining your communications with buyers, check out our free checklist, Offer Sheet Essentials.