Latest / The Operations Podcast with Fexingo: Process, People, and Profit in Modern Business / How a Grocery Chain Cut Food Waste by 50 Percent
Transcript
- Lucas: FreshFlow is a mid-sized UK grocery chain—about 300 stores, mostly in the north of England. And until about two years ago, they were throwing away roughly one out of every twenty items that came through their back door. Luna: That's 5 percent waste. In grocery, that's not even terrible—the industry average is closer to 6 or 7. Lucas: Right, but FreshFlow's leadership decided 5 percent was a sign of operational failure. So they launched a project called 'Waste to Profit' and in 18 months cut that rate to 2.4 percent. Basically halved it. Luna: I love that framing—'Waste to Profit.' It's not a sustainability initiative, it's an operations initiative. Lucas: Exactly. And the first thing they did was something most grocers don't: they actually measured waste by category, by store, by time of day. They found that 60 percent of their spoilage came from just three categories: fresh produce, bakery, and ready to eat meals. Luna: That's the classic Pareto principle. But did they find a common thread across those three? Lucas: Yes. The common thread was that all three had fixed replenishment schedules. Every store got the same amount of produce every Monday, Wednesday, and Friday, regardless of actual traffic or sell-through. So a store near a university would get the same volume as a store in a retirement village. The university store sold out of bananas by Tuesday; the retirement store had bananas going brown by Wednesday. Luna: So the fix was obvious—stagger the replenishment based on local demand patterns. Lucas: Simple in concept, harder in execution. FreshFlow had to build a demand-forecasting model that looked at 12 weeks of historical sales by store, plus weather data, plus local event calendars. They used a random forest model—nothing cutting-edge, but it gave them store-level replenishment recommendations each week. Luna: And the stores actually followed the recommendations? That's always the cultural piece. Lucas: That's where 'Waste to Profit' got interesting. They didn't just change the system; they changed the incentive. Store managers used to be evaluated on shelf availability—if a shelf was empty, that was a failure. So managers would over-order to keep shelves full. FreshFlow switched the metric to 'waste per pound of revenue.' Suddenly, ordering less wasn't risky—it was rewarded. Luna: That's a textbook example of aligning metrics with desired outcomes. Availability is important, but you can have availability without waste if you're smart about it. Lucas: They also introduced dynamic markdowns. Instead of waiting until a product's sell-by date to discount it, they programmed the system to start marking items down 48 hours before expiry—starting at 30 percent off, then 50, then 70, and finally 90 percent in the last six hours. The algorithm chose the discount level based on real-time inventory and historical sell-through speed. Luna: So the computer decides, not the store manager. That eliminates the 'I'll wait and see if it sells at full price' bias. Lucas: Right, because humans are terrible at taking a loss. The system took that emotional decision out of it. Within four months, the markdown program was recovering 85 percent of the value of items that would have been thrown away. That's millions of pounds in recovered margin. Luna: What about the 'ugly produce' angle? I've seen that become a trend. Lucas: FreshFlow launched an 'Imperfect Picks' line. They started selling misshapen apples, knobbly carrots, oddly-sized peppers—stuff that previously got culled at the distribution centre. They priced it 30 percent below the standard produce, and it sold through in 1.2 days on average. The key ops change was that they had to train the warehouse staff to actually route that imperfect stuff to stores instead of the compost bin. Luna: That's a process redesign at the distribution centre level. Did they have to change any equipment? Lucas: They added a separate 'imperfect' sorting line at three main DCs. It only took up about 200 square feet per DC and cost maybe 15,000 pounds each for the conveyor and bin setup. That tiny investment diverted about 8,000 metric tons of produce from waste to sales in the first year. Luna: So the ROI on that was probably negative in month one and positive by month three. I'd love to see the payback period. Lucas: FreshFlow's CFO said the whole 'Waste to Profit' program paid for itself in 14 months. After that, every pound saved dropped straight to the bottom line. In year two, they estimate it added about 12 million pounds to operating profit. Luna: Let's talk about the cultural side again. You mentioned the manager incentive change—was there any pushback? Lucas: Oh, definitely. Some managers loved it because they suddenly had a clear target. Others hated it because they felt they were being told to run bare shelves. FreshFlow had to run workshops showing that the new system didn't cause stockouts—in fact, stockouts actually improved slightly because inventory turned faster and fresher product was coming in more frequently. Luna: So they had to prove it with data. That's the only way to win over skeptical store ops people. Lucas: They also put the waste numbers on a big screen in the break room of each store. Every day, the store could see its waste rate compared to the chain average and the top-quartile stores. Peer pressure is a powerful motivator. Luna: That's like the Domino's pizza tracker for waste. Did they do any friendly competitions? Lucas: Yes—they ran a 'Zero Waste Week' every quarter. Stores that achieved a waste rate below 2 percent for the week got a bonus in their team budget—like an extra 500 pounds for a staff party. Participation was voluntary, but after the first quarter, 90 percent of stores opted in. Luna: That's a clever use of small incentives. It's not a life-changing amount of money, but it creates a shared goal. Lucas: And it changed behaviour. One store manager told me that before the program, she'd never really thought about waste as something she could control. She just saw it as the cost of freshness. After six months, she was walking the floor with a clipboard, checking expiration dates and adjusting orders herself. Luna: That's the kind of ownership you can't force. You have to create the conditions for it. Lucas: Exactly. And that's the operations lesson I keep coming back to: most waste isn't waste because people are careless. It's waste because the system makes it the easiest path. FreshFlow redesigned the system so that the easiest path was also the least wasteful. Luna: That's a perfect summary. Before we wrap, I want to say—if you found this episode useful, there's a small way to support the show. It's a 'buy me a coffee' thing, at buy me a coffee dot com slash fexingo. Helps keep the show ad-free and lets us dig into cases like this. Lucas: Yeah, and honestly, episodes like this take a lot of research to get the numbers right. If the conversation moved your thinking at all, that link is there. No pressure though. Luna: Alright, so back to FreshFlow. What's next for them? Are they going for zero waste? Lucas: They've set a target of 1.5 percent by the end of next year. That's ambitious because the remaining waste is mostly in categories like deli meats and prepared salads where the shelf life is three to five days. They're testing a 'dynamic pricing by hour' system for those items—think surge pricing but in reverse. Prices drop every hour after 2 p.m. until close. Luna: That's essentially what the markdown algorithm already does, just at a more granular time scale. Lucas: Right. And they're also experimenting with a partnership with a local food bank to donate items that are still safe but past the 70 percent markdown window. That solves a logistics problem—donating is often more expensive than trashing because of transportation and liability. FreshFlow got a third-party logistics firm to handle pickups for free in exchange for the tax deduction. Luna: So the food bank gets product, the logistics firm gets a tax write-off, and FreshFlow avoids the disposal cost. That's a three-way win. Lucas: Exactly. And it's a reminder that operations isn't just about efficiency inside your four walls. It's about designing the whole system, including what happens to stuff after it leaves your shelf. Luna: Well said. That's a great note to end on. Thanks, Lucas. Lucas: Thanks, Luna. See you next time.