Returned and dated groceries
Does anyone know what happens to goods which are returned or become dated? Does the company get a credit? Do the suppliers take the risk through consignment (ie the product is sort of loaned to someone else to sell it) rather than the retailer? I sort of expect the suppliers to be taking the risk, particularly when we're talking about quick-spoiling fruits and vegetables, but I don't really know.
I've done some research on this and turned up empty. Supply Chain Management from Reed Business has a lot of interesting articles ([http://www.scmr.com/search/siteall?q=grocery+inventory+risk&x=0&y=0 a search), but there's nothing really clear there.
Safeway's 2008 10-K has some interesting discussion on "allowances" (p. 23):
Vendor allowances totaled $2.6 billion in 2008 and $2.5 billion in both 2007 and 2006. Vendor allowances can be grouped into the following broad categories: promotional allowances, slotting allowances and contract allowances. All vendor allowances are classified as an element of cost of goods sold.
Promotional allowances make up approximately three-quarters of all allowances. With promotional allowances, vendors pay Safeway to promote their product. The promotion may be any combination of a temporary price reduction, a feature in print ads, a feature in a Safeway circular or a preferred location in the store. The promotions are typically one to two weeks long.
Slotting allowances are a small portion of total allowances (typically less than 5% of all allowances). With slotting allowances, the vendor reimburses Safeway for the cost of placing new product on the shelf. Safeway has no obligation or commitment to keep the product on the shelf for a minimum period.
Contract allowances make up the remainder of all allowances. Under the typical contract allowance, a vendor pays Safeway to keep product on the shelf for a minimum period of time or when volume thresholds are achieved.
Page 47 of the Notes:
Merchandise inventory of $1,740 million at year-end 2008 and $1,886 million at year-end 2007 is valued at the lower of cost on a last-in, first-out (“LIFO”) basis or market value. Such LIFO inventory had a replacement or current cost of $1,838 million at year-end 2008 and $1,949 million at year-end 2007. Liquidations of LIFO layers during the three years reported did not have a material effect on the results of operations. All remaining inventory is valued at the lower of cost on a first-in, first-out (“FIFO”) basis or market value. The FIFO cost of inventory approximates replacement or current cost. The Company takes a physical count of perishable inventory in stores every four weeks and nonperishable inventory in stores and all distribution centers twice a year. The Company records an inventory shrink adjustment upon physical counts and also provides for estimated inventory shrink adjustments for the period between the last physical inventory and each balance sheet date.
Note the keyword, inventory shrink. However, that still doesn't answer my original question. Oh well. ImperfectlyInformed 22:00, May 26, 2009 (PDT)
