How is Food Waste defined and measured in retail?

There are no text book or standard accounting answers to this question. Typically, what would be included, and in monetary value, and valued at the cost of goods, would be the following forms of losses which are typically well recorded and include; damaged products, products spoiled, or products past their expiry date that are donated to charity, to store colleagues, to animal feed or just thrown in the bin for incineration. But then there are the losses that are NOT recorded well, these include theft, damages and spoilage not recorded, errors in the system that include recipe mistakes, plus audit and POS errors. The below are some of the typical "buckets" of food waste.

  • Ordering / Forecasting - Too much, too late, etc
  • Receiving - Verification, accuracy, DSD over-ships, etc
  • Product Handling - Cold chain outages, broken equipment (fridges, freezers, knives, etc), location, abundance strategies, etc
  • Administration - Set up errors, recipe mistakes, errors in counting, etc
  • Pricing - Price integrity, markdown tracking, gross margin capture, etc
  • Theft - internal, external, collusion, etc
  • Accidental - associate error, damages, cashier error, etc
  • Back Stage - accounting reconciliation issues

The above causes are all included in the number often referred to shrink (in USA) or more completely, known and unknown losses.

In addition, some retailers would measure their waste in tonnes, or in CO2 emissions, and track and measure the percentage of their waste that is kept within the human and animal food chain, and by default not sent to land fill. This answer is not meant to be exhaustive, a good source for a more comprehensive answer (160 pages) can be found in the CGF Food Loss and Waste Accounting and Reporting Standard

Are the value of markdowns included in the Food Waste (loss) number?

Strictly no, a loss should be seen as a loss to the business where that loss has no intrinsic value to the organisation. In the case of markdowns, they serve a purpose which is to accelerate the sale of items close to their expiry date, the value therefore is to recover some value and profit from these items rather than donating, re-purposing or throwing away. However, again there are no standards, some retailers will have the budget for markdowns sit with the buyer and not be in the control of stores, and then there are others where the store and store operations will own the budget for markdowns.