RPCs Signal New Mindset Among Grocery Retailers
Corrugated boxes have been the mainstay in the produce industry. As closed loop systems have emerged, however, reusable plastic containers (RPCs) have attracted interest from major grocery retailers.
By Staff Writer
Date Posted: 4/1/2000
For years, corrugated boxes have been the mainstay in the produce industry. But as closed loop systems have emerged, the concept of reusable plastic containers (RPCs) has attracted interest from major grocery retailers. And unlike in years past, retailers not growers or packers are dominating packaging
International Food Container Organization (IFCO) and Chep, the two largest third party management companies offering RPCs, continue to court major retailers. Wal-Mart, the world’s largest retailer, has publicly announced its support for RPCs and is quickly converting its stores. Currently, 45 Wal-Mart stores use RPCs and two distribution centers ship primarily with RPCs. Wal-Mart will open 165 new stores this year. The first half will use conventional containers; the second half will be setup for merchandising in RPCs. The retail giant wanted to utilize RPCs in all of its new stores but a lack of supply slowed the company’s implementation of the new containers according to Ron McCormick, director of produce for Wal-Mart. Kroger, Food Lion, Publix and other grocery store chains are either testing RPCs or moving toward utilizing them in stores.
"Most of the major retailers are looking at some type of conversion to RPCs," said Brian Beattie, vice president of new business development and marketing for Chep Americas. "However, there are at least one or two major retailers that are waiting in the wings and are not convinced that RPCs are the short term right thing to do."
Despite the interest of major retailers, RPCs only comprise about 2% of the produce packaging market.
As major grocery store chains evaluate RPCs, the field is opening for more competition. Georgia Pacific (GP), a major corrugated container manufacturer, has jumped into the RPC business. GP’s entrance into RPCs is a sign of what the future may hold. Wal-Mart already has named GP as one of its suppliers. Strategically, GP holds a strong position as the largest supplier offering both corrugated and plastic containers.
RPCs should not have a profound immediate impact on the wood pallet industry. Most of the containers are designed to fit on a standard 48x40 GMA pallet. But increased retailer interest points to a change in mindset from one-way to multi-trip packaging. This may translate into retailers "encouraging" the use of more plastic pallets in the future. RPCs will help fuel the growth of third party management companies. With some of these companies also offering wood or plastic pallets, they will likely become a factor in some markets where they currently lack a strong competitive presence.
Volume and velocity of movement attracted Chep to the produce industry. "When we studied the produce industry, it appeared that there was significant opportunity to take dollars out of the supply chain and improve efficiency," said Brian.
According to Ken Rodgers, president of IFCO, shrink or product damage for the produce industry hovers around $3 billion per year. Grocery retail is a low margin industry to begin with and a reduction in shrink can have a major impact on the bottom line. "Produce happens to be the most profitable area for most chain stores," said Ken. "The margins have been pretty high. But that has been to cover a lot of waste. The utilization of RPCs has a major impact on shrink and waste."
RPCs reduce waste and improve efficiencies in many ways. Corrugated containers come in hundreds of sizes whereas RPCs come in only a few standard sizes. Growers and packers frequently request custom containers, which leads to a lack of uniformity and stacking problems in the distribution center. Although customizable containers may be a plus for growers, they are not for the retailer. The uniformity of RPCs allows for proper stacking which can keep pressure off the produce and better distribute the weight across the entire unit load. Plus, standardized containers work better in automated distribution centers.
The second major source of waste reduction is product handling. RPCs can make it easier for retail produce departments to handle product loads. RPCs are more rigid, can be moved around easier, and tend to stack better on a cart according to Beattie. Removing produce from packaging and putting it in racks creates a ton of work. Merchandising straight out of the container reduces the amount of labor and employee training required while cutting down on excessive handling. Shrinking labor forces make any labor savings attractive to retailers. Stacked RPCs make ideal displays outside of the produce section or as end caps. According to Bruce Peterson, vice president of perishables for Wal-Mart, display-ready packaging helps retailers turn product faster, which boosts sales.
As retailers move toward the next generation of tracking and tracing, RPCs stand out as an attractive option. Due to the cost of bar coding and RFID tags, individual tracking of one-way containers does not make sense. RFID will allow retailers to better pinpoint and understand their supply chain problems. Currently, there is no real economic incentive for everyone in the supply chain to operate efficiently. Everything gets lumped together; the inefficient companies pay the same fee to use RPCs as efficient companies. But the key to a successful RPC program is to increase the number of turns per container per year. The more frequently a container is used, the lower the cost per trip. Increasing efficiencies also reduces the total number of containers needed to run a retail program. Tracking and tracing will allow third party management companies to more precisely identify leaks in their systems, which translates into an overall reduction in the number of lost or stolen containers.
Although RPCs seem be on the verge of explosion, the future is far from certain. Corrugated manufacturers are not taking the RPC "revolution" lightly, and RPC production continues to be an obstacle for wide scale conversions. "The investment to convert to RPCs and build the pool is sizeable even for just Wal-Mart distribution centers," said Ken. "Wal-Mart super centers probably average about 150,000-200,000 containers per week. You start getting those places running, and you will need a sizeable inventory."
RPC conversions are a major cost. Container inventories must be built. Infrastructure must be changed. And relationships with corrugated manufacturers run deep. How much of the industry will convert to RPCs? Major retailers will continue to lead the charge while growers, some of them begrudgingly, come along for the ride.
"The RPC has the opportunity to capture somewhere in the neighborhood of 25% of the produce market over the next five years," said Eric Fredrickson, sales and marketing manager for IPL’s U.S. materials handling division. RPC manufacturers such as IPL are working to improve containers by making them lighter and stronger, reducing the height of collapsed units and increasing the cube utilization.
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