Spoilage

Spoilage is product loss from expiration, damage, or quality failure between manufacture and sale. It is a normal cost of doing business in CPG; the question is how much.

Spoilage rates vary wildly by category. Shelf-stable dry grocery typically runs under 0.5% of units. Fresh produce can run 8-15%. Refrigerated prepared foods 3-6%. Bakery items even higher.

The hidden cost is bigger than the product cost. Spoilage at the retailer level usually generates a deduction back to the brand, often as a "spoils allowance" set at a fixed percent of net sales by category. That allowance accrues from day one whether or not actual spoils happen, and it's typically uncontestable.

A brand entering a category with high spoilage (refrigerated, fresh, frozen-with-short-shelf-life) needs to budget for the deduction percentage in its commercial model. Companies that don't get caught with surprise margin compression in year two when the spoils accrual catches up.

Mitigation is part operations (better dating, better forecasting, better cold chain), part trade (running promotions that pull product through before it dates out), and part R&D (formulating for longer shelf life without quality compromise).

Roles where this matters: Operations, Supply Chain, Quality, Sales Finance.