Specialist convenience insight agency Talysis has warned that the forthcoming DRS (Deposit Return Scheme) introduction in the UK will see the independent convenience sector hit with additional cost pressures, at an already challenging time.
In consensus with recent comments by the Association of Convenience Stores (ACS), Clarity by Talysis data has indicated that stores face a near 30-year break-even term if they achieve a 90 per cent return rate and install a Reverse Vending machine. The figures are based on a conservative minimum operating cost and average sales of applicable SKUs across the UK’s independent convenience sector. Even at a 100 per cent return rate, the recently announced 5p per container return handling fee results in a payback term of 15 years. For context, one year on from the launch of DRS in Ireland, stores were achieving an 88 per cent return rate, versus a five-year target of 90 per cent.
Government grants of £6,000 per store will be available for smaller stores, to assist with the cost of installing an RVM. However, this funding is limited to 10,000 stores and stores would still face a nine-year break-even term based on 100 per cent return rate and 18 years at 90 per cent returns.
Whilst stores have an option of purchasing/leasing an RVM if their sales justify the outlay, the alternative is for manual handling of returns. The reduced handling fee of 3p per container is required to cover increased staffing, hygiene and storage costs, raising questions over whether even this option leaves retailers in a cost-neutral position.
“I’m sure all parts of the supply chain would like to participate in the scheme and do their bit to help the environment,” said Ed Roberts, MD of Talysis Ltd. “Plus, it could prove to be an essential footfall-driver for local stores and help deliver a circular economy. Whilst it seems that the UK is keen to encourage the use of RVMs rather than manual returns, as the handling fees are the opposite way round and at a higher level to Ireland, this support still doesn’t go far enough towards the costs involved.
“Retailers who opt for a reverse vending machine to minimise staff involvement, hygiene concerns and storage issues face an almost impossible break-even situation. Meanwhile, those who choose to do manual returns will be affected by those aspects, which may in turn put them into a loss-making position. For a sector that’s already dealing with multiple challenges, it appears that the DRS might be a bridge too far for many retailers. It’s quite possible that unless the Return Handling Fee is increased, especially for smaller stores, a high proportion of retailers may simply apply for exemption from the scheme.”