Specialist retail insight agency, Talysis, has warned that the forthcoming Deposit Return Scheme’s (DRS) introduction in the UK will see the independent convenience sector hit with additional cost pressures at an already challenging time.
In line with recent comments from trade bodies, Clarity by Talysis’ data has indicated that stores face a near 30-year break-even term if they achieve a 90% return rate and install a Reverse Vending Machine (RVM).
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% 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% return rate, versus a five-year target of 90%.
Although government grants of £6k per store will be available for smaller stores to assist with the cost of installing an RVM, this is limited to 10,000 stores and they would still face a nine-year break-even term, based on 100% return rate and 18 years at 90% returns.
Whilst stores have an option of purchasing/leasing an RVM if sales justify it, the alternative is for the 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.
Ed Roberts (left), MD of Talysis, said: “I’m sure all parts of the supply chain would like to participate in the scheme and do their bit to help the environment. 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 RVM 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 already dealing with multiple challenges, the DRS might be a bridge too far for many…”
“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.”
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