February 17, 2006 | General

Operational Considerations And Economics Of Commercial Organics Diversion

BioCycle February 2006, Vol. 47, No. 2, p. 33
This article series presents a ‘cost of service’ framework for analyzing the economics of commercial organics diversion, incorporating the perspectives of store and chain management, composters, and haulers. Part I
John F. Connolly

IN 1991, the Environmental Affairs Committee of the Food Marketing Institute issued a white paper on solid waste management at supermarkets. One of the startling discoveries to those in the diversion business was the fact that over 90 percent of a grocery store’s waste stream was either recyclable or compostable. That included corrugated cardboard, which many grocery stores already were recycling. However, it also included the organic fraction – nonedible fruits and vegetables, breads, meat trimmings/rendering, seafood, deli salads and produce trimmings, as well as waxed corrugated boxes that could not be recycled with other corrugated.
At the time, a handful of initiatives were underway to connect grocery stores to composting facilities. However, over the past 15 years, many grocery stores in the U.S. have started participating in organics diversion programs, and more are in various stages of discovery and implementation. Along the way, valuable lessons have been learned with regard to establishing food donation programs, setting up efficient separation systems in grocery stores to capture the nonedible organics, determining the best configurations of collection containers and compactors, optimizing processing of these materials at composting facilities, and understanding the economics of the process.
While an incredible amount of knowledge and experience has been gained, there are still several areas that remain challenging. One is having adequate capacity and capability to compost the source separated, commercial organics. In Massachusetts, for example, the quantity of supermarket organics that could be diverted exceeds the capacity of the state’s composters to process them. The Massachusetts Department of Environmental Protection (DEP), through its Supermarket Organics Recycling Network, has been focused on changing that situation. Last year, for example, it gave a grant to the Center for Ecological Technology in Northampton, Massachusetts to provide technical assistance to composting facilities that want to upgrade their sites to receive commercial organics. Building capacity to process commercial organics is critical in Massachusetts, as the state’s 2000 Solid Waste Management Plan discusses a disposal ban on commercial organics once adequate processing capacity has been established.
Grocery stores operate on a very slim profit margin to begin with. As a result, supermarket chains have historically been innovators in low-cost operational methodologies, driven by the need to manage expenses in an industry that averages a net earnings ratio of only 1.5 percent. An ongoing challenge is the financial reality of commercial organics diversion programs. Any foray into innovative waste management scenarios needs to meet operational and economic criteria as well as make environmental sense. Prior to starting my own firm, where one of the services is working with supermarket chains and other retail food residuals generators, composting facilities, hauling companies, and governmental agencies (i.e. DEP) to set up organics recovery programs, I worked for a multiregional supermarket chain. I was responsible for organizational management of retail operating expense, including the expenses related to waste management and recycling. That background has proven advantageous when working with store and chain management, composters, and haulers to determine a realistic “cost of service” framework. Our work with supermarket chains in Massachusetts has resulted in annualized savings to the chains as high as $20,000 per store.
A key component to successful organics diversion efforts in the supermarket sector is the effective combination of operational and economic variables. Diversion of organics to composting is a business partnership that supermarkets can engage in where improved results benefit both the chain and the vendor, in this case the composting facility. As the composting facility receives greater amounts of quality compostable feedstocks, disposal fees rise and composting revenues increase. For the supermarket operator, effective operations and the corresponding increased rate of diversion result in lower costs through reduced disposal expense and improved management of hauling expense. For the hauling company, as diversion rates increase, revenues rise through increased hauls and/or improved route density and economies of scale as the chain and composting facility grow the program. Integration of chain/vendor operations and economics becomes the catalyst for long-term success emanating from recycling strategies that are operationally sound and synergistically profitable for all participants of the business process.
To provide some perspective, it is helpful to understand that industry-wide, waste management expense represents between 0.10 to 0.30 as a percent of a grocery chain’s sales, depending upon chain sales volume, distribution logistics, recycling initiatives, disposal fees, and hauling fees. In comparison, retail labor is approximately 10.0 to 12.0 as a percent of sales. Any waste diversion strategy must balance the cost of capital, supply expense, and the cost of retail labor to carry out the tasks related to an organics recycling program against the savings a store may realize in terms of lower waste management costs. It is always advantageous to execute an overall chain recycling strategy in conjunction with an organics diversion program. In fact, the optimum recycling of OCC, plastics, and waxed cardboard as part of an organics diversion strategy may be the only way a store or chain reduces costs or, at a minimum, remains cost-neutral with this concept, dependent upon organics diversion methodology and the varying disposal fee differentials between trash and organics.
Several baseline numbers are helpful before starting this analysis:
– A full-service supermarket averaging $425,000 per week in sales.
– Total waste of eight tons per week, or 415 tons/year. This assumes OCC is already being recycled effectively.
– Organics diversion of 50 percent in a compactor program, or approximately 210 tons/year.
– Organics diversion of 25 percent in a toter program, or approximately 104 tons/year.
– Disposal fee for trash: $85/ton
– Disposal fee for organics: $45/ton
– Hauling fee per compactor haul: $150/ haul
– Hauling fee per toter pick up: $50/pick up
Part I of this article analyzes the economics of compactor versus toter-based collection programs. The process of choosing between these two approaches identifies a host of related cost/economic analysis factors that are covered in Part II, to appear in the March issue.
The two primary approaches to collecting organics from supermarkets are with a dedicated organics compactor or wheeled 64-gallon toters. As stated above, a comprehensive in-store recycling process that minimizes trash is complementary to success of organics diversion. This would include film plastics, hard plastics (pails that deli salads, cake frosting, etc. come in), and corrugated cardboard. Store sales volume, operational constraints, program economics, available space in the back of the store for a concrete pad and compactor box, chain capital investment policies, and composting facility capabilities are the determining factors in what collection method is selected. In addition, having the ability to compact whatever trash remains will help ensure that fraction can be collected on a greatly reduced frequency.
A new supermarket may have the luxury of dedicating space for an organics compactor and incorporate the equipment expense into the total multimillion dollar investment for a new store. An existing store, though, is faced with a choice between adding a compactor, switching its current compactor to “organics only” and selecting a smaller container for trash, or implementing a toter collection process. Conversion of an OCC compactor to organics with implementation of in-house balling of OCC is another option available to the chains for compactor diversion of organics. Additionally, having an organics compactor makes it possible for stores to effectively divert the waxed corrugated, assuming the composting facility is capable, and willing, to receive it.
For stores with the ability to incorporate a compactor (e.g., 35 cubic yards) process with its corresponding site-work and utilities, the capital expenditure typically is about $20,000. Stores with adequate sales volume to divert 4-tons/week of organics (including the nonrecyclable paper/waxed corrugated fractions) at an organics differential of $40/ton compared to trash collection ($85/ton) would save approximately $7,000/year (net (after) the cost of compostable bags of $1,000/year if used) and would realize a return on that investment in approximately three years. This savings come from the dynamics of tipping fee differential and hauling frequencies for the trash and organics fractions. Given the payback, it would seem most stores that could physically accommodate a second compactor – and that have access to a processor who can handle larger volumes of material – would jump at the opportunity. The reality from the perspective of those managing the stores, is that a compactor may be a fairly low priority on a chain’s annual capital expenditure list. New stores, new tractor-trailer cabs, or a new point-of-sale computer system may take precedence, and the benefits of those chain-wide investments can far exceed the benefits of diverting organics out of the waste stream for the few stores that can accommodate an additional compactor. For the more progressive and enlightened supermarkets chains, the soft benefits of environmental stewardship and positive community relations can carry decision-making weight equal to or sometimes greater than the economics of the process.
A toter program would seem more simplistic in its operations and requires minimal up-front investment. Going the toter route, though, generally requires stores to have an effective, complementary in-store recycling operation in order to leverage the financial results against a reduced rate of organics diversion and a loss in the economies of scale realized with container hauling. It is necessary to have more frequent collection of smaller quantities of organics in a toter program, which will increase the net landed cost per ton (hauling and disposal combined) to the generator. Toter storage and removal of organic waste multiple times per week are complicating factors in a process that, by virtue of its logistics and economics, limits the magnitude of cost reduction for organics diversion. In addition to the increased hauling expense and storage issues, odor control, the cleaning/sanitizing of toters, and the lack of economical options for recycling waxed cardboard add to the complexity of this process for the generator.
Waxed cardboard as a commodity presents its own set of circumstances in a toter collection process. It is either disposed of as trash, broken down flat for collection by the hauling company, returned to the chain’s distribution facility on the chain’s own trucks, or compacted into bales through the use of a small in-store baler. This last method also entails its own economic limitations related to the capital investment in a relatively expensive piece of equipment at the store. Recycling of waxed cardboard in conjunction with a toter collection process may require a differentiated disposal fee for this commodity and its own pick-up schedule along with a composting facility capable of handling waxed cardboard. Not all composting facilities want to receive this component of the organics waste stream. There are, though, a number of composting facilities and chains that are actively pursuing innovative recycling methodologies and end-use alternatives for waxed cardboard. Differentiated disposal fees, staggered hauling schedules, and/or even revenue generation for the chains/composters are components of these strategies.
Hauling options for supermarket toter organics programs are limited also by the lack of organic-niche hauling companies willing to partner with a chain and a composting facility in a process that is labor intensive, may require special equipment, and is economically dependent on significant route density to be profitable for the hauling company. Time of day for pick up, backroom or loading dock logistics at the stores during business hours, and weekly or seasonal tonnage variances driven by store sales volume pose challenges in terms of route density, time at a stop, and collection vehicle requirements. As with the chains and composting facilities, the enthusiasm and passion for this concept, coupled with a corresponding understanding of the economics required for positive results, is a key determinant to success and profit for the hauling company.
A toter collection program utilizing 64-gallon toters (200 pounds of waste per toter) diverting 2.0 tons per week of organics, picked up three times per week would produce approximately $1,200 per year in savings (net the cost of cart liners) for a supermarket, assuming the same $40/ton differential as in the compactor model. Reasons for the lowered savings stem from reduced ratios of diversion due to operational limitations of toter use and the corresponding increase in hauling expense per ton. In this scenario, a $10 increase in the net landed cost per ton (hauling and disposal combined) to the generator would eliminate the savings for the supermarket, highlighting the importance of a well-understood cost structure of this process for all participants.
Alternatively, the store could opt to minimize the type and amount of organics collected, sometimes defined by composter requirements, and limit its collection to a segregated area of the store. This would normally focus on the produce department with collection and storage occurring in the produce back room and prep area. This operational limitation, and its corresponding tonnage/hauling dynamics, obviously plays into the economic dynamics, and may in fact preclude program implementation due to negative economics for the store.
Both a toter and a compactor-based program will have to consider whether to line the departmental collection containers, e.g., 20-gallon barrels, used to collect materials throughout the store. Stores with toter programs, however, have to make that call for all their containers, including the 64-gallon toters that are picked up multiple times per week in that process. The primary motivation for lining the collection containers and toters is sanitation. Other factors are visibility of containers to the customer on the sales floor, the chain’s standard operating practices, ease of emptying containers for store employees, and reduced in-store retail labor expense. For the most part, supermarkets utilize can liners in all areas of the sales floor operation and in many of the behind-the-counter prep areas a well.
Part II of this article will continue the discussion about container liners, focusing on use of standard plastic bags versus compostable bag liners. Other areas to be covered are establishing hauling and tipping fees and public/private partnerships.
John Connolly is president of JFConnolly & Associates, based in Hampton, New Hampshire. He works with generators, haulers, composters and public agencies to establish cost-effective and sustainable commercial organics diversion programs.

Sign up