Pooling of foldable boxes in Georgia

According to EastFruit experts, pooling of folding reusable plastic containers is one of the most profitable and completely free niches both in grocery retail in general and in the fresh produce business of Georgia in particular. It allows, on the one hand, to drastically reduce both losses and costs of all market participants, and on the other hand, to reduce the negative impact on the environment, food waste, food loss and significantly improve the presentation and freshness of the products. Thus, it is an excellent example of circular economy.

After the presentations of pooling opportunities by FAO consultant Fedor Rybalko at the conferences HortiTech Georgia (video in English), HortiTech Uzbekistan (video in Russian) and HortiTech Moldova, this topic was recognized by the participants of the events as one of the most interesting and promising. It has also sparked interest of retail chains as well as growers, traders and investors in general.

What is pooling? If this word still seems unfamiliar, EastFruit experts explained in detail what pooling is in a series of publications – we strongly recommend that you familiarize yourself with all three of our longreads before reading this material further: “What is pooling, the history of pooling, the EU experience and why the countries of our region will definitely eventually adopt it ”, “Practical experience and history of pooling in Ukraine” and “History and experience of pooling systems in Turkey”.

Now, let’s review the most recent experience of our team with pooling piloting in in Georgia.

Within the framework of the “FAO/EBRD Cooperation – Climate—Smart Digital Solutions for Fruit and Vegetables Production” Project, sustainable logistics solutions were introduced for participants in the Georgian fruit and vegetable market in order to further expand these logistics solutions in other countries.

Market assessment and general conditions for the introduction of pooling in Georgia

At the preparatory stage, we analyzed market for packaging of Georgian fruits and vegetables, as well as the existing supply chain used by supermarkets and wholesale markets. We estimated that the share of retail chains in fresh fruit and vegetable trade of Georgia, depending on seasonality, regions of consumption and assortment, ranged from 15 to 20%. In the category of berries and greens, the share of supermarket chains does not exceed 10% of the total sales. At the same time, retail chains increase sales by more than 20% annually, which creates new opportunities for professional fruit and vegetable suppliers from Georgia.

In the process of analyzing the market, it became clear to us that the transition to pooling of folding reusable plastic crates or boxes would allow participants in the Georgian market to significantly reduce their costs. For example, on bananas alone, they could save up to US $2.2 million a year.

Vegetable and fruit packaging market in Georgia before the introduction of pooling

The following types of transport containers for Georgian fruits and vegetables are used on the Georgian market now:

1. A disposable plastic box, usually black, which is made from recycled polyethylene. The main dimensions are 40*30*15 cm, 50*30*20 cm, 60*40*10 cm. A disposable plastic box is also the main type of transport packaging used for the exports of Georgian fruits and vegetables. This type of transport packaging is produced at several factories in Georgia, and also enters the Georgian market as packaging for imported fruits and vegetables, mainly from Turkey and Iran. This box, despite its “disposability”, is very often reused.

In Georgia, there are several entrepreneurs in the wholesale markets who buy secondary packaging, sort it by size, form wholesale lots and sell it. The cost of a new box is $0.60 USD. The cost of recycled plastic packaging at recycling points is $0.45. There is also a practice when some retail chains in Georgia return a disposable plastic box to their suppliers of fruit and vegetable products, but in this logistic scheme there is no identification of this transport package in the accounting of the retail chain. There is only a simplified accounting of secondary packaging transferred to the supplier from the distribution center of the retail chain.

2. Pre-used banana box (disposable, of course) is also a very common type of transport packaging in the Georgian market. At the same time, it is reused in violation of all sanitary standards. The cost of a second-hand banana box in Georgia reaches $0.80 in summer, because the demand for it increases sharply, while the supply drops as fewer bananas are imported to Georgia in the summers. This type of packaging is very popular with small growers and wholesalers, because this box is more convenient to load and unload, especially when using oversized vehicles such as minibuses, trailers, small trucks. Therefore, there is always a shortage of recycled banana packaging on the market. Georgian retail chains practice returning banana boxes to suppliers, but they are constantly in short supply, because very often this transport container is sold directly from retail stores.

3. A disposable cardboard box is present in the Georgian fruit and vegetable market in very limited segments. As a rule, this is a cardboard shipping container that arrives along with imported fruits and vegetables and is also reused by market participants. The most common locally produced cardboard box is a 60*40*10 cm box, which is used by the largest Georgian greenhouse complex. The cost of such a new box is $0.90, so there is also a practice of reusing this shipping container.

4. Reusable plastic packaging is used by all retail chains in Georgia, but with different economic efficiency. The most common is a green plastic box measuring 60*40*17cm. Now there are two logistical schemes for the use of these reusable plastic containers. In the first logistic scheme, plastic containers are used as a trade showcase and are permanently located at the trade facility. When a new batch of fruit and vegetable products arrives, store employees pour products from different types of transport packaging into plastic boxes that are on the display case. This logistics scheme is inefficient, as it leads to additional labor costs and mechanical damage to products.

The second logistics scheme, which was introduced in 2020 by the Orinabiji retail chain, involves the use of reusable plastic containers throughout the supply chain of fruits and vegetables as a single logistical standard. In such a scheme, fruits and vegetables in transport containers are moved from the supplier to the retail store and are put directly on the display in transport containers, which made it possible to reduce costs along the supply chain. The Ori Nabiji retail chain has acquired reusable plastic boxes, the boxes are provided to suppliers free of charge, but by providing transport packaging to suppliers, the retail chain receives an average discount of about $0.03 per kilogram of fruits and vegetables.

Despite the rather high efficiency of this logistics scheme, there are several disadvantages, because, firstly, the retail chain uses old models of reusable plastic containers that have been operating in the market of developed countries for more than 50 years and are obsolete. These models occupy 100% of the volume of return transport, which leads to additional costs for suppliers, since they use hired transport in the vast majority of cases. Secondly, plastic containers of this model take up a lot of space in the distribution center and in retail stores, where every additional square meter counts. Thirdly, suppliers take empty containers from the distribution center of the retail network without order confirmation, which ultimately creates constant demand and leads to a shortage of reusable containers, especially in the summer, when sales of fruits and vegetables increase significantly and therefore suppliers are forced to use more expensive single-use plastic containers. Fourthly, suppliers do not wash plastic containers after each delivery, which ultimately negatively affects the quality and appearance of the storefront, significantly increases the product spoilage, and leads to additional risks for buyers. Other retail chains also do not wash recycled plastic containers that come from fruit and vegetable suppliers, but this problem is not so visible due to re-packaging in the fresh produce departments. Fifthly, the retail network is forced to constantly invest additional money in plastic containers, which stays outside the retail network.

Given the diversity and versatility of the existing systems for the use of boxes in retail chains and in the fresh produce business overall, in order to successfully launch a pooling pilot project in Georgia, we had to adhere to several important principles, which we will describe below.

Demonstration of best practices

At the end of 2022, the FAO/EBRD Project organized a study tour to Turkey to study Turkish fruit and vegetable logistics, where representatives of Georgian retailers managed to see how pooling works in Turkey. As a result of this trip, two voluminous materials were published: “Studying specifics of fruit and vegetable trade in Turkey” and “Secrets of Turkey’s success in fruit and vegetable trade.”

Also, within the framework of the Project, the participants of the Georgian fruit and vegetable market were presented with the existing pooling business models in Ukraine, in the Baltic countries and in other EU countries, links to which we provided above.

Using global experience, taking into account the specifics of the Georgian market

Providing market participants global industry information, financial models and existing logistics schemes was necessary to demonstrate the value of introducing pooling in Georgia. However, it is not enough to simply show how pooling works in the EU, Turkey or Ukraine, because the local financial model had to be localized, taking reflecting Georgian conditions, such as the size of Georgian farmers and suppliers, the assortment of fruits and vegetables, seasonality, the size of losses in the supply chain, the share of supplies of fruits and vegetables through the distribution centers of Georgian retail chains, planograms of fruit and vegetable departments.

A detailed reflection of the local market specifics always increases the confidence of the participants in the introduction of new technologies, therefore, access to high-quality market information, which was obtained within the Project, is always very important. It was Fedir Rybalko, the head of the project’s pooling component, who was engaged in the study of this specificity and work with chains.

Who can become the “pioneer” of pooling in Georgia?

The pooling pilot project was supposed to demonstrate sustainable logistics solutions for all participants in the Georgian fruit and vegetable market, so the selection of a reputable market leader for a pilot test was highly desirable. Thus, the key selection factors were as following: reputation, openness for new things, large market share, developed logistics infrastructure and the pace of development.

As a result, after a detailed analysis of the Georgian retail fruit and vegetable market, the retail chain Nikora Trade (Nikora) was selected for the pilot in August 2022, which has been one of the leaders in the Georgian retail market for several years. Despite the leadership in retail trade, this retail chain was not a leader in the fruit and vegetable segment, yielding in terms of assortment, prices, and quality, to non-chain retail, which is very widely represented in the Georgian market. In general, our audits of the fruit and vegetable departments of supermarkets showed that the chains have room to grow in terms of fruit and vegetable trade, which, as we have repeatedly proven, is the most important success factor in grocery retail.

Perhaps for this reason, the company’s management was open to experiments in the fruit and vegetable segment, which would increase the economic efficiency in this area. Therefore, in addition to participating in the pooling pilot project, Nikora Trade also agreed to take part in an in-depth audit of the fruit and vegetable business of the chains, which made it possible to quickly identify existing problems and develop strategic recommendations for the development of the fruit and vegetable business. Although the Nikora Trade retail chain met most of the criteria required to participate in the pilot, there were several problematic issues that hindered the rapid launch of the pilot project, for example:

Over the next 3 months, Nikora will analyze the efficiency of the new logistics and then decide on the scaling of the business model that will work in the future.

The use of the site materials is free if there is a direct and open for search engines hyperlink to a specific publication of the East-Fruit.com website.