The hidden dangers of deposit return schemes

Empty bottles and cans

As the Scottish Government considers the introduction of a Deposit Return Scheme for food and drink containers, SLR is launching a series looking at the impact such a scheme could have on local retailers, who could be faced with huge costs and reduced sales.

by Kevin Scott


Much attention is given to the negative impact of over-zealous alcohol and tobacco legislation in Scotland, but the introduction of a Deposit Return Scheme could have a far more damaging impact across Scotland’s 5,500 convenience stores.

A Deposit Return Scheme would essentially involve customers paying a cash deposit when they buy a drink in a can or bottle (as part of the purchase price), and get the money back when they return the item to a collection point. This ‘collection point’ would be their local store but forget any notions about this being a footfall driver – instead retailers would be burdened with the management of the returns. This would involve storage of all glass, metal and plastic bottles and cartons and management of the financial aspects of the scheme. The current model being examined includes a deposit of between 10p and 20p per item.

Zero Waste Scotland is currently assessing the benefits and challenges of a Deposit Return System in Scotland, having been tasked with doing so by the Scottish Government. The current focus of this assessment is a report from Eunamia which was commissioned by Zero Waste Scotland.

Not only does this report fail to contain a cost benefit analysis of a DRS scheme, but it failed to consult a single retailer. If it had, it would have found considerable opposition.

Pete Cheema, Chief Executive, Scottish Grocers’ Federation (SGF), says he has serious concerns about this entire process. “The ZWS feasibility study has not looked at the potential impact on convenience stores. A typical convenience store will sell around 3,000 units a week of soft drinks alone. Space is always at a premium for convenience store retailers – how could a store be expected to cope with the anticipated high levels of return?”

Association of Convenience Stores Chief Executive, James Lowman, adds: “A Deposit Return Scheme would bring massive new burdens on local shops, add cost to the supply chain, and lead to less recycling through local authority kerbside collections. The Scottish Government should stop and think about the impact of such a scheme on businesses and on the environment.”

Key concerns over Deposit & Return Scheme

  1. Convenience retailers do not have the space to store and manage high volumes of returned containers.
  2. An increase in staffing levels would be required to manage returns and prevent delays at the till.
  3. At an indicative purchase cost of £30,000, plus £2,000 installation, costs are not financially viable for an independent convenience store retailer to install Reverse Vending Storage.
  4. Independent retailers will be disproportionately disadvantaged as they do not have access to back hauling services, their stores are smaller and they have less capital to invest in the set-up of the scheme.
  5. A Deposit Return Scheme will encourage fraud, the additional cost of which will be passed on to the consumer.

Practical Impact

The voice of opposition comes from Packaging Recycling Group Scotland (PRGS), a new group of over 30 leading trade organisations and companies from across the drinks and food packaging supply chain. It was formed to work both positively and collaboratively with the Scottish Government, ZWS, local authorities and others on partnership action to boost recycling, reduce waste and to help tackle littering.

In its own response to the call for evidence, the PRGS says the DRS would have a negative impact on the supply chain. It also says that the Scottish Deposit Return System, commissioned by ZWS from Eunomia makes a huge number of assumptions. “Not only does it lack a cost-benefit analysis, but, of even more significance, it did not consult any retailers, local authorities or waste management companies,” says the submission.

The lack of a cost benefit analysis is an oversight that perfectly illustrates how the concept is politically driven. This, says the PRGS, seriously limits the scope of the report.

Equally damaging is the fact that the report makes a major point of highlighting countries that currently have a DRS scheme, while failing to assess six countries that have carried out impact assessments of DRS schemes before rejecting them. Among those countries is Ireland, our closest neighbour, both geographically and socio-politically.

What is the PRGS?

The Packaging Recycling Group Scotland (PRGS), is a group of 33 leading food and drink companies and industry bodies that shares the Scottish Government’s ambitions to tackle littering and increase recycling. Its members include SGF, SWA, SRC, AG Barr, Coca-Cola Enterprises, Britvic, Lucozade Ribena Suntory and Red Bull. PRGS members work throughout the supply chain from the wholesale and retail sectors large and small to packaging producers.

Most baffling of all is that A.G. Barr was not consulted by Eunomia. As a supplier of soft drinks in returnable glass bottles, the company is better placed than any to advise on the current appetite for recycling.

Ahead of the announcement of its demise, A.G. Barr’s glass bottle range was recording return rates of 54%, with a deposit of 30p. This seriously calls into question the credibility of the 85%-95% range (for 10p to 20p deposits) suggested as feasible by Eunomia. ‘Suggested’ is the operative word here, for the report fails to provide any evidence to back up its claims.

Another major assumption is that consumers would welcome a DRS. Not only did a Com Res poll find 30% of consumers opposed to, since kerbside recycling was introduced in 2012 A.G. Barr’s recycling rate dropped from 65% in 2010 and 2011, to 57% in 2012 and has decreased every year since.

“A return rate from a mandatory system could be significantly less than 54%,” says A.G. Barr. “It would certainly not in our view be in the 85%-95% range, as evidenced as feasible by Eunomia, for a 10p to 20p deposit.”

Overall glass recycling rates are 70% however, so that does suggest the preferred option is to simply put those A.G. Barr bottles out for kerbside collection. If consumers are increasingly turning to that option and rejecting a 30p return, why would the 54% who do return them increase to 85% for less money?

While it’s churlish to make assumptions of our own, it’s worth considering what percentage of your shoppers would see that as a good use of their time. In addition to that, the SRC calculates that if just 2% of customers make a special journey to claim back deposits it would have a significant additional carbon impact of around 6,000 tonnes of CO2, which is enough to power 1,475 homes for one year.

A.G. Barr says in its submission to ZWS: “Put simply, Scottish consumers will have the inconvenience of bypassing their increasingly well-functioning kerbside recycling to load up with empty containers and transport them to a retailer.”

Costs

Which brings us to the cost of implementing and running the scheme. It is widely accepted that a DRS would be costly for both retailers, suppliers and consumers. It is estimated that the cost of a standard 330ml soft drinks can would increase by as much as 40% in order to cover system costs, increasing from 65p to £1 – even with a 20p refund the consumer would still be out of pocket, leading to a likelihood of reduced sales for retailers.

As far back as November 2012, Coca Cola Enterprises commissioned a leading environmental consultancy, ERM, to analyse both the financial and environmental impact of changes to recycling systems in Scotland, with a focus on the potential implications of introducing a DRS for beverage containers. The report estimated that the cost to the consumer would be in the region of £150m extra per year, equivalent to over £65 per household. Partly this is due to the DRS proposals being wider than anywhere else in Europe – with cans, bottles and cartons made of plastic, metal and glass all being included. The sum is calculated by looking at lost deposits and costs associated with the loss of private time spent redeeming deposits.

PRGS says: “The report puts a high value on people’s willingness to pay for reduced littering but no value on the cost, wasted time and inconvenience that people would face.”

While the political discussion between those in favour of the scheme and those opposed is crucial, for retailers it is the bones of how a DRS scheme would impact them that is most important. So, there are two options: 1) invest in a Return Vending Storage (RVS) facility, or 2) keep returned contains in bags or boxes.

What is an RVS?

A Reverse Vending Machine (RVS) is an automated machine that can be installed in a store to process container returns. A customer places their empty container(s) in an opening in the machine. Once inserted the bottle is rotated and scanned to ensure it is acceptable under the conditions of the DRS. The container is then crushed and stored, while the customer receives their return from the machine. The estimated cost of an RVS is £30,000 plus an additional £2,000 for installation.

While no retailers were consulted by Eunomia, the group did seek the views of an RVS manufacturer that lobbies worldwide for the introduction of DRS. TOMRA, which charges £30,000 for a Return Vending Machine and £2,000 to install the thing, believes DRS is a welcome tool to increase recycling rates. Hardly surprising.

As well as the £32,000 initial cost, an RVS requires five square metres of space either outside or on the shop floor. “Given the cost, retailers are unlikely to prioritise investment in RVS unless they are located in urban areas with high density populations,” says the SGF. “Convenience retailers would have no choice but to take the manual storage approach and incur longer term disruption to their stores and higher staffing costs.”

The Scottish Retail Consortium adds that its own initial assessment suggests that this figure underestimates the true costs as it omits a range of additional costs including staff training to oversee the operation of the machines (including dealing with customer complaints and machine failure) and infrastructure changes to accommodate their installation, such as installing power cables and store remodelling. Then there’s the loss of trading space and general operating costs.

To manual storage then: the feasibility report suggests that bottles could be stored in bags by the cashier. The impracticalities of this are clear. Not only is this a huge health and safety risk, but with consumers under no obligation to wash out containers before returning them, it is a hygiene hazard.

With regards to staffing costs, all staff would need trained in how to identify which containers can be returned. They’d need to then check each container is an acceptable condition for returning, before issuing the refund to the customer. Customers are highly unlikely to return just one container, so processing time would be incredibly damaging to the business – the increased transaction time could also lead customers to abandon convenience stores for supermarkets where there would almost certainly be a dedicated counter for processing returns.

The feasibility report makes another of its grand assumptions when indicating that retailers would be able to store returns for up to 14 days. Given the feasibility report’s 85% minimum target, picture the scene in-store when 85% of all glass, metal and plastic containers sold over a two-week period have been returned and are stacked up (uncompressed and unclean most likely) behind the till. This is what has been proposed as a viable method for increasing recycling rates. And don’t think you can simply stack all the returns at the bin store – they have monetary value now and are more susceptible to theft.

That is the crux of the problem retailers are faced with. There is already huge opposition to the scheme, but the only way to ensure the Scottish Government takes the potential impact on the local retailing industry seriously is for local retailers themselves to make their concerns clear. That could involve writing to your MP, your MSP and your local councillor. See the next page for more details on that. The implications are clear; make no mistake, this is the biggest political challenge facing the industry.

The most important thing you can do as a retailer at this stage is to contact your MP, MSP and Councillor to advise them on the difficulties your business would face in the event of a DRS being introduced. You can cut out the letter on page 18 of this month’s magazine, fill in the blanks and send it off. Writing your own letter will likely be better received however, and we can help there too: if you email kscott@55north.com we’ll send you this template letter in any useable format.And if you’re not sure who to write to, you can find details of your local MP and who your MSP is online.

Next Month

In next month’s issue we’ll be turning our attention to how containers will be moved from stores to recycling centres, and the possibility of fraud. We’ll also examine alternatives to a DRS scheme, which can increase recycling rates without negatively impacting upon retailers.