The Scottish Government is making it easier for local retailers to opt out of the Deposit Return Scheme – but opting out risks handing even more footfall to the supermarkets, warns SGF.
By Antony Begley.
As 2022 draws to a close and our thoughts begin to turn to 2023, one prospect looms larger than most in the year ahead: the implementation of Scotland’s new Deposit Return Scheme (DRS) on 16 August next year.
It’s an issue that has been vexing retailers, wholesalers and producers for years and with only about nine months to go until the Scheme is scheduled to go live, it is still mired in confusion, controversy and unanswered questions.
It’s rapidly looking look a huge missed opportunity for Scotland. No one doubts that DRS is A Good Thing – but we are stumbling towards the start date and the DRS debate is becoming increasingly fractious. This should have been a massive opportunity to move forward together and create something truly special in Scotland, taking a big step towards a circular economy.
You could write a book on DRS but for the purposes of this article, let’s just focus on two central points of contention here: the Retailer Handling Fee and the issue of exemptions.
Handling error
Having been told without consultation that they would have to participate in the DRS and that it would be cost-neutral, retailers quite rightly reacted with anger when the handling fee was finally published.
Original estimates at a fee that would make the scheme cost-neutral for retailers was around the 12p per container mark, so retailers were more than a little aggrieved when Scheme Administrator Circularity Scotland Limited (CSL) finally published its proposed handling fee on May 7, revealing that the actual handling fee would be only a fraction of that earlier estimate: 2.69p per container for manual returns and 3.55p per container (for up to 8,000 containers per week) for retailers using an automated Reverse Vending Machine (RVM). Above 8,000 containers they will receive just 1.35p.
The Scottish Grocers’ Federation (SGF) repeatedly questioned the handling fee and requested that it be reviewed. No dice. So Bellshill local retailer Abdul Majid MBE raised judicial review proceedings in the Court of Session against CSL, challenging the legality of the fees.
Abdul took the drastic step as “a last resort” on behalf of Scotland’s local retailing community, deeply concerned that the handling fee levels will not cover his costs and will be detrimental to his business – and he’s not the only retailer with those concerns. During a recent DRS roundtable hosted by SLR, every major group represented around the table – including Scotmid, CJ Lang and One O One Convenience Stores – said the proposed fee would not even come close making DRS cost neutral. Abdul, for his part, is quietly confident that his legal challenge will succeed, and if it does?
In very simple terms, Abdul’s point is this: how can a cost-neutral system be implemented when those setting it don’t know what the costs are? And what exactly is a cost? Which costs are included in the calculation? Lost sales space? Extra staff hours? RVM maintenance fees?
Granted, it was an impossible task to try to establish a handling fee that would work across the board, but many retailers are unhappy with what they see as a lack of real consultation with the industry during this process.
Exemption time
Now onto the second point, and one that could be even more disastrous in the longer term for the local retailing sector in Scotland, according to SGF Chief Executive Pete Cheema OBE.
Following a recent update to its official DRS guidance, the Scottish Government has made it much easier for local retailers to secure exemptions, allowing them to opt out of becoming a Return Point Operator for the DRS. The original communications made it clear that exemptions would be like hen’s teeth. That no longer appears to be the case.
“The recent guidance update from the Scottish Government makes the process of applying for an exemption much simpler,” said Cheema. “What we at SGF are deeply concerned about is that by doing so, we may be sleepwalking towards a de facto supermarket DRS. Initial official estimates suggested that Scotland would need well over 30,000 Return Points to make the Scheme work. That number has been revised down to just 5,000.
“Local store operators have never said that they want to have all their stores exempt but rather that they want to be part of the scheme. It is essential however that DRS remains cost neutral to Return Point Operators and does not leave them with an additional cost burden or put them out of business.
“We would still encourage the Scottish Government to intervene and ensure that CSL are only adhering to what the regulations permit them to and not engage in trying to impose a handling fee that legally they are not allowed to do.”
And it’s here that the two handling fee and exemption sticking points converge in what is rapidly becoming an unholy mess.
Vital decision
Be careful what you wish for, advises Cheema. The temptation to avoid the hassle of DRS by opting out will be attractive to many local retailers, particularly those already struggling to make ends meet, but Cheema strongly advises against this approach.
“If local retailers opt out then customers will have no choice but to visit RVMs at their nearest supermarket to return their drinks containers and get their deposits back. Local retailers are certain to lose footfall, sales and profits to supermarkets. Cast your mind back to the when the National Lottery was introduced. Retailers who got it saw footfall and sales rise dramatically and those who didn’t saw their footfall decline.”
It’s also worth pointing out that all the major retail groups in Scotland will not choose to opt out. As SLR was going to press, One O One Convenience Stores announced that it was partnering with RVM Systems for the supply and operation of Reverse Vending Machines in the chain’s stores.
Paul Stirling, Group Retail Director at One O One Convenience Stores owner Scotsman Hospitality Group, said: “Our retail business has been at the forefront of discussions for the Deposit Return Scheme and this partnership with RVM Systems will enable all our customers to continue to shop locally and fully participate in the scheme. It is important for us that all our stores give our customers the best local experience and convenience for participating in the scheme to enable them to redeem their deposits easily.”
In other words, One O One Convenience doesn’t want to lose footfall and is having to invest a very significant sum to achieve that.
What next?
So how did it come to this? It looks increasingly like making exemptions easier is the quick and dirty solution to dealing with truculent retailers: if you don’t like it, just opt out.
But, as Cheema highlighted, local retailers didn’t want to opt out in the first place, they just wanted a handling fee that would ensure the scheme is cost neutral to them, as it was always intended to be. Why should they be expected to subsidise the cost of the scheme? Indeed, the necessity to ensure that DRS must be “cost neutral” for the retailer is a point that has been repeatedly made by Lorna Slater, Scottish Government Minister for Green Skills, Circular Economy and Biodiversity.
Long list
These two key issues are of course, by no means represent a comprehensive list of the many problems that lie ahead between now and August. The recent CSL Conference in Glasgow threw some light on the key challenge of uplift frequency, but we’re still a long way away from a formal schedule – and for good reason. Biffa can hardly be expected to provide an uplift schedule when it doesn’t even know how many Return Points there will be. And this is a vital issue which affects everything from what size of RVM a retailer needs to how much storage space will be required in the back of the shop.
Then there’s the problem of communicating the scheme to customers. It was suggested at the CSL conference that a media campaign will begin in July, just a month or so before the scheme goes live, a suggestion that was met with unsurprising disbelief.
The list goes on, and we will continue to address DRS in every issue of SLR moving forward as we try to unravel this hugely complex issue for you.
Straight bat
But one thing is for sure: if DRS does become largely a supermarket DRS, it will be a disaster for our sector. All that local retailers have ever asked is that the Scheme is in line with the rules explicitly set out by the Scottish Government when the legislation was first passed.
“SGF has been and remains fully committed to a fit for purpose scheme,” says Cheema. “Local retailers across Scotland are wholeheartedly committed to helping deliver a world class scheme that will take Scotland much closer to its long-term circular economy goals – but for that to happen recognition must be given and action taken to address the concerns around retailer handling fee levels. We have genuine concerns that under the proposed handling fee levels, many local retailing outlets in communities across Scotland could face closure.”
