Can Discounting And Smarter Displays Reduce Food Waste?

A university study challenges the assumption that selling only the freshest items at full price is the safest way to protect perishables margins.

Using advanced analytical modeling and thousands of simulated retail scenarios, researchers from Netherlands’ Eindhoven University of Technology, the University of Texas and the University of Florida explored how perishables (fresh produce, dairy and meat) decline in quality over time and are impacted by three factors: product display, discount timing and discount depth.

One finding was that where a product is placed on the shelf matters almost as much as its price. When older, soon-to-expire items are made easier to reach, such as by placing them at the front of a display, shoppers are more likely to buy them. Compared with a common industry practice of making fresh and older items equally accessible with no discounts are offered, optimizing display and discount decisions led to a 6.01% increase in profit and a 21.24% reduction in relative waste on average.

“Retailers don’t have to choose between profitability and sustainability,” said Zumbul Atan, a supply chain management professor at Eindhoven University of Technology and study co-author, said in a statement. “In many cases, the same decisions that improve profits also dramatically reduce waste.”

The study found the impact of display and discounting depth depends on the category:

·   Items that deteriorate slowly (i.e., dairy ) benefit most from displaying older products more prominently and offering modest discounts.

·   Products that deteriorate quickly and are costly to discard (i.e., meat or prepared foods) perform better when fresher items are emphasized and discounts are used more aggressively.

·   For fast-decaying products (low-cost items like fresh bread) , it can still make sense to clear shelves entirely when new stock arrives.

The research further found that even for retailers that avoid discounting and focus on an ELP (everyday low price) strategy such as Walmart, adjusting how products are displayed can reduce waste and improve profitability “when customer traffic is unpredictable, which is the reality for most stores.”

In separate research, professors from the Rady School of Management, the business school of the University of California, San Diego, found that laws requiring grocers to compost or donate food waste to avoid produce rotting in landfills and releasing methane are hard to enforce and ineffective.

At the same time, their analysis showed that dynamic pricing reduces waste by 21% on average while increasing grocery chain’s gross margins by 3%. Making perishables more affordable also incentivizes consumers to eat healthier foods.

Robert Sanders, professor of marketing and analytics at the Rady School of Management, said in a university interview last year, “To an economist, it’s actually really weird that grocery stores don’t dynamically price their perishables. Why should you, the consumer, be paying the same price for milk that will expire one week from now as you would for milk expiring three weeks from now?  Not only is it unfair, it’s inefficient.”