Dynamic Pricing Considered as a Solution to Supermarket Food Waste

by Ella

Imagine strolling through a grocery store. In the bread section, you encounter two loaves, seemingly identical in every way except one is a day older and priced at half the cost. In the produce aisle, you spot two baskets of avocados—one set is ripe and needs immediate consumption, while the other will last a few days and costs 75 cents more. Which option do you choose?

This concept is known as dynamic pricing, and it may soon find its way into your local supermarket.


Dynamic pricing is not a new concept; for decades, industries such as airlines, fashion, and hospitality have successfully employed it. Dynamic pricing entails making incremental price adjustments based on factors like inventory levels, demand, and supply, which has enabled these industries to reduce waste and increase profitability.


For instance, in 1988, American Airlines significantly decreased the proportion of empty seats on its flights by adjusting ticket prices closer to departure time. Similarly, in the 1990s, Marriott Hotels employed strategic pricing techniques, varying rates based on length of stay and time of year, to sell out rooms on less popular days of the week.


Now, the question is, can dynamic pricing be effective in reducing food waste in grocery stores, where an estimated 119 billion pounds of food are wasted each year?


A recent study from U.C. San Diego’s Rady School of Management, authored by Robert Sanders, suggests that it might indeed be a solution. Sanders used economic models to demonstrate that implementing dynamic pricing for perishable foods based on their shelf life could substantially reduce food waste in grocery retail.

It’s important to clarify that dynamic pricing in this context isn’t limited to last-minute clearance sales. Sanders explains, “It’s gradual discounts throughout the shelf life of the product. You don’t do discounts just at the end of the last day. The price is changing throughout the [time] horizon.”

The study sought to address a fundamental question: What is more effective in reducing food waste from grocery stores—food waste diversion systems or smart pricing strategies? The results indicate that preventing waste at the source is more environmentally and economically efficient, emphasizing the importance of finding homes for food before it reaches its “sell by” date.

The Dilemma of Static Pricing for Perishables
Having static prices for foods of varying freshness levels over their shelf life not only lacks economic rationale but also contributes significantly to food waste and, consequently, climate change due to the release of methane gas. “Prices serve a very important role,” notes Sanders.

The study suggests that dynamic pricing could potentially reduce food waste in grocery retail by a substantial 21 percent. Given the high costs of groceries, especially fresh produce, lower prices could also address economic needs for consumers.

Every year in the United States, around 130 billion meals, equivalent to $408 billion worth of food, are discarded. Meanwhile, approximately 25 percent of adults reported experiencing food insecurity in 2022. This staggering food waste—equivalent to 35 percent of the U.S. food supply—results in greenhouse gas emissions on par with those from 42 coal-fired power plants, as reported by the EPA in November 2021.

Several U.S. states have already begun implementing strategies to divert food waste from landfills, such as Vermont’s universal recycling law and various food recovery systems across states like Minnesota, Texas, Pennsylvania, and Massachusetts.

In California, a leader in environmental initiatives, the aim is to divert 75 percent of food waste from landfills by 2025, through mandatory organic waste collection systems and edible food recovery programs.

While such systems, particularly the infrastructure for food waste separation and composting, are crucial for combating climate change, there is growing emphasis on waste prevention. Legislation like California’s AB 660 aims to mandate clear food labeling and improved consumer education on interpreting “sell by,” “use by,” and “best by” dates, which often lead to the unnecessary discarding of perfectly edible food.

Sanders believes all these efforts are necessary for an effective reduction in food waste. “They’re complements; I don’t think they’re substitutes,” he comments. “Even if dynamic pricing reduces waste by 50 percent, there will still be 50 percent waste remaining.”

The Challenges of Implementing Dynamic Pricing
Successfully implementing dynamic pricing in supermarkets requires real-time shelf tracking, necessitating collaboration between grocery retailers, manufacturers, and point-of-sale systems. Technology plays a critical role in managing inventory data, which can be labor-intensive and inconsistent.

Barcodes, a significant obstacle to dynamic pricing implementation, could be used to communicate to retailers when to mark down food items and how often to do so. Sanders explains, “The standard UPC barcode doesn’t track physical items and doesn’t track expiration dates. But this technology actually exists—GS1 extended barcodes—commonly used for expensive items.”

However, the technological landscape varies among grocery retailers, making the transition to a more nuanced system for tracking individual items a daunting challenge. Errol Schweizer, a grocery industry expert with nearly a decade of experience leading Whole Foods’ national grocery program, points out that the study highlights the weaknesses in inventory management, particularly in forecasting and maintaining the appropriate inventory levels.

Schweizer notes, “There are many obstacles to implementing dynamic pricing. It’s theoretically possible, but it depends on whether retailers have the right enterprise systems, sufficient labor, and financing.” Nevertheless, he underscores that these are choices retailers can make if they are committed to reducing waste, stating, “This isn’t rocket science.”

For grocery stores to implement dynamic pricing effectively, they would need to either employ personnel to apply real-time markdowns or invest in technology that automatically adjusts displayed prices.

Companies like Wasteless, a startup based in Israel and the Netherlands, have introduced technology that utilizes artificial intelligence to capture data on how products move within stores. Wasteless uses an algorithm to understand the movement of fresh products and considers customer responses to freshness and discounts.

Tomas Pasqualini, Vice President of Global Operations at Wasteless, points out that customer behavior varies across store locations, depending on shopping frequency. For instance, people in residential areas who shop once a week tend to prefer products with longer shelf lives compared to those who shop daily or multiple times a week.

Wasteless deploys electronic shelf tags that adjust pricing based on specific expiration dates encoded in product barcodes, effectively communicating when to reduce prices. The company reports that hundreds of partner stores have reduced food waste by 39 percent.

However, introducing disruptive technologies in an industry that is traditionally less tech-oriented presents challenges. Wasteless will face a test when it launches its service at a Midwestern supermarket chain later this year.



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