Ep. 13: Selling More and Wasting Less with David Kat, SVP Business Development of Wasteless

Today’s guest is David Kat, SVP Business Development for Wasteless, which is using AI to dynamically price and mark down perishables, helping grocers sell what they otherwise might have wasted. This episode has something for everybody. AI, dynamic pricing, electronic shelf labels and 2D barcodes. David has an informed perspective on the challenges and the opportunities of using dynamic pricing and markdowns to help mitigate food waste in brick and mortar grocery in a way that is really accretive to earnings.

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Dynamic prices and markdowns in-store

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Transcript

Keith Anderson: Welcome to Decarbonizing Commerce, where we explore what’s new, interesting, and actionable at the intersection of climate innovation and commerce. I’m your host, Keith Anderson, and together we’ll meet entrepreneurs and innovators reinventing retail, e commerce, and consumer products through the lenses of low carbon and commercial viability.

Welcome to the Decarbonizing Commerce Podcast. I’m Keith Anderson. And when a guest tells me one of the things they’re most looking forward to over the next few years is the dawn of 2D barcodes. I know we have a winner on our hands. But seriously, this episode has something for everybody. AI, dynamic pricing, electronic shelf labels, 2D barcodes. My guest is David Kat, SVP Business Development for Wasteless, which is using AI to dynamically price and mark down perishables, helping grocers sell what they otherwise might have wasted. David has been with the business nearly since its founding, and he’s got a really informed perspective on the challenges and the opportunities of using dynamic pricing and markdowns to, help mitigate food waste in brick and mortar grocery in a way that is really accretive to earnings.

So I’m excited for you to hear from David and get to know Wasteless.

David, good to see you. Thanks so much for joining the show.

David Kat: Thanks, Keith. Great, being here, from, Amsterdam.

Keith Anderson: Yeah, I appreciate the time difference. Scheduling is always an adventure and it’s good to have you with us. So I thought you could kick us off just by telling us a bit about how you ended up at Wasteless in your career.

David Kat: Yeah. So I’ve, so I’m an Amsterdam native. I lived in London for a couple of years in Paris. Started in publishing right when, at the advent of the internet. So, I worked with a company that eventually bought AC Nielsen, and I was, an online publisher there. And then like working with data started a couple of, companies of my own.

And then I was approached by one of the, one of the founders of a company a founder. who I knew from a previous company, and he asked me to help him. And, it’s Odette Omar. He had just, exited a data for foods company, an IoT company. They sold it to AB InBev, the biggest beer brewer in the world.

And he told me of his, findings in data for food, told me that, data for food is, can be extremely profitable, but that, he was not, in this world to make big, brewers even more profitable, in the long run. So, and he saw that in the food system, there’s a couple of, real issues that are hurting the entire planet, and we’ll, we’ll, we’ll go into that in a second.

And he said food waste, even in, in, in the beer, like bars and restaurants is a huge thing. And then he started investigating, where, how the causes are of food waste. And he discovered that, in grocery retail, about almost 90 percent of food waste is caused by products running out of expiration date.

And when you’re a date of a food person and you hear the word expiration date, you might think that might be a date problem. There might also be a date solution. So, so they investigated and they come up, they realized that, if you go to your local supermarkets, there’s, food with different dates and the same price.

So different values, but the same price. And that’s, that’s really driving food waste. So he asked me to investigate and, well, lo and behold, before I knew it, I joined as, right at the start. We had our first beta and I’ve been with the company now for six years.

Keith Anderson: That’s great. So for those that may not be as familiar with what Wasteless does, can you just walk us through the technology and where it fits into a grocer’s operations?

David Kat: Sure. So, you know, grocers, there’s a lot to admire in what grocers do. it’s a tremendously, it’s a, it’s it’s a tremendous job to get all these products at the right time, at the right moment in a, grocer to keep the shelves filled. But in this tremendous, Herculean, labor, something goes tremendously wrong as well.

Supermarkets, grocers know about the inventory, know about quantities, and they have no visibility whatsoever on the freshness of their fresh produce. And that’s a, massive problem that surely we’ll, discuss. We are solving that massive problem by applying dynamic markdowns, optimal pricing.

So we’re looking at the vintage, the expiration date that is most likely to expire on the shelf. And we do price experiments, multiple per day, per item, where we’re trying to get an item sold. Rather than let it expire on the shelf, and there is billions for supermarkets to be earned by selling foods that they would otherwise discard.

Keith Anderson: So, I heard you say fresh. Are you focused entirely on perishables or are you also working with shelf stable foods that have an expiry date or a best by date?

David Kat: So, what we’re seeing is that, food waste is a massive problem, and it’s also a massive opportunity. Food waste is mostly, it occurs mostly in products that have a shelf life of between two up to 30 days. So our algorithm, our reinforcement model, so it’s, an, it’s self improving machine learning model.

Gives like the, low hanging fruit is really in, in perishables. Shelf stable is kind of a, like a bonus, but we, were not going to make those kind of return on investments,, on, on the cookies that we would be, that we would do on, on, meat, dairy, ready made meals, convenience food.

Keith Anderson: Got it. And you said that the grocers don’t often have an idea of when these goods are going to expire. I, I assume in a conventional operating model, they’ve got staff that are going and inspecting the produce on a daily basis. Where does the data in your platform come from?

David Kat: Yeah. So, I love it where you, that you’re very familiar, obviously, with, with the way crosses work. So they’re sending staff on a daily basis to, to check on the, inventory, meaning that they, that you’re going to make the same mistakes day in, day out, the, problems that you’re finding today in, expiring products, you’re also going to find tomorrow.

So it’s, it’s very repetitive. We have a, various ways of, of, of, sucking up that data from the system, from the, retailer system. So we’re going to be, we’re using replenishment data. We’re using letdown messages. So we know what goes into the shelf, onto the shelf, into the store.

Stores typically lack level granularity where you can see not just quantities, but also the time dimension of your inventory. And to prove a business case, we have to collect the data manually, which is a 10, 15 minute job per day. It’s really part of the gross routine. That way we prove a business case that gives an ROI of 10 or 15X.

And then you get into, a conversation, a partnership with a retailer where you’re, where we’re showing that actually that manual collection of data is unnecessary and we’re going to be integrating in more parts of the business to understand, to actually get automatic feeds of stock in and of stock out, meaning, replenishment, onboarding, but also, POS data and sales data.

Because if we know that a, an item that we mark down is sold, we see that as a successful price experiment and it reinforces our model.

Keith Anderson: So. I think many folks may be familiar with some of the, sort of third party, customer facing platforms that are, doing dynamic markdowns, through a stand alone application or something. Let’s talk a little bit about how this comes to life through, an online grocer’s own site and, then secondly through the store.

You know, this is, happening when somebody is browsing the online grocery site and they’re seeing, depending on the, how close to the expiry date, they’re seeing these prices in the context that they’re typically shopping in, correct?

David Kat: Yeah. Well, we, are focused on, on, brick and mortar, grocery retail. Because there, the food waste problem is a, lot more pressing than in, well run, online, grocers, you know, a company like Ocado or Picnic here in the Netherlands, they actually know exactly, they have a lot more data and a lot more insights and they do the picking themselves.

The real problem occurs. When you have a, physical shopper, a consumer that goes onto the shelf, your neatly stacked shelf and is like going to the back of the back of the shelf, rips everything apart because they don’t like the shelf life that’s left on the, customer facing, side of the, of the shelf.

So we, and we see that in those retailers, not only is about 90 percent of their food waste, caused by products running out of expiration date. It’s a massively costly problem. If you go in the US, and this is Refed Deloitte data, the, this is data from 2019, the cost price, the purchasing price of the foods that US retailers,waste, is, oh, it’s like around, it’s around $18. 2 billion. However, if you compare that to the EBIT, the combined EBIT of those US retailers, the EBIT is only $9 billion. So the purchasing price of what they’re throwing out is double their EBIT. Well, then you have a, if I tell this to a, CFO or a CEO you, get their attention.

Because what we do is we don’t just sell the wasted foods, you don’t just sell it at cost price, you sell it with a margin. So we’re actually able to, to sell it with a substantial margin. We just mark down by 20, 25 percent on average. And we prevent more than half of the food waste. So that’s a, significant, positive impact on your bottom line. to put that in perspective, EY or Sinyan. In Germany calculated that grocery retailers with dynamic pricing, like we do, can improve their EBITs by 10%. And we’re, actually, with US retailers even, we’re, showing that it’s more than 10 percent EBIT growth.

Keith Anderson: You know, it’s interesting, you mentioned the EY study. I also saw an academic study. That, I think was done in partnership with Mariano’s and Roundy’s here in the U.S. that similarly found that, dynamic pricing was more effective than some of the other approaches to mitigating food waste.

I don’t know if you saw the same study.

David Kat: Yeah. From, out of, U. S., UC Davis in San Diego, I think

Keith Anderson: I think so. I’d have to check my notes, but, I think so. So

David Kat: We contribute data to that. I mean, if it’s UC Davis, we contributed, data from our retailers to, to actually substantiate those, those, those claims.

Keith Anderson: gotcha. So in a brick and mortar grocery environment. One question I have is about the price execution. That is, you know, if you’re somewhat dynamically marking down, it, it strikes me if you’re in a chain that’s got electronic shelf labels and you can link to those, it’s pretty straightforward, but how is it happening in the formats that don’t have those yet?

David Kat: Yeah. So, electronic shelf labels really make this straightforward and those are often difficult, investment decisions. And we are obviously changing the paradigm on the, return on investment on those, if you manage to leverage them. In US retailers that we’re working with at the moment, in the Midwest, , we’re, using, we were actually, upgrading their existing markdown process.

So where they would usually put a sticker with 50 percent discount or 40 percent discounts. They’re scanning the, items, they’re telling us the, actual inventory and the, shelf life of that, inventory, and we then print the stickers. It’s by no means ideal because it’s, you know, it’s, you need staff training, et cetera.

However, we’re using this to, to prove a tremendous business case where we’re, we’re increasing margins substantially. And then you can take additional steps to actually get more data into the food system. And I wholeheartedly believe that more data in the food system will help this, tremendous industry to, to make, a next step.

And it’s a required next step, because margins are low and it’s, all, okay because the volumes are so massive. But, imagine you you can lift your margins by. 20, 30, 40, 50 percent. Then suddenly the entire paradigm of food pricing and, paying suppliers and even food waste are, changing.

And this is something that we’re really seeing happening slowly, but pretty surely.

Keith Anderson: Have you learned much about the consumer response? That’s the other thing that I, see about some of these, dynamic markdown and pricing models is, particularly in certain economic environments, there seems to be a lot of consumer demand for product that’s, still good, but they’re finding it at a savings.

You know, we, just did a episode with, a recently funded company based in the U. S., Marty, that’s sort of a national, closeout platform for shelf stable foods. But when you look at their value proposition, it’s so focused on the pretty extreme savings they’re offering to shoppers. Are you seeing something similar?

David Kat: You don’t even need pretty extreme savings on, fresh food. But this is exactly what we do. So we gauge all the time the price elasticity of perishable fresh food, fresh produce, not just, but with a, with the additional insights of, of shelf life. So we call this freshness sensitivity. It’s the likelihood of a consumer to forego a little bit of freshness or a little bit of shelf life for a slightly lower price. And we run price experiments on a continuous basis. If you have electronic shelf labels as a retailer, we would do this three, four times a day. And we’re trying to find the sweet spot where price and consumer appetite meet. And it changes all the time, and it’s specific per store, per product, time of day, of the week.

And we’re, we’re, and this is where really, where reinforcement learning and AI steps in, because it’s humanly impossible, even if you’re a very, experienced supermarket, associate to exactly price those thousands of items, at the exact right time. And that’s what we do.

And AI can, can do this, can support the, associates. And can, if you, if, retailers integrate, can actually do this completely automatically so you can free up associates to deliver more services, because that’s, that’s what, AI ideally, obviously, achieves.

Keith Anderson: Well, that raises a good point. I, I confess, I’m not up to speed. The way I once was on dynamic pricing, but that balance, between sort of, human intervention and, autopilot for as long as I’ve been working in this area has been an interesting topic. Are there rules based, constraints that your customers are putting on what the platform can do?

Are you looking at cross elasticities with other products or on a basket level? I mean, this, dynamic pricing world can get pretty sophisticated and complicated pretty quickly.

David Kat: Yeah, So human intervention or business rules,, are typically gut feel, so we try to dissuade them as much as possible. Obviously, we won’t, mark down beyond a certain discount percentage, so that would, there will always be like a threshold there. But for example, you know, the influence of the weather, you can’t write a business rule what happens if there’s a blizzard or there isn’t a blizzard.

It’s because Imagine, like, then you would have to kind of weigh, if the blizzards last 12 hours, what’s the, weight factor as opposed to 24 hours. And when it’s like, you know, so it’s, so we tend to use as little business rules as possible. The core of the matter is that it has to always fit with the strategy and the policy and the philosophy of the retailer.

So the retailer has a certain way of dealing with this customer. That’s what they really know best. And that’s really their, that’s a tremendous asset that we will leverage. And then we leverage it with our data insights where we try to, mark down as little as possible. And as little as, like, so we try to extend discounts that are, the minimum that we can get away with.

And at the exact right moment, because no, no retailers interested in, in, in extending discounts in the blind.

Keith Anderson: Yeah, beyond where you

David Kat: By the way is what they’re doing at the moment. They’re discounting food that they don’t really have to discount just because it’s policy.

Keith Anderson: Yeah. Yeah. And when you say, you know, they’ve got their strategy and it integrates or it aligns with their strategy. Does that include things like competitive pricing? Are you linking in any way to a loyalty program? To

to

David Kat: We haven’t yet, but obviously that’s really where the, sweet spot is. So once you have data in the food system, you can leverage the data, upstream and downstream. Imagine, you know, I have two daughters. Imagine that, every Monday night, I shop and I don’t, I buy four times the minced meat amount that I buy on any other day in the week.

It’s because my girls come back from, soccer training and bring back four friends. I’m, cooking pasta bolognese. That pasta bolognese doesn’t need a shelf life of another five days because it’s going to be devoured in four hours time. So if you add loyalty card data, you see that I am, my appetite for discounted food, in large quantities is bigger on a Monday.

So, and you can extend, if you’re not talking about meat, but other foodstuffs, you can extend points for sustainable purchasing behavior, or you can, you can actually, send people, messages that their favorite food is at the discount if you shop tonight. So there’s, once you work it into the loyalty program, then, individualized, personalized, policies that take freshness of, perishable items into account suddenly become a reality.

And that’s, that’s where we’re headed, but we haven’t done those cases yet. So if any of your, any of your, your, your fan base is interested, we’re, we’re, extremely keen as well.

Keith Anderson: Opportunity to be a first mover? You’ve mentioned the,

David Kat: be a good, mover. It’s just, it’s not just about being good at first, it’s about being, doing it right.

Keith Anderson: Fair enough. Yeah, I, I agree. You you’ve mentioned the value of data a few times, and we’ve, we’ve really focused so far on the grocery side of the equation. Is there value in this data for suppliers?

David Kat: Definitely, and the low hanging fruit is for integrated supermarkets. Where they’re over dimensioning, food production because they, you don’t, you know, you don’t want, empty shelves. So an integrated supermarket is losing every step of the way if you’re going, going upstream, because of this lack of data.

So we’ve been talking to CIOs of some of the largest retailers in the world that have really, they really got this, that you could really, we had a discussion, they asked a couple of questions and they suddenly understood that they could actually turn part of their supply chain around into a more demand driven production system.

But also we’re, seeing that a lot of producers, and this is, maybe difficult to wrap your head around, but a lot of suppliers, know that a substantial part of what they’re, what they’re producing is never going to be, consumed. But they also know that if they start consuming to match demand in a better way, that they can actually produce less and, and obtain higher prices per quantity per unit.

So, it’s a bit of a perverse system where you’re just, focused on, on. quantities and production and sales. Once you start understanding collaborating around data, there’s a tremendous opportunity that, by the way, Boston Consultancy Group calculated already in August 2019, they calculated that more, collaboration around data in the food system is a 400 billion opportunity.

It’s a very useful study and, I’m, I’m, I try to quote it at least once a day. So, I ticked my box for today.

 Keith Anderson: I can’t believe that I, haven’t come across that one because, I, I’ve also spent a lot of my career focused on data and food and CPG,

David Kat: I’ll share the report so maybe you can, you can stick it in the notes for the podcast.

Keith Anderson: That would be great, along with the other study that you mentioned, you contributed to anything like that, that you think would help enrich, listeners understanding of this topic and what’s working. I think we’re always happy to include.

David Kat: That’s a very valuable remark because

this is not just marketing fluff. It’s not just PowerPoints and, and, and, you know, there’s a scientific basis underpinning it. So also our models are, developed, by a professor in, UC Davis. And that’s why we contribute a lot of our data to academia because it’s, no good that a supplier like us, you know, like a software company, blows their own, trumpet.

It’s really about verifying data, because that’s the only way that we’ll become smarter and get rid of this scourge of food waste, one day. Food waste, you know, the WWF calculated that up to 40 percent of all the food produced is never consumed. And, then if you do the math, you understand that about 11 percent of all greenhouse gas emissions are wasted food. So, so every, you know, every, tangible, scalable impactful reduction that we can achieve as, there’s a lot of leverage, a lot of minus there.

 Keith Anderson: Yeah, agreed. it’s already emerged as, one of maybe five major themes and what we’re focused on and as I’m sure you know, a huge percentage of food waste happens at the household level, but there’s a lot that happens upstream and so much of what I think we find fascinating are these, mechanisms that are easily integrated and embedded in the food chain.

Ways that we already know, people shop and buy and consume that, you know, are still economically and commercially viable, and in, in some cases, not just viable, but, you know, really accretive to margins and earnings and, work with, work with existing behaviors. So, obviously, some of what we’re going to have to do is going to involve significantly changed behavior, either on the consumer’s part or the ways that we work.

But these are really interesting areas where you’re not changing what you’re doing so fundamentally, but you’re still able to make an impact.

David Kat: Sure. And the beauty about the food system is that as a consumer, you can make a decision three times a day and basically preventing food waste is, there’s a double, it’s, you know, it’s a double whammy. Because you save money and you can feel good about it as well. So there’s really this, dopamine rush, by finding a good offer, finding a good discount for something you want to eat anyway, or that you, that really whets your appetite, but that you also know that it’s, completely, or not completely, but it’s, guilt free.

It is less guilt than I’m not the, I shouldn’t even talk about guilt, but it kind of, you know, you’re doing, it, you’re doing something good while you’re also taking good care of your family or your friends.

Keith Anderson: I mean, that, that actually highlights something that I hadn’t thought about until you mentioned it and we haven’t discussed. Is this being communicated to the shopper in any way beyond simply a different price than earlier in the day or yesterday?

David Kat: Typically it is so, and, and we help retailers with the marketing idea of it. So we have marketing in Spanish and Italian and in all these countries where we’re active. But not always. Some retailers, they don’t really want to talk about sustainability. They don’t really want to talk about food waste.

They just want to talk about value. But more and more demographics are also in the U.S, are interested in, you know, getting a good deal for doing something, for doing a good act. So, I really think it’s very strong. Being sustainable, it doesn’t make things more expensive. You know, you don’t have to buy a Tesla to be sustainable.

You can also just eat differently. And, and, and, and actually the impact is a lot larger and a lot more immediate. So it’s, so, so saving money and saving the planet is really within grasp of, of large swaths of the population.

Keith Anderson: Yeah, I, I wonder if there are examples that we can share with, the audience of what it looks like, that might be interesting. And,

David Kat: show you some photos. I’ll show you some photos from Germany. From Italy. Yeah. It, sounds really beautiful in Italian. It’s like sprezzatura alimentaria, food waste. That’s sounds a lot more poetic, doesn’t it?

Keith Anderson: Well, and, I think it’s interesting, even if there’s no reference to food waste or sustainability, part of my curiosity is, are shoppers aware that the price is lower? Is this all based on their own mental price anchors?

David Kat: They’re made aware because you’re, you give them the, option. Do you want a product with a longer shelf life? That you can stick in the back of your fridge or are you going to eat a sandwich anyway today or a piece of meat anyway in two days and you don’t really need it to have another five days

Keith Anderson: Yeah, I got it.

David Kat: and that’s really what we do.

So the freshness sensitivity is making people aware of how special it is that we have, that we’re able to put food on our tables. How that it’s, not just, it’s not just a given, it’s really something that, that, that, that has to be valued. And, we’re, we’re showing that, that price reflects that freshness, as well.

So it’s, it’s purely economical, but there’s also a very strong psychological, marketing angle to it.

Keith Anderson: Hey folks, this is the part of the show where we say thank you and see you soon to the general audience, plus and higher tier members of Decarbonize.co, stay tuned for the rest of the episode.

Keith Anderson: Well, I wish we had more time, David, because now you’ve got me thinking about hunger and how that fits into all of this, but unfortunately, we’re going to have to leave it there. If people want to connect with you or learn more about Wasteless, where would you direct them?

David Kat: You can go to wasteless.com or email me at david@wasteless.com or, look us up on the, on LinkedIn. But we’re going to be at, I just returned from NRF in New York. We’re going to be there as well. We’re very active in the U.S. So, um,

Keith Anderson: Will you be at any other conferences over the next few months?

David Kat: My CEO, was just at, was at FMI, this week, last week.

I’m thinking of going to a Refed conference. Yes. So any suggestions that anywhere where you’re going and where you think we should, we should be, continuing this conversation with a couple of decision makers?

Keith Anderson: This is not an advertisement, but I’ll be at Shoptalk in Vegas in March, and, they have a sister event that is typically in September or October, if memory serves. Well, that’s true, but they run another one in the U.S. called Grocery Shop, that’s even more targeted. There’s food tracks at the big one, but, you know, that’s one to our discussion before we started recording.

You, you won’t typically find sustainability practitioners or a big focus on sustainability as a discipline, but it is one of the events where a lot of the folks, to your point, with decision rights and budgets, convene. And so, anyway,

David Kat: Well, I, anyway, I prefer to talk about enhancing performance of retailers by preventing food waste rather than the other way around. It’s food waste is really, it’s really where you can make a tremendous financial impact and reduce your carbon footprint. But it’s the financial impact that is really the driver.

So let’s, see if we can get something together for, forDavid Kat, SVP Business Development of Wasteless grocery shopping, after the summer.

Keith Anderson: There you go. Maybe we’ll see you there. Well, David, thanks again for joining.

David Kat: Thanks very much for, for inviting us, for having us, and, I’ll, I’ll make sure that there’s some, links, to, to research, in the, in the line of notes. Thanks very much.

Keith Anderson: Thanks for listening. I’m Keith Anderson, the executive producer and host of Decarbonizing Commerce. Sonic Futures handles audio, music, and video production. If you enjoyed the show, we’d really appreciate it if you took a moment to subscribe and leave a review or share it with a colleague. For the full episode and more member exclusive insight and analysis, join the Decarbonizing Commerce community at Decarbonize.co. Thanks for listening and we’ll see you on the next episode of Decarbonizing Commerce.

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