Food waste is a growing issue for grocery retailers, policymakers, and consumers. A recent study by Robert Evan Sanders, published in the Journal of Marketing Research and with the cooperation of Mariano’s and Roundy’s supermarkets, analyzes the effectiveness of two potential solutions: dynamic pricing and organic waste landfill bans.
The study finds that food waste is a significant problem in the grocery industry, with wasted food from grocery retailers representing 10% of the entire supply chain’s food loss in the United States in 2017. Bakery products, which represent 6% of total grocery store revenues, are responsible for roughly 15% of all grocery store waste by weight.
The causes of food waste are complex, but the study highlights two key factors: market failure and emissions externalities. Retailers do not bear the full social cost of food waste, and during decomposition, organic waste releases methane, a potent greenhouse gas. Globally, food waste releases 3.3 gigatons of CO2 equivalent, or 8%-10% of worldwide annual greenhouse gas emissions.
To address these issues, policymakers have enacted regulations targeting food waste, including organic waste bans for grocery retailers. However, the study finds that dynamic pricing is a more effective solution, reducing waste by 21% while increasing gross margins by 3%, versus an organic waste ban (simulated by a 10x increase in disposal expenses), modeled to reduce waste by just 4% and decreasing margins by about 1%. Dynamic pricing involves adjusting prices based on demand, encouraging consumers to purchase products before they expire.
Sanders’ analysis found dynamic pricing reduces waste by 21% on average while increasing grocery chains’ gross margins by 3%. In comparison, an organic waste ban, simulated by a tenfold increase in disposal costs, reduces waste by only 4% and decreases gross margins by around 1%.
A growing number of surplus food marketplaces and solution providers including Flashfood, Too Good to Go, Whywaste, Wasteless, and Motatos are emerging to enable dynamic pricing on food products more efficiently.
The full study is available here.