In 2022, US grocers discarded an alarming 5 million tons of food, with 35% of this waste ending in landfills. This statistic comes from ReFed, a non-profit organisation tackling food waste. A significant portion of this discarded food, totalling 2.7 million tons, was due to products surpassing their expiration dates on labels. However, emerging technological solutions propose a promising avenue for mitigating this issue. According to recent studies undertaken at Texas McCombs, transitioning from traditional paper shelf labels to modern digital ones could substantially diminish the amount of food waste generated by supermarkets.
The introduction of digital shelf labels offers many benefits beyond reducing food waste. These labels facilitate the implementation of dynamic pricing strategies, where prices are adjusted in real time to reflect the age of the stock. This approach appeals to budget-conscious consumers and enhances overall efficiency and sustainability. Ioannis Stamatopoulos, an associate professor specialising in information, risk, and operations management at Texas McCombs, emphasises the collective advantages of dynamic pricing. He argues that it significantly reduces food waste and the emissions associated with decomposing food in landfills.
The practicality of changing prices via digital systems cannot be overstated. Grocers can update prices swiftly and effortlessly—a few keystrokes on a tablet are all required. This contrasts sharply with the laborious printing and manually attaching paper labels to shelves. Stamatopoulos advocates for more frequent price updates, which have proven economically viable and beneficial in managing perishable stock more effectively.
The efficacy of this technological shift has been substantiated through research conducted on two European grocery chains, although their identities remain confidential. The study, a collaboration involving Stamatopoulos, Naveed Chehrazi from Washington University in St. Louis, and Robert Sanders from the University of California, San Diego, revealed significant increases in the frequency of price adjustments following the adoption of digital labels. For instance, a UK-based chain introduced digital labels for 940 perishable products, which allowed for price adjustments that were 54% more frequent than before. This change was primarily facilitated by the labels’ ability to display base prices and apply discounts as products neared expiration.
One of the chains incorporated a second technological enhancement—expanded barcodes—in addition to digital labels. Unlike traditional barcodes, these can store comprehensive inventory details such as packaging dates, lot numbers, and expiration dates. This feature lets stores strategically reduce prices as items approach their sell-by dates, encouraging timely purchases and reducing waste. Following the installation of these technologies, the frequency of price changes in the EU supermarket chain surged by an astonishing 853%.
Stamatopoulos highlights the dual benefits of such technologies, not just for consumers who prioritise price but also for the stores themselves. By enabling stores to offer discounts on products nearing expiration, they can justify larger inventory orders and exploit economies of scale, ultimately benefiting their bottom line.
Despite the promising outlook of dynamic pricing, there are notable challenges to its widespread adoption. Consumer distrust remains a significant hurdle; many fear that retailers might exploit high demand periods to inflate prices, similar to pricing strategies employed by ride-hailing services like Uber. However, this concern is mitigated in grocery retail, where predicting peak demand for specific products is complex and dynamic pricing could instead focus on reducing prices during low-demand periods to stimulate sales.
Another significant barrier is the cost of implementing digital labels and training staff to manage new systems. Despite these initial expenses, the long-term benefits—such as reduced waste and enhanced profitability—make a compelling investment case. Europe currently leads in adopting these technologies, but momentum is building in the US, with major retailers like Walmart and Amazon Fresh initiating transitions to digital pricing systems.
Stamatopoulos advocates for government incentives akin to those offered for solar panels and electric vehicles to accelerate the adoption of these technologies. Such measures could catalyse a shift towards more sustainable and efficient retail practices, marking a new era in grocery management where technological innovations drive economic and environmental benefits.
More information: Naveed Chehrazi et al, Inventory Information Frictions Explain Price Rigidity in Perishable Groceries, Marketing Science. DOI: 10.1287/mksc.2023.0473
Journal information: Marketing Science Provided by University of Texas at Austin