Retailing Strategies of Imperfect Produce and the Battle Against Food Waste

Abstract

Problem Definition: Edible but cosmetically substandard produce (imperfect produce) is often not sold in stores, leading to substantial food waste. The commercialization of imperfect produce constitutes a promising lever to tackle food waste. This study investigates how a grocery retailer should choose from three popular retailing strategies: discarding imperfect produce, bunching with cosmetically-perfect produce, and differentiating (i.e., selling perfect and imperfect produce separately at different prices). Methodology/Results: We adopt the multinomial (MNL) choice model to capture consumer’s purchase behavior and further develop a two-stage stochastic model to explore the impact of supply uncertainty (in the form of random imperfect proportion). We first derive conditions under which each retailing strategy is optimal and the associated ordering and pricing decisions. One would intuit that increasing consumers’ acceptance of imperfect produce would reduce food waste. However, we show that it can actually lead to more food waste. Next, we investigate the implications of the common practice of the full-shelf ordering policy where retailers simply order up to their available shelf space. Interestingly, we show that the full-shelf ordering policy might not necessarily increase food waste, especially when the price of imperfect produce is not too low. Lastly, we show that our main results remain valid when the imperfect proportion is random. However, unlike the deterministic case, the bunching strategy might induce food waste. Even more strikingly, we show that food waste under the discarding strategy might decrease compared to the deterministic case. Managerial Implication: As food waste occurs at alarming rates globally, exploring ways to deal with imperfect produce is of great importance. Our analysis provides insight into which retailing strategy of imperfect produce may be more appropriate, and presents practical implications regarding the full-shelf ordering policy and the effectiveness of consumer education on imperfect produce.

Keywords: Imperfect produce, food waste, consumer choice model, discarding strategy, bunching strategy, differentiating strategy, full-shelf ordering policy