Retailing Strategies of Imperfect Produce and the Battle Against Food Waste

Abstract

Problem Definition: Imperfect produce – edible but cosmetically flawed fruits and vegetables – is often excluded from store shelves, contributing significantly to food waste. Commercializing imperfect produce presents a promising opportunity to reduce waste. This study examines how grocery retailers can best choose from three common retailing strategies: discarding imperfect produce, bunching it with cosmetically perfect produce, or differentiating by selling perfect and imperfect produce separately at different prices. Methodology/Results: We examine each strategy independently and then develop the conditions under which each strategy becomes the optimal choice. Our findings reveal that offering deep discounts on imperfect produce does not always reduce food waste. In fact, greater discounts may reduce the sales of perfect produce due to cannibalization, leading to more unsold perfect produce under the differentiating strategy. This deeper discount can also result in reduced profits, prompting retailers to switch to the discarding strategy, which may further increase food waste. Our study also evaluates two widely discussed policy interventions aimed at reducing food waste: (i) educating consumers to improve their perception of imperfect produce, and (ii) relaxing the tolerance limits for the amount of imperfect produce allowed into retail stores. Our results indicate that policymakers should approach these interventions with caution. First, educating consumers about the value of imperfect produce may inadvertently reduce sales of perfect produce due to cannibalization, leading to more unsold perfect produce and lower profits. Second, relaxing tolerance limits may shift food waste from farms to retail stores if the discarding or differentiating strategy is used. Additionally, we examine three extensions to our analysis: upcycling imperfect produce into by-products, adopting a mixed strategy that combines multiple retailing strategies, and implementing a full-shelf ordering policy. These analyses confirm the robustness of our main findings. Managerial Implication: As global food waste reaches critical levels, addressing the issue of imperfect produce is becoming increasingly important. Our study provides retailers with clear insights into which retailing strategies are most suitable for imperfect produce. It also offers practical recommendations for policymakers, highlighting the potential risks and benefits of different policy interventions aimed at reducing food waste.