Cutting prices on groceries about to reach expiration date could reduce food waste by 21%, UCSD study says

A refrigerated and frozen section of a supermarket

Reducing prices as perishable items approach their expiration date could reduce food waste from grocery retailers by 21 percent or more, according to a study from UC San Diego’s Rady School of Management released July 25.

During decomposition, organic waste releases the greenhouse gas methane. Food waste releases up to 10 percent of worldwide greenhouse gas emissions annually, the researchers say.

Last year, California rolled out a residential food-waste recycling program, and a bill was recently introduced in the state Legislature to rein in “sell by” dates from manufacturers, which can prompt consumers to needlessly throw out food.

The Rady School study, to be published in Marketing Science, evaluated two programs meant to divert waste from landfills: those designed to ban organic waste, which have been introduced in nine states — including California — and dynamic pricing, or cutting prices on items approaching expiration, which is more popular outside the U.S.

The paper’s author, Robert Sanders, an assistant professor of marketing and analytics at the Rady School, said the analysis found that dynamic pricing reduces waste by 21 percent on average while increasing grocery chains’ gross margins by 3 percent. In contrast, an organic waste ban, even if it increases the cost of sending perishables to a landfill by 10 times the amount it costs today, reduces waste by only 4 percent and decreases gross margins about 1 percent.

“If regulators want to directly reduce grocery-store waste, they should incentivize grocery chains to adopt dynamic pricing over imposing organic waste bans or waste taxes,” Sanders said. “It is also a market-based solution that the retailers themselves could implement.”

“Oddly enough,” he said, “fewer than 25 percent of U.S. grocery retailers offer any kind of dynamic pricing at all, while most hotels and airlines will discount rooms and seats when they have a surplus.”

More than 10 percent of food waste comes from grocery retailers who throw out surplus perishables past their expiration date, Sanders said.

California requires businesses generating at least two cubic yards of solid waste per week to recycle their organic waste by composting or donation.

Dynamic pricing, on the other hand, “spurs retailers to throw less food out to begin with by applying an algorithm that determines when grocery stores should reduce the price of perishables depending on their inventory and expiration date,” according to a statement from UCSD. With dynamic pricing, vendors can change the price of food multiple times a day.

“If regulators want to directly reduce grocery-store waste, they should incentivize grocery chains to adopt dynamic pricing over imposing organic waste bans or waste taxes.”

— Robert Sanders, UC San Diego Rady School of Management

An added benefit of dynamic pricing is that it makes perishables more affordable, while organic waste bans can harm consumers by reducing retailers’ inventories, Sanders said.

The paper’s analysis is based on an economic model that “characterizes a grocery retailer’s behavior, as grocers have to decide how much product to order before they know how much will sell prior to hitting its expiration date,” the UCSD statement says.

To test the predictions of the model, Sanders used data from the artisanal bread category of Pick ‘n Save, a large Midwestern grocery chain. ◆