Up to one-third of all food produced is lost or wasted, leading to inequalities in food availability and impacting food cost.
For companies operating within the food supply chain, it also puts pressure on profits, both from lost sales and the cost of disposal. Progress has been made to improve supply chains, create better visibility of inventory and get food to locations where it is most needed.
But less has been done to ensure that food located at the point of purchase is efficiently stocked and sold before it expires, especially when it comes to perishables.
Incentives to move food purchases
The current strategy among retailers, grocers and convenience stores is to reduce waste by bulk repricing categories of perishables. Consider your grocer’s meat section where near-the-expiration-date beef has all been marked down to a flat price.
These products are manually reviewed, sometimes repackaged and repriced using a new label. They may have different expiration dates or weights, and may have been purchased by the retailer at different prices.
But, these indiscriminate markdowns lead to loss of revenue and profit. In addition, the process drives up labor costs and diverts employees away from high-value tasks, like supporting customers and restocking.
Automation is evolving
This manual process has been a major sticking point in the effort to reduce waste and protect profits. But, technology is finally evolving to allow for better automation of these tasks.
For many shoppers, price incentives can encourage repurchase of products that are closer to their expiration date. This can help move older (but still viable) products out the door, maintaining a more consistent supply of saleable products and reducing labor and disposal costs.
But key to this approach is a repricing strategy that changes—automatically—with the age of the product, slowly lowering the price as it ages to provide discount options at the point of purchase.
This idea of “dynamic pricing” gives consumers price options, while maintaining the highest possible margin. Rather than pricing everything in one category at a flat rate, dynamic pricing better protects margins for individual products or groups of similar products.
The most effective dynamic pricing strategy will also embrace connectivity. When pricing data is integrated with electronic shelf labels (ESLs) and the store POS system, it creates even greater efficiencies. Shoppers can easily view options and employees can scan the label allowing it to be correctly aligned with the current price of the category at any given time, without any human intervention.
Proving the value of automation
Recently, the Japanese Ministry of Economy, Trade and Industry (METI) supported several SATO pilot projects to determine if dynamic pricing could reduce waste and labor costs.
The team placed ten specific SKUs on shelves with similar items, all with varying expiration dates. They used GS1 labels that showed the expiration date and assigned an identifying category to each product based on their expiry dates (such as B, C, D). The ESL displayed the price of each category.
For example, category B was set to expire in two days and priced at $4.00. Category C, expiring in three days, was priced at $4.75.
As products aged, the price on the ESL automatically dropped based on pricing increments that had been programmed into the store operations system. The goal was to measure increases in overall sales or gross profit based on how shoppers made their purchases. They also measured reduction in time spent on repricing.
The pilots were highly successful. They recorded a direct reduction of time for markdowns and improved operations resulting from easier and quicker validation of dates.
The team deduced that 90% of shoppers will choose a product with a longer expiration date when presented with products expiring at different times but sold at the same price. But when the price differs depending on the expiration date, only 23% will choose the longer expiration date.
More than 75% chose a lower-priced product with a shorter expiration date. These insights are being confirmed by further trials, and will help retailers design a more effective markdown strategy.
The pilot showed that typically, stores using this approach can reduce manual oversight by two to four hours per day, freeing up valuable staff time. While increases in profitability were also recorded, further trial data across wider product line-ups is needed to gauge average results.
The future is here
With dynamic pricing using a combination of GS1 Datamatrix labels on product, ESLs and automation software, grocers and convenience stores have a clear path to achieve their core goals: reduce the amount of waste, protect margins by repricing according to expiry, and reduce labor costs. By offering shoppers options, they can effectively change buying behaviors, allowing price-conscious shoppers to take advantage of lower-priced options while creating customer loyalty.