Happy Hour: Markdown Pricing to Reduce Food Waste

Product expiration in grocery stores is the main cause of food waste at the retail level. To stimulate sales and minimize waste, retailers are resorting to end-of-day markdowns. This approach is costly to operate and it is impeded by lacking accurate inventory information. Investment in technology for inventory tracking and data-driven automated markdowns can provide more efficient solutions but business cases require evidence of impact. In this paper, we analyze the implementation of an automated markdown pricing solution in terms of food waste, prices, and gross margins. First, we use regression analyses to estimate the difference between a manual markdown process and an automated markdown solution. Second, we perform a differences-in-differences estimation to compare waste rates between treated and control product categories. Our results show that automated markdown pricing can improve the triple bottom line, benefitting the planet, retailers, and consumers. First, we observe that the automated solution led to a reduction in the food waste rate. Second, we find that the automated solution selected products that led to an increase in gross margin compared to the manual solution. Third, we show that consumers paid lower prices because higher discounts were given. Our study allows us to analyze the challenges and opportunities that online and physical retailers face when they decide to adopt automated markdown pricing as a solution for reducing waste. We present a qualitative evaluation of different solutions that are available for retailers and we propose a path forward.