Digital labels can help grocers waste less food

Consumers, stores, and the environment benefit when electronic tags allow speedy price changes

University of Texas at Austin

In 2022, U.S. grocers wasted 5 million tons of food, with 35% of it going to landfills, according to the food waste nonprofit ReFed. More than half of that waste — 2.7 million tons — was past the labels’ expiration dates.

But there’s a potential technological solution to the waste problem, according to new research from Texas McCombs. By moving from paper shelf labels to digital ones, supermarkets can easily lower prices and move older stock from their shelves to consumers’ homes.

Using technology to quickly change prices on labels, a process known as dynamic pricing, benefits more than just consumers, says Ioannis Stamatopoulos, associate professor of information, risk, and operations management.

“Everyone is better off when dynamic pricing is enabled,” he says. “There’s less food waste and less emissions from food ending up in landfills.”

Grocers save time and money, too. They can change digital labels — also called electronic shelf labels — with a few keystrokes on a tablet, compared with printing physical labels and sticking them onto shelves. When it’s easier and cheaper to update prices, Stamatopoulos says, grocers should do it more often.

How much is more often? To find out, Stamatopoulos — with Naveed Chehrazi of Washington University in St. Louis and Robert Sanders of the University of California, San Diego — analyzed two unnamed European grocery chains as they installed the tags.

One, in the United Kingdom, introduced digital labels for 940 perishable products. The labels displayed the base price and added discounts as products got closer to expiring. The researchers found the stores changed prices 54% more often.

Raising the Bar for Barcodes

The second supermarket chain, in the European Union, adopted electronic labels but added a second technology: expanded barcodes.

Unlike a standard barcode, an expanded one can hold inventory details such as packaging dates, lot numbers, and expiration dates. When inventory nears its “sell-by” date, a store can lower prices to stimulate buying.

After the EU stores installed the two technologies, the researchers found, they increased price change frequency 853%.

Rapid price changes aid shoppers, says Stamatopoulos. “If you’re a consumer who really, really cares about price, then you can buy the blueberries that will expire two days later and consume them today.”

By better managing inventories, the barcodes also boost stores’ bottom lines, he adds. “Because the grocery store can put things on discount when they’re about to expire, they can afford larger orders, so they take advantage of economies of scale in ordering.”

The Price of Dynamic Pricing

Although dynamic pricing has long-term benefits, it faces short-term obstacles. One is consumer fear that retailers will jack up prices when demand is high — as ride-hailing companies such as Uber do.

In February, when the fast-food chain Wendy’s announced it would roll out dynamic pricing, it drew backlash. It quickly clarified that it would cut prices during slow periods but not raise them during busy periods.

But unlike restaurants, it’s hard for grocers to pinpoint hours of high demand for individual products, Stamatopoulos notes. “For retailers to estimate demand very finely and dynamically respond accordingly, so as to squeeze every dollar out of it, I think that’s kind of impossible,” he says.

Another barrier is cost. Grocers must invest in digital labels and tablets, while employees must update data daily for thousands of items.

Europe is ahead of the U.S. on adopting these technologies, but that could be changing. In June, Walmart announced it will transition to digital price labels in 2,300 stores by 2026. Amazon Fresh and the Midwestern chain Schnuck’s are also using them.

To speed the transition, Stamatopoulos suggests government subsidies, like those for solar panels and electric vehicles.

 “Somebody needs to break this equilibrium,” he says. “Then things will move to a new era where everybody’s using the additional information.”

“Inventory Information Frictions Explain Price Rigidity in Perishable Groceries” is forthcoming in Marketing Science.

Story by Suzi Morales

---

Journal

Marketing Science

DOI

10.1287/mksc.2023.0473 

Article Title

Inventory Information Frictions Explain Price Rigidity in Perishable Groceries