Development and analysis of static and dynamic pricing models for fresh fruit and vegetable retailers with food waste as a key consideration

Abstract

Fresh fruit and vegetable waste at retail locations is widely prevalent and often accepted as a byproduct of food retailing. To recognize this source of food waste and encourage change, the United Nations has introduced a goal to halve per capita food waste at the retail level by 2030 (‘United Nations’, 2020). As retailers begin to turn their focus to an all-encompassing triple bottom line, they have the opportunity to rethink their approach to food waste. This research explores various retailer optimization methods to combat the food waste of highly perishable items by utilizing the mathematical programming technique of decision modelling. The models developed provide evidence that operating under a static product pricing model with a singular objective to minimize waste is not a sustainable approach for retailers as it neglects profits. Further, the inclusion of a financial weight on waste in a profit maximizing business model with static pricing is presented as a more financially effective approach. However, this model is also a likely unsustainable option due to the modelled decrease in profits. Lastly, dynamic pricing by way of markdown management is presented to offer food retailers a more sustainable method to sell fresh fruit and vegetables with less waste. Of the four models presented, the Dynamic Pricing Model appears to be the most applicable model for retailers and should be considered as an approach to reduce waste among perishable items such as fresh fruits and vegetables.