According to the nonprofit organization ReFed, supermarkets in the United States wasted an astonishing 5 million tonnes of food in 2022, with 35% of that waste ending up in landfills. Alarmingly, over half of the waste—2.7 million tonnes—was comprised of products past their expiration dates. While these figures are troubling, an innovative solution may lie in the transition from traditional paper shelf labels to digital labels, which can facilitate quicker price adjustments and mitigate food waste.
Dynamic pricing, the strategy of changing prices based on market demand and product shelf life, is gaining traction in the grocery sector. Ioannis Stamatopoulos, an associate professor at Texas McCombs, advocates for this approach, stating, “Everyone benefits when dynamic pricing is enabled. There’s less food waste and less emissions from food ending up in landfills.” This perspective was reinforced through research conducted by Stamatopoulos, Naveed Chehrazi of Washington University in St. Louis, and Robert Sanders of the University of California, San Diego. Their analysis of two European grocery chains implementing digital labels highlights how this technology transforms inventory management and consumer behaviors.
One such grocery chain in the United Kingdom employed digital labels for 940 perishable items. These electronic shelf labels, which displayed both base prices and discounted rates as products approached expiration, resulted in an impressive 54% increase in price changes. In a second study involving a European supermarket chain, the researchers introduced expanded barcodes alongside electronic labels. Unlike standard barcodes, expanded barcodes can hold critical data about inventory—all the way from packaging dates to expiration dates. This allowed the stores to adjust prices rapidly and stimulate purchases as items neared their ‘sell-by’ dates. As a result, they witnessed a staggering 853% increase in pricing frequency.
The benefits of this technology are multifaceted. For consumers, digital labels offer an opportunity to purchase discounted items while still fresh, like blueberries nearing expiration. For supermarkets, better inventory management translates into larger order sizes, allowing them to leverage economies of scale. This effectively bolsters profit margins while reducing the environmental impact of waste.
However, the adoption of dynamic pricing is not without its challenges. One major hurdle is consumer apprehension towards price increases during peak demand periods—a sentiment evident in the backlash against Wendy’s recent announcement of dynamic pricing. When a company claims to implement such strategies, customers often fear being taken advantage of. Unlike ride-hailing services like Uber, which can dynamically adjust fares based on demand, grocery stores face a more complex challenge. Stamatopoulos emphasizes that “for retailers to estimate demand very finely and dynamically respond accordingly… I think that’s kind of impossible.”
Cost is another significant barrier. Transitioning to digital labels requires substantial upfront investment, including tablets and digital signage, along with a commitment to daily updates for thousands of items. While Europe currently leads the way in adopting these technologies, the gap is narrowing. In June, Walmart announced plans to roll out digital price labels in 2,300 stores by 2026, joining a roster that includes Amazon Fresh and the regional chain Schnuck’s.
To accelerate wider adoption, Stamatopoulos suggests that government subsidies could play an essential role, similar to the financial incentives currently offered for solar panels and electric vehicles. “Somebody needs to break this equilibrium,” he argues, “Then things will move to a new era where everybody’s using the additional information.”
Ultimately, the shift towards dynamic pricing in supermarkets could yield significant benefits, not just for retailers but also for consumers and the environment. As the grocery industry seeks innovative ways to cut costs and reduce waste, technology offers a compelling pathway forward. Supermarkets embracing digital labeling and dynamic pricing stand to enhance their profitability while contributing to a more sustainable food system.
As supermarkets increasingly turn to technology to tackle food waste, the shift can prove to be both a financial boon and an environmental necessity. The success stories from Europe may soon extend to the United States as retailers recognize the longer-term advantages of adopting a dynamic pricing strategy. With a commitment to better inventory management and a focus on reducing waste, the future of grocery shopping could be brighter and more sustainable than ever.
