Strategic Perishable Management: Boosting Profit and Reducing Waste in Retail Operations

The global challenge of food waste, estimated at 931 million tonnes annually with 13% originating from retail, presents a dual imperative for enterprise leaders: addressing a significant environmental and social issue, and simultaneously optimizing financial performance. Retailers face the complex task of managing perishable inventory, where product quality deteriorates over time, directly impacting consumer willingness to pay both as well as potential waste. Displaying and Discounting Perishables: Impact on Retail Profits and Waste. Management Science, a recent study by Atan, Honhon, and Pan provides critical insights into how strategic product display and dynamic discounting can be leveraged to achieve both profit maximization and substantial waste reduction. For senior marketing and customer experience (CX) leaders, understanding these mechanisms is essential for developing robust operating models and policies that deliver measurable outcomes in a highly competitive and sustainability-conscious market.

The Strategic Imperative: A Dual Mandate for Profit and Sustainability

Effectively managing perishable products is a core strategic challenge for retailers. The inherent nature of these products – their finite shelf life and deteriorating quality – necessitates proactive strategies to mitigate losses and capitalize on consumer demand. This is not merely an operational concern; it directly impacts brand reputation, customer satisfaction, and the bottom line.

Understanding Consumer Behavior and Product Deterioration

Consumers are not uniform in their purchasing behavior; they act as utility maximizers, weighing product freshness against price. The perceived quality of a perishable item typically decreases as it ages, directly impacting a consumer’s willingness to pay. For instance, a shopper might pay full price for freshly baked bread but expect a discount for bread nearing its expiration. The study identifies two primary consumer segments:

• Passive consumers tend to purchase the most accessible product unit if it offers positive utility.
• Active consumers seek out the unit that provides the highest utility, regardless of its placement.

This heterogeneity means that how products are presented and priced can significantly steer purchasing decisions. Retailers must account for these varied responses to product age and pricing to optimize sales and minimize waste.

What this means: CX and marketing leaders must move beyond aggregate sales data to understand purchase drivers for different perishable items. This requires collecting data on actual consumer behavior at the shelf level, distinguishing between active and passive shopping patterns.

The Three Pillars of Perishable Inventory Strategy

The research identifies three core levers retailers can manipulate to manage perishables: product display setting, discounting strategy, and replenishment order quantity. Strategic decisions on display and discounting are made at the planning horizon, while order quantity is an operational decision made at each replenishment cycle.

• Display Settings: This refers to how products are organized on shelves, influencing consumer accessibility and choice. The study models three primary settings:

• Equally Accessible (EA): Both fresh and older product batches are displayed in a common area and are equally accessible to consumers. This is common for many produce items.

• Layered – Old in Front (LO): The older product batch is made more accessible to consumers (e.g., placed at the front of the shelf), with fresher units in the back. This is often seen with refrigerated items, where replenishment occurs from the back.

• Layered – Fresh in Front (LF): The fresh product batch is made more accessible to consumers, with older units in the back. This might be used to emphasize freshness or when inventory rotation is not feasible.

• Discounting Strategy: This involves setting a discount rate and a discount age threshold, determining when older units become cheaper. Discounts attract price-sensitive consumers but risk cannibalizing full-price fresh sales.

• Order Quantity: The operational decision of how much fresh product to order in each replenishment cycle, which must consider current inventory levels of both fresh and older batches.

These strategic choices, when optimized, can lead to substantial improvements. The study’s numerical results indicate that optimizing display and discounting strategies can yield an average increase in profit of 6.01% both as well as a decrease in relative waste of 21.24% compared to a benchmark of equally accessible products with no discount.

Summary: Retailers must view display settings and discounting as interconnected strategic variables, not isolated tactical adjustments. Their combined effect on consumer choice, profit margins, and waste is significant.

Precision in Practice: Optimizing Display and Discounting for Measurable Impact

Optimal strategies for perishable inventory are highly context-dependent, necessitating a data-driven approach that considers store traffic patterns, product characteristics, and consumer behavior. Generic approaches often fail to capture the nuances required for maximum impact.

Deterministic vs. Stochastic Store Traffic

The study highlights a critical distinction between deterministic and stochastic store traffic:

• Deterministic Store Traffic: When store traffic is predictable, the retailer can order precise quantities to avoid waste. In this scenario, only two policies are optimal: either discard unsold units at each replenishment to maintain a single batch (Single-Batch, SB policy), or keep and discount old units while making fresh units more accessible (Full-Shelf-Life, FS policy with LF display setting) (Atan, Honhon, and Pan, 2025, p. 8).
• Stochastic Store Traffic: In real-world retail environments, where store traffic is variable and uncertain, waste becomes unavoidable. Here, all display settings can be optimal, depending on specific product and market characteristics. This is the more realistic scenario for large enterprise retailers.

What this means: For CX and marketing leaders in large enterprises with fluctuating demand, a one-size-fits-all approach is insufficient. A dynamic, data-driven framework capable of adapting to variable store traffic is essential.

Tailoring Strategies to Product Categories

The optimal display setting and discounting strategy vary significantly across product categories, driven by their decay rate and disposal cost:

• High Disposal Cost, Slow Decay (e.g., Dairy Products, Produce like Apples or Carrots): LO Display (Old in Front) is Optimal.

• Analysis: For these products, which retain much of their freshness over time, the waste-reducing effect of selling older units outweighs any potential negative impact from cannibalization. Making older units more accessible (LO display) increases the likelihood of purchase by passive consumers, thereby reducing waste both as well as maximizing profit.

• Enterprise Example: A large grocery chain implementing a “Best Before” section for dairy products, prominently displaying items nearing their date at a moderate discount. This practice aligns with common practice in grocery retail for refrigerated items replenished from the back.

• High Disposal Cost, Fast Decay (e.g., Meat, Fish, Fresh Salads): LF Display (Fresh in Front) is Optimal.

• Analysis: For products that deteriorate quickly, prioritizing the sale of fresh, higher-margin items is crucial. The LF display setting mitigates cannibalization by ensuring passive consumers gravitate towards the fresh, more lucrative options, even when discounted older units are available in the back.

• Enterprise Example: A prepared meals section in a convenience store where freshly made salads are prominently displayed, while older, discounted salads are placed towards the back of the chiller unit.

• Low Disposal Cost, Fast Decay (e.g., Fresh Pastries, Bread): Single-Batch (SB) Policy is Optimal.

• Analysis: For items with rapid decay and low disposal costs, it is often more profitable to discard unsold older units when a new batch arrives. This prevents the perception of “substandard” products and maintains focus on fresh sales.

• Enterprise Example: A supermarket bakery discards all unsold bread at the end of the day, ensuring only fresh bread is available daily, aligning with consumer expectations for products like these.

The Role of Discounting

Discount rates should be dynamically adjusted based on product characteristics and consumer behavior:

• Decay Rate: Products that deteriorate faster should receive higher discount rates to move inventory quickly.
• Passive Consumers: In an LO display setting, a lower discount rate applied sooner is optimal to minimize cannibalization, as passive consumers are already inclined to choose the accessible old units. In contrast, in an LF display setting, higher discounts are used to attract active consumers to the less accessible, discounted items.

Governance and Risk Controls:

• Policy Definition: Clearly define permissible discount ranges (e.g., “15%-30% for produce within 24 hours of expiry”) and display setting mandates per category.
• Guardrails: Implement automated system checks to prevent deviations from defined policies. For example, a POS system should flag attempts to discount items outside their approved age window or below a minimum threshold.
• Thresholds: Establish precise inventory age thresholds that trigger automatic display changes or discount applications (e.g., “units reaching age x+R automatically switch to discounted price and LO display”).
• Escalation Paths: Define clear procedures for exceptions or manual overrides, requiring manager approval with a documented rationale and audit trail. For instance, a “Red-Amber-Green” (RAG) status for inventory batches can prompt tiered escalation based on risk level.

Summary: The choice of display strategy, discount timing, and discount rate is a nuanced decision. Profit maximization and waste reduction are often a Pareto-dominant strategy, meaning both are achieved simultaneously. However, in specific cases, such as fast-decaying products with low disposal costs, prioritizing profit through an SB policy may lead to significantly more waste (75.78% more waste).

Summary

The research provides a robust framework for transforming perishable inventory management from a reactive challenge into a strategic advantage. For senior marketing and CX leaders, this study underscores that intelligent display settings and dynamic discounting are not merely operational adjustments but powerful levers for simultaneously enhancing profitability and achieving critical sustainability objectives. By adopting data-driven, tailored strategies, establishing clear governance, and investing in integrated systems, enterprises can significantly reduce waste, improve profit margins, both as well as strengthen their brand reputation and customer loyalty. The imperative is clear: embrace these advanced strategies to lead in perishable retail.

References
Atan, Z., Honhon, D., & Pan, X. A. (2025). Displaying and Discounting Perishables: Impact on Retail Profits and Waste. Management Science, 71(Articles in Advance, pp. 1-18). https://pubsonline.informs.org/doi/10.1287/mnsc.2023.00316