Retailing Strategies of Imperfect Produce and the Battle Against Food Waste

Authors:
Burak Kazaz, Whitman School of Management, Syracuse University
Fasheng Xu, School of Business, University of Connecticut
Haoran Yu, Whitman School of Management, Syracuse University


Journal:
Manufacturing & Service Operations Management (2025)

Summary:
This publication examines retailer's best strategies to sell imperfect produce and their implications on food waste.

Research Questions:
1. How should the retailer determine the most profitable retailing strategy, namely between discarding imperfect produce, bunching imperfect produce with perfect produce, or differentiating imperfect produce from perfect by selling at discounted prices in different shelves? Under what conditions does each strategy become optimal, and how does this choice impact food waste?
2. Are policy interventions such as educating consumers about the nutritional value from imperfect produce or increasing the required percentage of imperfect produce that should be accepted at the receipt of grocery goods, that are aimed at increasing the consumption of imperfect produce always effective in reducing food waste?
3. If the percentage of imperfect produce is random, what is the impact of this randomness on the optimal profit and food waste for each strategy?

What We Know:
With growing access to information and an increasing focus on health, consumers around the world are more attentive than ever to what they eat. Today’s consumers not only examine the nutritional content of their meals, but they also expect the food they purchase to appear flawless. However, naturally grown agricultural products often display imperfections such as blemishes, scars, or irregular sizes. Additionally, these products are highly perishable, with some becoming misshapen after being stocked on shelves. Despite these cosmetic flaws, such produce remains nutritionally intact and edible. We refer to this nutritionally sound yet cosmetically suboptimal food as "imperfect produce."

When these imperfect produce are sent from farmers or wholesalers to retail stores (i.e., grocery stores), how can they be sold without causing further food waste? We examine all possible retailing strategies that maximize the profit on behalf of the retailer and show the implications on food waste. We also examine policies heavily advocated by consumer groups and highlight their (in)effectiveness in retail operations that combat food waste.

Novel Findings:
Through this publication, we make four main contributions. First. we show that the three strategies (discarding, bunching, and differentiating) can all be optimal, and we identify the conditions that lead to them. The discarding strategy is optimal for retailers in regions where consumers’ perceived quality and the unit cost of produce are low. In these areas, discarding imperfect produce does not result in significant profit loss due to the low purchasing costs and helps protect the sales of perfect produce. The bunching strategy is more effective in areas where the cost of produce is high and consumers are environmentally conscious and willing to accept imperfect produce. The differentiating strategy is suitable in regions where consumers’ perception of imperfect produce and the associated price discounts are moderate. 

Second, our study demonstrates that widely advocated policy interventions, such as educating consumers and relaxing tolerance limits, do not always effectively reduce food waste. While educating consumers about the benefits of imperfect produce may increase its consumption, it can also reduce sales of perfect produce due to cannibalization. This could push retailers toward the discarding strategy, ultimately increasing food waste. Similarly, relaxing tolerance limits may simply shift food waste from farms to retail stores. Our findings indicate that allowing more imperfect produce into stores can result in retailers discarding more of it under both the discarding and differentiating strategies. As such, our study suggests that these interventions may not always be the most effective solutions for combating food waste.

Third, introducing randomness into the percentage of imperfect produce does not change the main conclusions regarding retailing strategy choices, but it does lead to subtle variations in profits and food waste. 

Fourth, we present three extensions that correspond to commonly-employed strategies in various grocery retail scenarios. The first extension explores the scenario where the retailer can repurpose imperfect produce into upcycled products under the discarding strategy. However, not all retailers can upcycle imperfect produce due to the high costs of investing in space or equipment, the complexity of reverse logistics, uncertain demand for upcycled goods, and strict food safety regulations. The second extension examines a mixed strategy, where the retailer sells bunched produce alongside perfect produce, as seen in grocery chains like Wegmans. Our findings indicate that a mixed strategy does not always lead to higher profits, particularly when the percentage of perfect produce in the bunched product is high. The third extension investigates the impact of the full-shelf ordering policy, in which the retailer orders enough to fill the entire shelf space for visual appeal to consumers. With limited shelf space, the retailer is more likely to adopt the bunching strategy over the discarding or differentiating strategies. Conversely, with abundant shelf space, the retailer may shift from the bunching or discarding strategies to the differentiating strategy, resulting in larger order quantities and increased food waste.

Implications for Practice:

Our study is highly beneficial for retailers in determining how to deal with imperfect produce and see the implications of their chosen retailing strategy on food waste. 

The paper also provides novel insights as to when to use each retailing strategy. The discarding strategy is optimal for retailers in regions where consumers’ perceived quality and the unit cost of produce are low. In these areas, discarding imperfect produce does not result in significant profit loss due to the low purchasing costs and helps protect the sales of perfect produce. The bunching strategy is more effective
in areas where the cost of produce is high and consumers are environmentally conscious and willing to accept imperfect produce. The differentiating strategy is suitable in regions where consumers’ perception of imperfect produce and the associated price discounts are moderate. A surprising finding from our comparison of these strategies is that price discounts on imperfect produce under the differentiating strategy may not effectively reduce food waste. Offering discounts can lower the sales of perfect produce due to cannibalization, which increases waste from unsold perfect produce. Additionally, deep discounts on imperfect produce can reduce profitability of the differentiating strategy, prompting retailers to switch to the discarding strategy, which in turn generates more food waste.

Implications for Policy:
Our publication makes important discoveries for policy interventions. We examine, in depth, widely advocated policy interventions, such as educating consumers and relaxing tolerance limits, and show that they are not always effective in reducing food waste. While educating consumers about the benefits of imperfect produce may increase its consumption, it can also reduce sales of perfect produce due to cannibalization. This could push retailers toward the discarding strategy, ultimately increasing food waste. Similarly, relaxing tolerance limits may simply shift food waste from farms to retail stores. Our findings indicate that allowing more imperfect produce into stores can result in retailers discarding more of it under both the discarding and differentiating strategies. As such, our study suggests that these interventions may not always be the most effective solutions for combating food waste.

Implications for Society:
Our study reveals the best retailing strategies for imperfect produce and their implications for food waste. It educates consumers about the nutritional value from consuming cosmetically suboptimal imperfect produce. It demonstrates food waste as a result of retailing strategies as well as consumers' response to these retailing strategies. 

The study also reveals insights into important policy interventions. While most people believe that educating consumers about the nutritional value gained from imperfect produce is sufficient to reduce food waste, our study shows that retailers switch from the differentiating strategy to the discarding strategy in order to eliminate cannibalization in the sales of perfect produce that results in reduced profits. This is extremely important for advocacy groups to realize that it is not a simple solution. Moreover, it is commonly argued that retailers should accept a higher percentage of imperfect produce in the batches arriving from farmers or wholesalers (required by the USDA policies). However, if the retailer adopts a discarding strategy, this policy intervention simply increases food waste at the retail operations. Therefore, policy interventions should be carried with great care to the operating conditions in the retail stores.

Implications for Research:
R. Our paper examines food waste in the retail stage of a food supply chain. It will, and it has already, inspire additional studies that examine food waste in farm-level as well as household-level consumption patterns.

Full Citation:
Kazaz, B., F. Xu., H. Yu. 2025. Retailing strategies of imperfect produce and the battle against food waste. Manufacturing & Service Operations Management (forthcoming).

Abstract:
Problem Definition: Imperfect produce—edible but cosmetically flawed fruits and vegetables—is often excluded from store shelves, contributing significantly to food waste. Commercializing imperfect produce presents a promising opportunity to reduce waste. This study examines how grocery retailers can best choose from three common retailing strategies: discarding imperfect produce, bunching it with cosmetically perfect produce, or differentiating by selling perfect and imperfect produce separately at different prices. Methodology/Results: We develop analytical models that capture consumers’ purchase behaviors under each retailing strategy. These models account for varying consumer preferences and quality perceptions to determine optimal retailer choices and their implications for food waste reduction. Our analysis identifies the specific market conditions under which each retailing strategy becomes optimal. We then examine two widely discussed policy interventions aimed at reducing food waste: (i) educating consumers to improve their perception of imperfect produce, and (ii) relaxing the tolerance limits for the amount of imperfect produce allowed into retail stores. We find that educating consumers about the value of imperfect produce may inadvertently reduce sales of perfect produce through cannibalization, potentially leading to increased amount of unsold perfect produce and lower profits. This economic pressure can cause retailers to switch from the differentiating strategy to the discarding strategy, paradoxically increasing food waste. Additionally, relaxing tolerance limits may merely shift food waste from farms to retail stores when retailers employ either discarding or differentiating strategies. Our study incorporates three extensions—upcycling imperfect produce into by-products, adopting mixed strategies that combine multiple approaches, and implementing full-shelf ordering policies—which confirm the robustness of our main findings. Managerial Implications: This research provides retailers with actionable insights for selecting optimal strategies to manage imperfect produce based on specific consumer preference profiles and market conditions. For policymakers, we offer recommendations that highlight the potential unintended consequences of well-intentioned interventions, suggesting more nuanced approaches to effectively reduce food waste across the supply chain.

Key Words:
Imperfect produce, food waste, discarding strategy, bunching strategy, differentiating strategy

Web URL for the Article:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4951154