Few things hurt a supermarket’s bottom line more than food waste: It costs retailers globally nearly $100 billion annually, according to the Food and Agriculture Organization of the United Nations. Put another way, between onethird and one-half of all food produced is wasted worldwide every year, estimates the Institution of Mechanical Engineers.
That might explain why three entrepreneurs founded Wasteless, a startup focused on helping supermarkets fight food waste, in 2017. Using its proprietary machine-learning pricing engine, Wasteless prices products dynamically in real time based on a series of variables, including expiration date, shelf capacity, regional factors, brand strength and on-shelf competition. Prices are displayed on electronic shelf labels or online checkouts where consumers can see the product’s regular price as well as a discounted price for a specific expiration date.
David Kat, senior vice president of global development, has a keen eye on bringing Wasteless to the U.S market. With a hefty background in food innovation and in collecting and analyzing food data, Kat discussed Wasteless and the future of food waste with STORES contributing writer Bruce Horovitz.
What is Wasteless?
It’s a method to prevent foods from being thrown out and for supermarkets to slash waste and boost revenue.
How does it work?
We look at the shelf life of perishable products and look at what’s on the shelf in some detail. We want to know the volume of a product and what its expiration date is. Then we look at the best points on the demand curve to price products with a shorter shelf life. We give lower prices to products with shorter shelf lives, so you get sell-through. We use electronic shelf labels to make it easier for the retailer.
Is Wasteless about sustainability or making supermarkets more profitable?
It’s about both. The use of dynamic pricing is traditionally to drive up revenue. But it’s different with perishable goods in the supermarket. You want to improve the sell-through of products with a shorter shelf life to ensure they get sold instead of thrown out. If they’re thrown out, this impacts the bottom line.
We believe that sustainability and profitability go hand in hand.
Where did the idea come from?
Our founders, who were very familiar with dynamic pricing and shelf optimization, had a company that integrated beer taps in restaurants which they sold to InBev. When they sold it, they knew their system was able to drive up revenue while reducing waste. Food waste is the single biggest source of greenhouse gas emissions. They asked themselves: Where in the food chain could they have the most impact? Retail is the strong meeting point where the farm meets the fork. Some 350 million Americans meet the growers at the supermarket.
How does Wasteless get all the data it needs?
Retailers are asked to send us their historical product waste data over a two-year period. It’s really a partnership. We want to know what products they’ve been selling and what products they’re taking off the shelf and throwing away due to expiration. We then analyze and identify the categories that we can best work with. You typically start a pilot with a couple of stores. Then, you try for a couple of months and scale up if you want.
Can you give an example of a retailer who tested Wasteless?
Dia is the No. 3 discounter in the world. It’s an international chain with 9,000 stores in Spain, Latin America and Portugal. They tested in Madrid with 250 products in one store — and plan to do more. They slashed their food waste by one-third and improved their top line by 6 percent. We are now talking with them about expanding in Madrid.
What exactly is dynamic pricing?
It’s been around since airlines started using it in the 1960s. It used to be strictly to drive up revenue. But we have designed an algorithm with two purposes: to prevent food waste and to assist in markdown optimization.
The founders of Wasteless asked themselves: Where in the food chain could they have the most impact? Retail is the strong meeting point where the farm meets the fork.
This is much better than random markdowns. Consumers get to pay lower prices for products that have a shorter shelf life. After all, the product has a lower value. If the milk has an expiration date for three days, but you plan to drink it tonight or tomorrow, you’d pick that one. We give the consumer a cash reward for the sustainable choice that they make.
What product categories does this work with best at the grocery store?
Meat is a very strong category because the product is valuable. Waste is a typically very big problem with meats. Meat is easier to optimize because retailers typically have a deeper relationship with the suppliers producing meat. We also use fruits and vegetables, and in Spain, there was a lot of success with ready-to-eat meals like salads and soups.
What products won’t work with the Wasteless system?
The products have to have barcodes, so it doesn’t work, say, with loose bananas. They would need to be in a package with a barcode on it. Some 80 percent of perishable products come with a barcode.
What are your expansion plans?
We are now talking to retailers in the United States about starting pilots. We are also identifying other markets. In Europe, we are expanding in the Netherlands. We will expand in the U.S. in 2019.
How does your software know how much to discount an expiring product?
We have a pricing engine. We look at all factors from how much is in stock, what the expiration dates are and even competing products. We use historical data and look for patterns.
Why not offer multiple levels of prices based on expiration dates?
We offer two prices — otherwise it would become a maze for the consumer. We show the regular product price and the price for the shorter shelf life.
Let’s say you have a flank steak in the fridge that normally sells for $15. If that same flank steak only has four days left until expiration, you initially mark it down a dollar or two — with a bottom of, say, $8. You want to make it interesting enough for the consumer but profitable enough for the retailer. The key is, you don’t want this flank steak to become landfill.
Why are you doing this?
I have two daughters ages six and eight. I may live another 30 years, or so, but my daughters will be around much longer, and we are depleting the planet for future generations. I’m driven to ensure that I’ve spent my life leaving a better world to my kids. We call that people, planet and profit. There’s a way all can benefit.
Bruce Horovitz, a freelance writer, is a former USA Today marketing reporter and Los Angeles Times marketing columnist.