Edible but not-quite-perfect produce (imperfect produce) is often not sold in stores, leading to substantial food waste. The commercialization of imperfect produce constitutes a promising lever to tackle food waste. This study investigates how a grocery retailer should choose from three popular retailing strategies: discarding imperfect produce, bunching with cosmetically-perfect produce, and differentiating (i.e., selling perfect and imperfect produce separately at different prices). We adopt the multinomial (MNL) choice model to derive consumers’ demand and determine optimal decisions under each strategy. We compare these three strategies and provide managerial insights to retailers about when each strategy should be used. These insights continue to hold when the imperfect proportion is random. More importantly, we examine two possible policy interventions (by governments) to reduce the food waste regarding imperfect produce: (1) relaxing grading standards to allow more imperfect produce into stores and (2) educating consumers on the value of imperfect produce. Our results show that policymakers must be careful in implementing these interventions as their misuse can backfire. The relaxed standards can lead to more food waste in the retail level when the discarding strategy is optimal. Educating consumers to increase the value of imperfect produce can cannibalize the sales of perfect produce and decrease the profit. This causes the retailer to switch from the differentiating strategy to the discarding strategy, leading to food waste. Additionally, we present extensions to our study with upcycling the imperfect produce into byproducts, endogenous prices of imperfect produce, a mixed strategy that combines multiple popular strategies, and full-shelf ordering policies. The analysis confirms the robustness of our main results.
Managerially, as food waste occurs at alarming rates globally, exploring ways to deal with imperfect produce is of great importance. Our analysis provides managerial insights into which retailing strategy of imperfect produce may be more appropriate, and it presents practical implications to policymakers regarding the policy interventions to reduce the food waste.