Detailed findings on markdown variance and practice
Before reviewing the core findings of the research, it is worth explaining how the two types of expiry-based discounting models that are available, static and dynamic, work.
The traditional approach to discounting surplus food is through static markdowns; these can take place through different channels, from clearance areas to manager specials. They are a store-led and manual reduction model, causing poor central visibility and transparency, subsequently leading to low compliance (e.g., fraud and shrink). The static nature of the approach means the discounted prices are not optimized for volume or profit maximization, resulting in retailers often missing out on uncaptured product margins.
This basic model of discounting allows for easy implementation in-store, typically being executed with written or stickered labels, with discounts graduated by velocity across a day or multiple days – a product could be discounted 3 times in the day or in the days leading up to expiry, by 35%, 50%, and 75%. A challenge of the static approach is the fact that discounts are not applied consistently across products or stores, this means there is no visibility to compliance from the center.
A dynamic model of markdowns is a machine learning-driven approach to surplus food discounting that is designed to produce a price that optimizes the chance of product sell-through and maximizes the product margin captured to find the product’s pricing ‘sweet spot’. The pricing is based on a range of variables and can be adjusted in real-time from store to store, as well as allowing for clear visibility of markdown compliance.
The emerging dynamic discounting approach leverages advanced models to encourage fresh-food velocity, but it requires the supporting technology for it to be executed appropriately. The discounts are printed through barcode labels produced by an in-store associate’s handheld device and printer.
Who is not discounting?
The research showed that 12% of the retailers visited were not using any markdowns at all. As it is virtually impossible to always sell all perishable stock at full price, the inference can be made that stock was going straight to disposal, was donated, or repurposed once it reached its expiry date.
Stores that avoid discounting may take a hit on margin but place a higher priority on protecting brand perception as outlets that only stock the freshest, high-quality produce. Another reason a retailer may not be doing discounting is that they feel that the investment in management, time, and labor is too high to carry out markdowns.
The regional spread of retailers who were not discounting when visited included:
- Europe - 3 retailers out of 75
- North America - 10 retailers out of 49
The reality is that markdowns, when carefully managed can avoid undermining perceptions of excellence. It can shift expiring products off the shelf and into the shopping basket, meaning there is an immediate realization of the benefit. Whilst also freeing up store labor from disposal and recovery practices of unsold products.
“Selling the item and keeping it in the edible food chain is the priority for retailers and consumers, it’s better eaten than fed to animals, converted to energy or thrown to landfill.”
Group Strategy Coordinator, ECR Retail Loss Group.