Displaying and Discounting Perishables: Impact on Retail Profits and Waste

We explore how a retailer selling a perishable product with deteriorating quality over time can use product display and discounting of soon-to-expire units to maximize profit and reduce waste. Specifically, we consider a product with a finite shelf life which is replenished periodically over an infinite time horizon. The retailer optimizes the product display, the discount rate and timing, as well as the order quantity in each period. We assume that the replenishment period is such that, at most, two different product ages can co-exist on the store shelves, and we refer to these two groups of products as the fresh batch and the old batch. We discover that when the store traffic is deterministic, the retailer should either have only one product batch on the shelves or sell both fresh and old batches, making the fresh products more accessible to consumers. In contrast, when the store traffic is stochastic, it is generally better to sell both fresh and old batches and select the display setting based on the characteristics of the product, store, and consumers. We find that going from selling only one batch to selling two batches of different ages, with an optimized discount on the old batch and an optimized display setting, increases profit by 7.91% and decreases waste by 33.11% on average. Moreover, our results reveal that selling discounted old products via the right display setting can be a win-win proposition for the retailer, who can simultaneously increase profits and reduce waste.