Wasteless Inc.
wasteless.com

Key beneﬁts ofdynamic pricing
for the food retail industry

NEW YORK – September, 2019

Dynamic pricing - the process by which the price of a speciﬁc product ﬂuctuates basedon a predeﬁned set of conditions - has the ability to transform revenue managementin brick and mortar retail. And while dynamic pricing is common in e-commerce,
hospitality, and other consumer applications, food retailers have been slow to adopt
similar pricing strategies. However, technological progress has lowered theimplementation barrier and heightened the imperative for progressive pricing.
Technological innovations such as machine learning,
Artiﬁcial Intelligence (AI), industrial IoT (IIOT), andconsumer IoT are reshaping the food retail industry. Albeit,
we’ve not yet reached the ideal of intelligent automation,and the food supply chain is still burdened with
communication breakdowns, tenuous (or no) traceability,transportation delays, and hit or miss inventory control
systems and processes (to name just a few).
However, the substantial uptick in the food industry’s
ability to gather consumer and product data via a plethoraof touchpoints, e.g., sensor data, RFID tags, geolocation,
smartphone apps, video monitoring, etc., shows great
promise in helping to solve one of the major problems
plaguing the food supply chain: food wastage.
Per a report issued by the United Nations’ Departmentof Economic and Social Aﬀairs, the global population is
projected to increase to almost 10 billion people over the
next 30 years1. It is imperative that we create a sustainable
food supply system that can feed an additional 3 billion

Topics covered
What is ‘dynamic pricing’?
Current industries that use dynamic
pricing
Dynamic Pricing in the food retailIndustry
Current use cases for retail grocer
dynamic pricing
Primary beneﬁts of dynamic pricing
for food retailers
Dynamic pricing implementation forgrocers
human beings. While the economic, environmental, andsocial ramiﬁcations of adequately feeding more people may
appear to be a distant concern, it is not. We’re in the midstof this problem right now.

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On a global scale, food loss or food wastage constitutes

consumer demand. Indeed, recent research conducted in

33% of the total food produced for human consumption . In

China suggests that platforms “adopting dynamic pricing

particular, food waste at the consumer level tends to be a

strategies have a signiﬁcantly higher level of demand

phenomenon that mainly exists in developed countries.

compared with platforms adopting static strategies.”

2

More speciﬁcally, in the U.S., consumer food wastecomprises 31% of the food supply3, and this continues
despite reduction eﬀorts by the USDA and U.S. Departmentof Agriculture.

As such, although consumer perception of product orservice quality, quantity, and scarcity have a hand in theirpurchase decision-making, pricing plays a key role in either
encouraging or discouraging consumer behavior.

Another salient point is that the U.S. retail food sector
generates 8 million tons of waste4 each year, representing avalue loss of roughly $18 billion. Consequently, not only are

Current industries that use
dynamic pricing

we needlessly diminishing the food supply, but foodretailers are experiencing unnecessary ﬁnancial forfeiture.

In the digital age, most consumers have already been
exposed to dynamic pricing: airline tickets, hotel rooms,
ride-sharing, eCommerce, etc. Certainly, dynamic food

What is Dynamic Pricing?

pricing, particularly for fresh produce, won’t precisely alignOne way to combat the food wastage at the retail level isto enact dynamic pricing models. Dynamic pricing is a key
strategy used across many industries (more on this below)
where the price of a speciﬁc product ﬂuctuates due to apredeﬁned set of market conditions, product features orother environmental inﬂuences. The pricing may shift on
an hourly, daily or weekly basis. Or, it may be triggered by aspeciﬁc consumer behavior. For example, dynamic pricing
has been used in e-commerce settings to encourage
shoppers to purchase products they’ve moved to their“baskets”, but haven’t yet followed through with thepurchase.
In general, price adjustment parameters and outcomeslargely depend on the particulars of the industry. Of course,
at a fundamental level, consumer demand is one of thelargest drivers of the ongoing price adjustments. Uber’s“surge pricing” is a prime instance of the supply vs. demandwith the dynamic pricing models of other industries. But,
grocery retailers can gain greater insight into consumer
behavior and dynamic pricing strategies by studying the
successes and failures of other industries.

Ride-Sharing: Uber and Lyft
All, if not most, ride-sharing providers utilize surge
pricing, which uses a multiplier produced by their algorithm.
As demand goes up and driver supply decreases, themultiplier is adjusted accordingly. In turn, this may
incentivize more drivers to sign on and pick up passengers,
thus increasing their earnings capability. There are otherfactors that Uber, in particular, takes into account throughits algorithm such as the current battery life of a user’s
phone, traﬃc patterns, the passenger’s location, andtransaction history5.

Hospitality: Airbnb and hotel pricing

dynamic pricing model. But, other contributing factors add
an aggregate impact as to the who, what, how, when, where,
and why of dynamic pricing:

Airbnb oﬀers a Smart Pricing option to its “hosts” which
automatically changes the listing price relative to the supply
vs. demand within the host’s locale, seasonality, listing type,◦ Seasonal, time of day, day of the week;

and other data points that Airbnb doesn’t reveal. Hosts are◦ Competitor pricing;expected to set a minimum and maximum nightly amount;
this ensures that, even if the demand levels drops, the host◦ Customer location;

retains some proﬁtability at the bottom price level.

◦ Where the customers are with respect to the Buyer’s
Journey.

Furthermore, Smart Pricing can be turned oﬀ, and Airbnb
reserves the right to shut oﬀ the feature “during events like

The main objective, and beneﬁt, for all sectors deploying

natural disasters, emergencies, or political unrest.”

dynamic pricing is to maximize revenue while also striking a

It’s important to note a salient diﬀerence between thebalance between the product or service supply anddynamic pricing models, and how quickly they’ve

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materialized in one sector vs. another. Consumables (food,clothing, etc.) tend to be short term assets that, once sold,◦learning need for pricing accuracy;

become the responsibility of the consumer. Homes, hotels,
and airlines contain large ﬁxed asset costs for maintenance,
repair, and replacement -- which are less than the same
expenditures for an independent contractor using their own
vehicle as an Uber or Lyft driver.

Lack of standardized data which AI and machine◦

Absence of a fully digital environment where alldata is gathered electronically so AI can analyze thecomprehensive number of factors that feed into various
dynamic pricing models, e.g., projected spoilage timeframes (also known as dynamic shelf life7), consumer
demand vs. price elasticity, and delivery times for

eCommerce: Amazon
While the ride-sharing segment is a prime example ofproduct replenishment.

enterprises,

Unfortunately, the data and digital problems holdAmazon’s pricing model is more aligned with the retail

true for the entire food supply chain, over which retailfood industry. According to Business Insider, Amazon

grocers have limited or little control. This issue can be

adjusts product pricing up to 2.5 million times each day6.

mitigated, as much as possible, by retailers pushingThis translates to a price adjustment every 10 minutes,

implementation on a smaller incremental scale such as

resulting in a 25% increase in Amazon proﬁts.

choosing a speciﬁc selection of produce for dynamic

dynamic

pricing

forservice-oriented

But, unlike the food retail industry, Amazon is a fully

pricing deployment. Why start there?

digital environment that caters to over 200 million users

Consumer demand for food product traceability8 is

whose every click and transaction is recorded andﬂourishing. Between a growing concern for increasing

analyzed by Amazon algorithms. Nonetheless, Amazon isfood safety (1 in 10 global consumers fall ill after eating

an excellent prototype for how the food retail sector cancontaminated food9) and decreasing the negative

achieve optimal and real-time dynamic pricing (once itenvironmental impact of agriculture, consumers now

attains a similar digital ecosystem throughout the brickwant to know the exact food source and how it’s being

and mortar conﬁguration).

handled along the food supply chain10. This is a boon to

In a broader context within the food retail industry,
as supermarkets begin to capture more consumerpurchasing data, this data can be used to make accurate
real-time pricing decisions. The main takeaway here isthat consumers, in general, have been exposed to
dynamic pricing models in other sectors. This means thatthey’re familiar with the basic concept of shifts inpricing and are likely to be open to similar models in
the retail food sector.

food retailers as digital traceability is the main data
aggregation component. When consumers can easilypull up food data via their mobile phones, including
information
spoilageabout

timeline,

how

it’s

possible

produced,
allergens,processed,
macro

and

micronutrients, any existing food recalls, and real-timepricing, this will provide a positive feedback loop forbroader digital adoption throughout the food supply
chain.
Consumer spending is the sine qua non of global
inﬂuence. As more consumers move to purchase food

Dynamic Pricing in the Food RetailIndustry

products that provide the aforementioned traceability,
those suppliers and retailers who are slow to adopt this

There is no “one-size-ﬁts-all” approach to dynamic

technology will suﬀer (or continue to experience)

pricing. We’re in an age where algorithms (particularly

deleterious ﬁnancial consequences, i.e., signiﬁcant loss

machine learning and AI-powered mechanisms) areof revenue in terms of food wastage and reduced

becoming more agile and accurate. Indeed, their capacity

consumer spending11.

to “learn” about the nuances of human dynamics, e.g.,
behavioral and psychographic, is rapidly improving.
However, applying this technology to the food retailindustry has deﬁnitive challenges which can be classiﬁed
into two primary systemic problems:

Current use cases for retailgrocer dynamic pricing
Due to the investment requirements for a fully digital
traceability and dynamic pricing system, there are

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currently only a few examples of retail grocers who aresector. However, any successes levied from their highbeginning to venture into dynamic pricing.

tech storefronts will send a clear signal to other foodretailers: adapt or be squeezed out of the market.

WastelessA direct example of dynamic pricing within the foodretail industry comes from Wasteless who, in 2019,
partnered with a food retailer in Italy. The goal was toreduce food waste by 25% and, in turn, increase
revenue by 25%. After 12 weeks, Wasteless was able toproduce a 39% reduction in waste and helped thefood retailer achieve a 110% revenue increase.

Primary beneﬁts of dynamic
pricing for food retailers
Numerous beneﬁts exist for food retail dynamic
pricing protocols. First and foremost is substantiallyreducing food wastage. As the food nears its projectedspoilage date, incentivized pricing adjustments willautomatically occur based on the pricing models that

Walmartcombine several other relevant input values: item type,

Undeniably, Walmart has access to far morecompetition pricing, brand strength, current inventory,

resources than most other grocers (although Amazon’s

impendingmove into the food retail sector may eventually outpace

consumer shopping patterns (at the group andinventory,

seasonality,

time

of

day,

Walmart12) and it has recently leveraged thoseindividual levels), consumer responsiveness to priceresources to establish the Intelligent Retail Lab (IRL).

thresholds and individualized oﬀers, etc.

Located in Levittown, New York, this novel brick and

The same data can be used to send personalizedmortar -- powered by AI -- can automatically identify all

in-store or pre-purchase oﬀers to consumers to capture

products (no matter where they are located in therevenue at a particular price point, e.g., before the priceinis dropped below a certain loss threshold. This will buoy

relation to predicted “sales demand.” As of now, the AI

revenue generation when sales are slow andstore is in test mode as Walmart intelligentsia analyzes

potentially create higher demand, especially if thisthe costs vs. beneﬁts of launching additional high-techapproach is combined with data such as the minimum

stores.

and maximum each customer is willing to pay (yetAmazon Go

another beneﬁt of using AI for dynamic pricing).

store) and then compare product quantities

13

Once again Amazon and Walmart are locked in abattle of capturing the food retail market via
value-added technology. Although the exact details of
the technology used in Amazon’s Go stores haven’t
been disclosed, their “Just Walk Out Technology”
combines computer vision, sensor fusion, and deeplearning which senses and records when items are
removed from shelves. Consumers can simply walk in,pick up their items of choice, and leave, after which
they’ll send a receipt and receive payment via theconsumer’s Amazon account. There’s no news as toIf food retailers use technology similar to the tools
deployed by Walmart and Amazon Go, where inventory
adjustments are automatically accounted for via
cameras and sensors, labor costs will also diminish.
There will be no need for manual inventory auditing or
reconciliation and department managers will receive
real-time updates and reports as to inventory levels
along with product re-supply recommendations.

Dynamic pricing implementation
for grocers

whether Amazon Go items are dynamically priced.

The aforementioned are only a few examples ofHowever, Amazon does link the in-store item prices14 to

many other beneﬁts that can be directly attributed tothose listed on Amazon; so, in light of the fact thatfood retail dynamic pricing. But, before any of the

Amazon’s digital marketplace provides dynamic pricing,

advantages can be realized, grocers need to implement

this points towards in-store dynamic pricing as highly

a higher level of digitization and develop pricing models

likely.

that are most applicable to each product.

Walmart and Amazon are the most current andnoticeable models of dynamic pricing for the food retail

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Keep in mind that these are 2nd tier data points

Digitization
AI technology relies on copious amounts of data
gathered via digital means (on the front end).
Moreover, the data needs to be safely stored (on thewhich are not necessary for deploying a robust
dynamic pricing program. They can be added, if wantedor needed, at a later date.

backend), analyzed for accuracy, and then pushed to

One thing to keep in mind is the sensitivity

the pricing algorithms. All current point of sale (POS)

customers have to price shifts between the time theyand inventory systems have all of the necessary data

insert the product in their shopping cart and when theyneeded to quickly implement a dynamic pricing

arrive at the checkout. A majority of customers will

program.

become agitated if the price of their Fuji apples

With regard to data storage and computation (ITinfrastructure),

cloud

serviceproviders,

Amazon,Microsoft, and Google, have a far larger capacity for theamount of data that will be ﬂowing through the in-store
tech devices. As such, using one of their platforms, as
opposed to on-premise systems, will help to further
reduce costs.
Ultimately, however, without a digital ecosystem,
dynamic pricing eﬀorts may not fully produce theexpected ﬁnancial beneﬁts. While this sounds like amonumental task, it doesn’t need to be carried out all
at once. As stated above, start small. Whether testing
dynamic pricing for fuji apples or selecting one of thesmallest retail stores (with high traﬃc) as a high-tech
test case, grocers need to sandbox the digital
infrastructure required.
Once the system is fully evaluated and any
problems are resolved then slowly expand to otherproducts or stores.

adjusting prices upward (it would be surprising if
customers would argue against paying less for an itemat the point of sale).

Conclusion
Summarily, retail grocers have an important role toplay in helping to diminish food wastage. It’s clear thattons of perfectly viable food is shuttled to the garbage
heap while there are many throughout the world who
go without sustenance on a daily basis. With the
projected population growth, the number of people
going hungry has a high likelihood of expanding. Foodwastage also negatively impacts the environment
through increasingly unsustainable farming practices.
Although most food retailers have no direct
jurisdiction as to how the food is produced, they dohave inﬂuence at the customer level. Customers drivethat can incentivize customers to purchase more or lessEstablishing pricing models runs hand in hand withdigitization planning. But, this is an easier process sincemost grocers already have datasets that include atleast basic customer information, price adjustments
over time, current inventory levels, future shipment
data, product seasonality, and (possibly) which brands
are more or less popular.
eﬀortfulneed to ensure that a stopping point is in place for

product demand. Dynamic pricing is one such inﬂuence

Pricing models

The

suddenly increases at the point of sale. Grocers will

phase

beginswith

identifying,of an item. Dynamic pricing is tied to a broader digital
environment that will allow improved monitoring andcontrolling of the store’s food wastage amounts.
Certainly, there is more work to be done throughout
theentirefood

supplychain.

But,

successfully

implementing the technological innovations discussed
herein at the local level will eventually impel supply
chain partners to follow suit.–aggregating, and testing the applicability of other data
points. Examples include competitor pricing, individual
customer preferences, mapping customer purchases
on a per-item basis to their Buyer’s Journey route,correct shelf life estimations, minimum and maximum
pricing incentivization, and any other potentially useful
input values.

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UN Department of Economic and Social Aﬀairs (2017). World Population Projected To Reach 9.8 Billion in 2050,

and 11.2 Billion in 2100.
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http://www.fao.org/save-food/resources/keyﬁndings
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U.S. Department of Agriculture (2019). Food Waste FAQs. https://www.usda.gov/foodwaste/faqs

4

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https://www.forbes.com/sites/nicolemartin1/2019/03/30/uber-charges-more-if-they-think-youre-willing-to-pay-more/#6e0896bc7365
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M.E. Buisman, et. al. (2016). Discounting and Dynamic Shelf Life To Reduce Fresh Food Waste At Retailers. Science

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10

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https://www.forbes.com/sites/blakemorgan/2019/08/21/amazon-versus-walmart-goliath-versus-goliath/#3e423e5
a4674
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he-future-of-retail-irl
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