When should the fresh-food retailer embrace near-expired food commercialization?

Abstract

Despite the potential of near-expired food commercialization (NFC) to recover value from unsold food, skepticism persists due to concern about its impact on fresh food margins. This study introduces a game-theoretic model to explore the optimal strategy and price-setting timing for the fresh-food retailer considering NFC. We find that the optimal strategy transitions from no NFC to partial and then to full NFC as the order quantity increases. Specifically, under full NFC, the fresh-food retailer with strong bargaining power and high perceived quality benefits from adopting clearance-priority pricing, which prioritizes the pricing of the near-expired food. Conversely, the retailer with limited power and lower perceived quality prefers fresh-priority pricing, which sets the retail price of fresh food first. Under partial NFC, while clearance-priority pricing generally yields profits, the high disposal cost may compel even powerful fresh-food retailers to switch to fresh-priority pricing to mitigate the risks associated with negotiation failures. We further analyze extended models to confirm the robustness of our findings. Our research contributes to the literature and guides practice by addressing common misconceptions about NFC.