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Could assortment rationalisation help reduce dood waste in grocery stores?

Saez-Gonzalez, Elvira,Gázquez-Abad, Juan Carlos

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Saez-Gonzalez, Elvira; Gázquez-Abad, Juan Carlos Article Could assortment rationalisation help reduce dood waste in grocery stores? Amfiteatru Economic Provided in Cooperation with: The Bucharest University of Economic Studies Suggested Citation: Saez-Gonzalez, Elvira; Gázquez-Abad, Juan Carlos (2024) : Could assortment rationalisation help reduce dood waste in grocery stores?, Amfiteatru Economic, ISSN 2247-9104, The Bucharest University of Economic Studies, Bucharest, Vol. 26, Iss. Special Issue No. 18, pp. 1292-1310, https://doi.org/10.24818/EA/2024/S18/1292 This Version is available at: https://hdl.handle.net/10419/319805 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ AE Could Assortment Rationalisation Help Reduce Food Waste in Grocery Stores? 1292 Amfiteatru Economic COULD ASSORTMENT RATIONALISATION HELP REDUCE FOOD WASTE IN GROCERY STORES? Elvira Sáez-González1 and Juan Carlos Gázquez-Abad2 * 1)2) University of Almería, Almería, Spain Please cite this article as: Sáez-González, E. and Gázquez-Abad, J.C., 2024. Could Assortment Rationalisation Help Reduce Food Waste in Grocery Stores?. Amfiteatru Economic, 26(Special Issue No. 18), pp. 1292-1310. DOI: https://doi.org/10.24818/EA/2024/S18/1292 Article History Received: 12 August 2024 Revised: 17 September 2024 Accepted: 10 October 2024 Abstract Nowadays, sustainable development and waste management are the topics on which academia is focusing. The size of the retail assortment plays a crucial role in influencing the levels of food waste in grocery stores. Additionally, the analysis of retail food waste highlights that the planning of assortment sizes is essential for reducing waste, particularly in products with expiration or best-before dates, such as fresh fruit and vegetables, where a few products contribute significantly to overall waste. This work aims to explore assortment rationalisation as a way to prevent food waste from perishable products in retail grocery stores and, therefore, improve the sustainability generated by food retail chains in developed countries. Although many articles analyse the relationship between retail store operations and food waste prevention, to our knowledge, there is little research that explicitly focuses on assortment. From the review of the specialised literature, few studies have been detected on the effects of the grocery store assortment on food waste. This paper attempts to fill part of this research gap, by focusing on establishing a link between assortment rationalisation and food waste in grocery retail stores through a review of the scientific literature on proactive food waste prevention strategies, presenting an opportunity for future research in this emerging research area, and providing practical advice to retail chains concerned about sustainability. In conclusion, this study serves as an initial approach to this topic and is a useful starting point for future research in this area. Our primary contribution lies in highlighting a certain scarcity of studies on the retailer's assortment as a proactive food waste prevention strategy. Keywords: assortment rationalisation, assortment reduction, assortment size, retail food waste, retail food waste prevention strategies, grocery stores, sustainability JEL Classification: M14, M21, M31 * Corresponding author, Juan Carlos Gázquez-Abad – e-mail: [email protected] This is an Open Access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. © 2024 The Author(s). New Trends in Sustainable Business and Consumption AE Vol. 26 • Special Issue No 18 • November 2024 1293 Introduction Food waste involves not only the economic costs of unconsumed food, but also the social costs of food that could have fed more than two billion people, potentially mitigating global hunger (FAO, 2021). Additionally, it encompasses the environmental costs from wasted natural resources used in food production – 30% of cultivated land and 20% of freshwater – along with the energy and environmental damage resulting in 8% of greenhouse gas emissions (UNEP, 2024). Given its significant adverse economic, environmental, and social impacts, food waste represents a pressing sustainability challenge that requires immediate attention (Marchetti et al., 2024). In 2015, the United Nations General Assembly established 2030 Agenda for Sustainable Development, which contains 17 Sustainable Development Goals (SDGs) and 169 specific targets aimed at combating poverty, addressing climate change, and fostering global prosperity by 2030. Among these, SDG 12 (Responsible Consumption and Production) specifically targets reducing food waste (12.3), aiming to “halve per capita global food waste at retail and consumer levels and reduce food losses along the production and supply chains, including post-harvest losses”. Achieving this target positively impacts five other SDGs: SDG 2 (Zero Hunger), SDG 11 (Sustainable Cities and Communities), SDG 13 (Climate Action), SDG 15 (Life on Land), and SDG 17 (Partnerships for the Goals). In 2022, approximately 1.05 billion tons of food waste were generated predominantly by households, accounting for 60% of the total, followed by 28% from food services, and 12% from the retail sector (UNEP, 2024). FUSIONS, a major EU-funded research project, reported that around 88 million tons of food (173 kilograms per person) are wasted annually in the EU, constituting 20% of the total food produced (Stenmarck et al., 2016). In developed countries, households contribute the most to food waste, accounting for 53% in Europe (Eurostat, 2023). Although the retail sector is not the largest contributor, the opportunity to reduce food waste is significant, as 13% of global food waste occurs at this stage (Forbes et al., 2021). As concerns over sustainability and resource efficiency grow, the retail sector is increasingly called upon to implement innovative practices that reduce food waste. European large retailers, located in the middle of the food supply chain and characterised by high market concentration, have considerable market power to affect change and reduce food waste throughout the supply chain (Zhang et al., 2022). Retail food waste results from issues such as deteriorated packaging, expiration date guidelines, surplus buying, and rigorous quality and visual standards (Calvo-Porral et al., 2017). So, they can promote sustainable practices such as redesigning packaging to extend shelf life (Calvo-Porral et al., 2017), reducing carbon footprints (Marrucci et al., 2020), implementing reverse logistics (Guarnieri et al., 2021), launching health-conscious and environmentally sustainable products (Aschemann-Witzel, 2021), eliminating promotions that lead to household over-purchasing (Heydari et al., 2020), and raising awareness throughout the supply chain (Calvo-Porral et al., 2017). The EU has significantly incentivised retailers through funding and programmes like FUSIONS, focusing on sustainable practices to address food loss and waste (FLW). Solutions include welfare policies, technological innovation, logistics, and awareness-raising, with a clear focus on food preservation and waste prevention (Al-Obadi et al., 2022). AE Could Assortment Rationalisation Help Reduce Food Waste in Grocery Stores? 1294 Amfiteatru Economic Food waste is a growing concern affecting retailers’ reputations and impacting brands (Cochran et al., 2018). Among the private initiatives to combat retail food waste are: committing to innovation, establishing prevention and efficiency practices to maximise resource utilisation throughout the food chain, maximising the use of surplus produced at various stages of the value chain (redistribution, reuse, and recycling), including the establishment of permanent agreements and collaboration protocols with food banks and other social entities, and raising social awareness and educational campaigns about the need to reduce food waste. Consequently, sustainable development and waste management have become focal topics in academic research. Several studies indicate that factors such as the range of product assortment, pricing strategies, package dimensions, and operational inefficiencies are pivotal contributors to food waste within retail environments (Cuffey et al., 2023). The main contributors include inaccurate sales forecasting, inappropriate quality control, incentives that contributes to household over-purchasing, poor handling of fresh and perishable products, and overstocking (Teller et al., 2018; Buisman et al., 2019; Marchetti et al., 2024). The abundance of assortment, while catering to consumer desires for choice and freshness, can lead to high food waste levels (Broekmeulen and van Donselaar, 2014). Retail assortment size significantly impacts sustainability, influencing environmental impact through the reduction of resources in transportation and packaging, economic efficiency through the reduction of operational and storage costs, and social well-being through the promotion of a responsible and sustainable assortment. Therefore, effective overstock management and assortment rationalisation, such as tailoring their assortment to meet the preferences and needs of their local customers to the extent of developing private labels (PLs), removing low-demand products, and delisting items, can significantly reduce food waste, promoting a circular economy, and enhancing sustainability and operational efficiency in food retail chains. This paper explores assortment rationalisation as a strategy to reduce food waste in grocery stores, enhancing the sustainability of food retail chains. The remainder of the paper is structured as follows. The next section provides the scientific literature review. The second section describes the research methodology applied. The third section discusses the results of articles focused on the size of the retail assortment as a food waste prevention strategy. Finally, in the conclusions, we synthesise the results, discuss their managerial implications, and provide suggestions for further research. 1. Review of the scientific literature Category assortment is a key driver of a store’s image and success (Campo et al., 2004; Dekimpe et al., 2011). According to Rooderkerk et al. (2013), assortment represents a critical component of a retailer's marketing strategy “that differentiates a retailer from its competitors and has a very strong influence on retail sales. Retailers face the challenge of determining the assortment that maximises category profitability”. In general, an assortment typically comprises the quantity and diversity of products within a given category (Gajanan et al., 2007). The variety of products in a retailer’s inventory is generally quantified by the number of stock-keeping units (SKUs) (Alfaro and Corbett, 2003). Retailers often organise these SKUs into broader groups known as categories, and New Trends in Sustainable Business and Consumption AE Vol. 26 • Special Issue No 18 • November 2024 1295 further subdivide these into subcategories (Rooderkerk et al., 2013), grouping SKUs with similar attributes. Assortment breadth is defined as the number of lines that make up a product portfolio, while assortment depth refers to the number of distinct products included within a line. Retailers universally confront the critical strategic decision of balancing assortment breadth against depth. The wide range of category products (i.e., assortment breadth/width) in different formats within each category leading to too many references (assortment size/depth), and the consequent cannibalisation of demand among them, implies that the end consumers have more choice alternatives but, on the contrary, a lower product turnover that generates overstock. A balance between three factors is necessary for assortment design given fixed store space and budgetary resources (Anupindi et al., 2015; Kök et al., 2015): (1) the number of distinct categories offered by the retailer, which relates to assortment breadth and the challenge of allocating space across categories; and (2) the quantity of SKUs within each category, pertaining to assortment depth and the intra-category space allocation issue, and (3) how much to stock of each SKU (inventory). 1.1. The retail problem Alves et al. (2021) provide a comprehensive explanation of the retail problem: “To optimise store profits, retailers must satisfy their customers. If consumers leave because they cannot find their preferred brand or product, this represents lost revenue”. Retailers often aim to maximise the inventory on their shelves to align with consumer preferences, often leading to an excess supply and overstock of food products. Therefore, they used to over-order food items, as partially filled shelves are typically perceived as indicative of ineffective management and fail to satisfy consumers that generally prefer shelves that are fully stocked, which drives retailers to maintain a higher inventory level (Zhang et al., 2022). According to Frisk (2023): “For most retailers, there is an ongoing tension between operations and sales. Sales wants to add more SKUs to offer a greater variety of products, compete more effectively, and capture market share. Operations wants to sell existing stock, keep SKUs lean to reduce storage costs, and avoid obsolescence”. In contrast with this practice, the Food Recovery Hierarchy, which was developed by the United States Environmental Protection Agency (EPA) in 2017 and recommended by various international organisations for the reduction and utilisation of food surpluses, prioritises actions that organisations can take to prevent the generation of food waste, minimising the risk of unsold products that could become food waste (Ciligot, 2023). Thus, the academic literature has taken on the challenge of researching retail assortment management (Rooderkerk et al., 2013). The mainstream has focused on the influence of assortment reduction on consumer purchasing behaviour and product category sales (i.e., Drèze et al., 1994; Broniarczyk et al., 1998; Boatwright and Nunes, 2001; Borle et al., 2005; Sloot et al. 2006). Currently, a new line of research is emerging focusing on selecting the ‘right’ assortment to minimise or prevent retail food waste. 1.2. Traditional academic stream ‘more choice is better’ A broad product assortment offers several significant advantages to consumers (Broniarczyk et al., 1998; Kahn, 1998; Hoch et al., 1999). Firstly, Anupindi et al. (2015) highlight that the heterogeneity in needs and preferences among consumers forces retailers “to recognise that AE Could Assortment Rationalisation Help Reduce Food Waste in Grocery Stores? 1296 Amfiteatru Economic wider assortments help their business by catering to the needs of multiple consumer segments, as well as by offering variety to variety-seeking consumers” (Kahn, 1998; Hoch et al., 1999; Iyengar and Lepper, 2000; Chernev, 2003). Secondly, individual consumers often pursue variety within and across consumption occasions due to factors such as satiation, curiosity, or changing needs (Kahn, 1998). Following Gourville and Soman (2005), a retailer that broadens its product range is likely to enhance its market share in comparison to those that do not. Grocery retailers often prioritise availability, high accessibility on the shelf, and large variety to increase customer satisfaction due to consumer demand for quality and variety, over other considerations driven by intense competition within the sector and the critical need to generate sales (Smith, 2015; Riesenegger and Hübner, 2022). On the contrary, when customers show a high rate of substitution between references within the product category, the notion ‘more choice is better’ loses importance (Kök et al., 2015). Therefore, retailers expand their assortments to align with customer expectations for a diverse range of products, ensuring that consumers have access to a wide range of choices (Kök et al., 2015; Canali et al., 2017). This creates a dilemma for retailers, who must balance the need to enhance store appeal by offering extensive assortments and maintaining high inventory levels, against the necessity of minimising the environmental, social, and financial repercussions associated with overstock (Teller et al., 2018). 1.3. Limits to the value of variety Gourville and Soman (2005) highlight that “research on consumer decision-making and rational choice has long viewed variety as good for consumers, manufacturers, and retailers”. However, Anupindi et al. (2015) maintain that there are inherent constraints on the benefits of variety, insomuch as introducing products with only minor differences provides minimal substantive variety to consumers and incurs additional operational costs. A significant drawback to these assumed benefits is the risk of confusion or frustration derived from excessive assortments (Huffman and Kahn, 1998; Lehmann, 1998). As Huffman and Kahn (1998) note, “large assortment strategies can backfire if the complexity causes information overload such that a customer feels overwhelmed and dissatisfied, or chooses not to make a choice at all”. According to Ko et al. (2017), when consumers are faced with excessive amounts of items, “having an optimal rather than simply a large assortment is critical for retailers”. Broniarczyk and Hoyer (2009) found that “large assortment increase choice difficulty, increase negative affect and regret, and decrease likelihood of product purchase”. These findings highlight the potential adverse effects of product assortment on consumer choice, a phenomenon commonly referred to as “overchoice”. Furthermore, research indicates that an increase in variety can result in choice deferral (Tversky and Shafir, 1992; Dhar, 1997; Iyengar and Lepper, 2000; Boatwright and Nunes, 2001; Chernev, 2003, 2011). In summary, when increasing the assortment for a brand or a category, the increased cognitive load a consumer faces may result in choice deferral and hence lower profits (Gourville and Soman, 2005). Moreover, retailers can reduce assortments without affecting the perceived variety, insomuch as breadth and depth manipulation affects consumer perception of the variety (Piris, 2013). New Trends in Sustainable Business and Consumption AE Vol. 26 • Special Issue No 18 • November 2024 1297 Research conducted in grocery contexts has shown that reducing the number of low-selling SKUs within product categories does not negatively impact the consumer perception of variety (Broniarczyk et al., 1998; Sloot et al., 2006). The concept of choice overload may have strengthened the confidence of traditional retailers, leading them to believe that they could enhance their success by ‘offering less’ (Chernev, 2011). Considering this advantage at the store level, Gourville and Soman (2005) conclude that “researchers have begun looking at ways to increase or to maintain consumers' perceptions of store variety while simultaneously reducing the actual assortment size”. According to Cochran et al. (2018), growth in assortment, meanwhile, adds significant costs, but does not add proportionally to revenues. Evidence of “choice overload” at the store level is provided empirically by Boatwright and Nunes (2001). In their study, the overall sales of an online grocer increased by an average of 11%, even though the assortment was reduced by 20% to 80% in 42 different product categories. Gourville and Soman (2005) point out that these results support the conclusions of Dhar (1997) and Iyengar and Lepper (2000) and indicate that the grocery store did not benefit from the initially extensive assortments. Rooderkerk et al. (2013) summarise that: “Larger assortments increase the costs for the retailer because of increased handling and administrative costs. In addition, consumers incur in higher search costs”. Furthermore, increasing assortment does not always mean increasing profits, and reducing assortment does not always mean less profits (Alves et al., 2021). In order to prevent these negative consequences, retailers should choose to limit the assortment size (Rooderkerk et al., 2013). 1.4. Wasteful assortments The upward trajectory of the total number of SKUs marketed in the United States persisted, with estimates suggesting a 30% increase between 2000 and 2009 (Hermsdorf et al., 2017). On the contrary, Gázquez-Abad et al. (2017) emphasise that “whereas in 2006 and 2007 retailers added more products than they delisted or removed from their shelves, for the first time in years retailers delisted more products in 2008 than they added. Retailers delisted 9.1% of their products that year, while adding only 8.2% of new products”. As Velarde, Sales Manager Analytics at NielsenIQ, suggests (Food Retail & Shoppers, 2021): “Over the years, a significant number of brands and products have emerged in the market, driven by competition among manufacturers to satisfy consumers’ appetite for new varieties, products, and experiences. However, for both manufacturers and retailers, more is not always better. In fact, it can be quite the opposite, as manufacturers end up investing in the production and shelf space for products that do not add value. This erodes their profit margins and increases the likelihood of stockouts”. Recent studies emphasise that some assortments have become excessive (e.g., Teller et al., 2018; Riesenegger and Hübner, 2022), Riesenegger et al. (2023) stated that in these cases: “reducing the variety significantly decreases food waste levels without a significant impact on sales”. Since the assortments have become excessive nowadays, the problem of selecting the right references is even more important (Rooderkerk et al., 2013). Thus, according to Riesenegger and Hübner (2022), large and unsatisfactory “assortments are problematic in terms of food waste (Teller et al., 2018), particularly for product groups with short shelf lives”. The assortment of ultra-fresh or highly perishable food products, such as bread and AE Could Assortment Rationalisation Help Reduce Food Waste in Grocery Stores? 1298 Amfiteatru Economic bread products, fresh fruits and vegetables, and meat products, plays an important role since these categories are the largest contributors to food waste in retail (Eriksson, 2012; Cicatiello et al., 2016; Kliaugaite and Kruopiene, 2018). Empirical findings in the marketing literature provide strong support for the idea that more (great variety) is not necessarily better because can actually decrease consumer sales (Schwartz, 2004; DeKimpe et al., 2011; Gázquez-Abad et al., 2017) and reducing assortments can prove to be beneficial for retailers (Food Marketing Institute, 1993; Anupindi et al., 2015). However, Broekmuelen and van Donselaar (2014) warn that “the improvement potential to reduce waste and increase product freshness is different per retail chain, per store, and per product category”. In Spain, for instance, categories such as beer, pastries, and liquid milk concentrate their sales on very few products and this results in a vast number of references occupying shelf space while selling less than desired (Food Retail & Shoppers, 2021). Some Spanish companies already have plans in place that, although not specifically designed to curb food waste, were implemented to enhance process and operational efficiency (MAPA, 2020). This approach not only curtails waste, but also boosts efficiency in operations and strengthens sustainability efforts. Thus, it seems imperative to streamline a product assortment that has continuously expanded in recent years. SKU rationalisation has emerged as a critical focus for leading global retailers (Gázquez-Abad et al., 2017). However, there has been a limited focus on rationalising assortments of perishable foods or products with short shelf lives as a strategy to prevent or mitigate food waste. 1.5. Assortment rationalisation as a retail food waste prevention strategy The growing competition within the food retail sector has compelled retailers to concentrate closely on ensuring that they offer the ‘right’ assortment to meet consumer demands (Gázquez-Abad et al., 2017). According to Fields (2006): “From the retailer’s point of view, SKU rationalisation should result in the highest satisfaction and maximum shopping basket across the breadth of its customers. A proactive SKU rationalisation exercise not only introduces the opportunity to eliminate competitive items, but also can enhance the overall vitality of the category”. Assortment rationalisation refers to the practice of reducing or simplifying the variety of products offered in a store by decreasing the number of SKUs. Its primary objectives are to streamline the product offering, improve operational efficiency, reduce costs, and focus resources on products that truly add value and have high demand, thereby minimising overall waste and specifically retail food waste. Retailers have to decide which references to keep, remove, or add to the store’s assortment. This strategy involves analysing the performance of each SKU to make decisions about reducing assortments and eliminating redundant, low-turnover, low-performance (lowprofit-margin), or non-essential references (for the store’s main value proposition), thus simplifying assortment management. For example, Tesco implemented an assortment rationalisation strategy in 2015-2016, reducing its product range by 30%. This allowed Tesco to concentrate its resources on the most popular and profitable products, improving inventory New Trends in Sustainable Business and Consumption AE Vol. 26 • Special Issue No 18 • November 2024 1299 management, reducing storage costs, and decreasing waste from products that did not sell quickly (Ruddick and Anderson, 2015). As the size of the assortment increases, the associated costs in the retail store also increase correspondingly (Hoch et al., 1999; Gázquez-Abad et al., 2017). According to Food Retail & Shoppers (2021), complementary studies by Bain & Company demonstrate that a reduction of 10% to 20% in SKUs can result in savings of up to 10% in production costs, 10% in supply chain costs, 10% in inventory, and an optimisation of up to 5% in raw materials and packaging costs. So, Malinowski et al. (2021) conclude: “While there are ample benefits associated with SKU rationalisation, such as lower production and transportation costs, as well as inventory simplifications, a reduced portfolio has clear implications on a business's incoming demand”. Reducing retail assortment size can significantly impact food waste reduction (Riesenegger and Hübner, 2022). In fact, numerous grocery retailers, traditionally focused on offering a wide variety of products, are actively working to reduce the size of their assortments while enhancing efficiency, thereby challenging the conventional axiom that ‘more choice is better’ with empirical evidence (Argouslidis et al., 2018). By limiting product offerings, retailers can better allocate resources like storage space, energy, packaging, and transportation, focusing on high-demand items and minimising overstock and potential food waste. This strategy enhances resource efficiency and reduces the environmental footprint of retail operations. A more streamlined assortment also allows retailers to prioritise product quality and sustainability, encouraging durability and circularity. By emphasising long-lasting, easily repairable products, this approach optimises shelf space, reduces overstock risk, and aligns with circular economy principles by extending product lifespans and conserving resources. Ruiz-Real et al. (2019) note that retail assortment rationalisation typically emphasises optimising product variety, category sales, and profitability through strategic assortment reductions. This process involves carefully selecting products to enhance profitability and minimise excess inventory (Coronado-Hernández et al., 2020; Corsten et al., 2018), while also considering the broader effects on product categories and subcategories (Malinowski et al., 2021). However, overly aggressive reductions can risk alienating customers who value variety, making it essential to balance assortment size with consumer expectations. Thus, retail assortment rationalisation is increasingly recognised as a key strategy for reducing food waste, especially concerning perishable products. 2. Research methodology The literature review carried out is a mix between systematic and structured search. 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