Don't waste that free lettuce! Impact of BOGOF promotions on retail profit and food waste

Abstract

Buy‐one‐get‐one‐free (BOGOF), a ubiquitous sales promotion scheme by which consumers get two items for the price of one, encourages consumers to buy and waste food. An alternative promotional scheme is one where consumers receive a coupon for a second item available for free at a later time. Our work is motivated by British supermarkets which, facing criticism from lawmakers for running BOGOF promotions on perishables, started a “BOGOF Later” campaign with the claim that it would reduce the amount of waste. Food waste is indeed a very pressing issue, which has not yet been explored in connection to sales promotions. We compare the impact of these promotion schemes on a retailer's profit as well as on the amount of product wasted at the retail and household levels. We consider two possible applications: unexpected high inventory of a fresh product with a short shelflife and excess leftover inventory for an item at the end of its season or product life. We propose a two‐period newsvendor model which captures the sales‐boosting effect of promotions, the postpromotion sales drop due to satiation, the coupon‐redemption behavior, and the increased consumer wastage rate from BOGOF promotions. We obtain analytical comparisons of order quantity, profit, and waste across the different promotion schemes and use numerical experiments to generate further insights. We find that, in general, BOGOF promotions are profitable ways to liquidate inventory. In many instances, the increase in waste at the consumers' homes is offset by the decrease in waste at the retail store. As a result, BOGOF promotions often constitute “win‐win propositions” by simultaneously increasing the retailer's profit and decreasing total waste. Overall, our results paint a more favorable picture of the BOGOF promotion scheme than commonly perceived and suggest that its environmental criticism emanates from a too narrow and too consumer‐centric view of the waste problem.