On the Management of Premade Foods

This paper examines a grocery retailer’s management of a premade food product. The retailer’s goal is to maximize a weighted sum of direct profit and customer welfare. Multiple items of the product are produced in batches and displayed for sale. Considering that each item’s quality decreases while it sits on the shelf, the retailer chooses how long to display items before disposal (i.e., the shelf life), whether to issue items in FIFO or LIFO order, and whether to indicate the time when each item is prepared (i.e., timestamp). With timestamps, customers decide whether to purchase based on each item’s age and associated quality; without timestamps, they decide based on the average quality of purchased items. Our first main finding is that LIFO universally outperforms FIFO when shelf life and issuance are jointly optimized. If the shelf life is fixed exogenously, either LIFO or FIFO can dominate, and we characterize the conditions for each case. Our second main finding is that the retailer should timestamp items only if customers have heterogeneous preferences, and a positive decision hinges on the disposal cost being sufficiently low or the retailer caring substantially about customer welfare. Lastly, we show how a mandate to donate unsold food items (as implemented in France and California) can incentivize a retailer to increase the shelf life or cease disclosing the time at which a food item was made, which harms shoppers and reduces the quantity and quality of donated items.