Why do grocery stores donate unsold food?

Donating to food pantries does wonders for the public image of grocery chains.

As it turns out, donating food is also great for store performance—but it can lead to higher food costs for customers.

professor of Northeastern Business John Lowery It recently published a paper stating that donating perishables improves store profitability by making room for more attractive products—and at higher prices—and attracting discerning rather than price-conscious shoppers.

“If I replace low-quality products and only have fresh, high-quality, high-priced products, the markup will be higher on average,” he says.

Donating food is big business, and Feeding America's more than 200 member Food Banks across the U.S. depend on retailers for their donations, Lowrey says.

“Just over 30% of the total food supply for food banks comes from retailers, with the lion's share from supermarkets like Costco, Walmart and Sam's Club,” he says.

“Smaller format stores with a commitment to reducing food waste, like Kroger, are also responsible for a large share of the food that ends up on the shelves of food banks and food pantries.”

Lowrey started this project six years ago when he saw an opportunity for food retailers to be a force for good in the community. Still, he says, “The question remained, 'Why do retailers donate food?'

Historically, the perception has been that grocers donate to community goodwill, reduce food waste costs and reap the benefits of tax credits, he says.

Retail food companies also operate on thin margins, meaning their profits are a small fraction of revenue, so cost-saving strategies are popular, says Lowrey, a supply chain expert and assistant professor at D'Amore-McKim School of Business and Bouvé College of Health Sciences.

But he suspected there was more, as more than 17,000 unique stores in the U.S. donate $3 billion worth of food equivalent annually.

“There had to be some other explanation for the continued, high-volume donations to food banks,” says Lowrey.

In their recent published workLowrey and his two co-authors found that perishable food donations, in categories such as bakery, dairy, deli, meat and produce, are pulled from the shelf just after their prime, which creates room on grocery shelves for more attractive products that can be sold at higher prices.

“In a simulation exercise, we estimate that if a donation shop increased its donation volume by 50%, it could have a 9% impact on profits,” says Lowrey.

The issue is how best to handle perishables that have lost their freshness, such as a banana that has developed brown spots, he says.

One option for the store is to make it available at a lower price. There are many downsides to this situation, says Lowrey.

The store has to keep room for it in a bin or shelf, while reducing the profit margin of a potential sale. And if the banana doesn't sell, the store has to pay to trash it.

Feeding America solves the problem by collecting would-be salable items in refrigerated trucks for food banks like the Greater Boston Food Bank, Lowrey says.

“In-store pricing is actually a very difficult problem. One solution is to simply remove low-quality products,” he says. “I just want to take it off the shelf completely and donate it at zero direct financial cost to me as a retailer.”