Recently, Tesco announced (as per article below) a project to donate excess food from its stores that otherwise is disposed of. This means that certain non (or less) perishable food that were designated for disposal from its stores will be distributed in some fashion (an important point that we will discuss down this article) to the homeless, needy, and whoever else that might meet the criteria of the project. I noticed that there were many questions regarding this news on the Reddit thread (linked down below), so I decided to explain in layman words to some of the most common questions I saw.
This only sounds like a good thing, right? Why do stores have so much left over food? Why do they throw them away instead of donating them to people that need them? We will explore these two questions using the following concepts: over production, economies of scale, corporate liability, and logistics.
Let's tackle the first question, why do stores have so much left over food? If they have so much more than they sell, shouldn't they be having less? (in the case of Tesco, the second largest grocery retailer in the world, they reported 55k tonnes of food thrown away in 2015)
This is in part due to the mechanics of businesses projecting potential sales and maintaining a supply relative to said projection. As such a projection operates on an average, there are always the possibility of over production and under production depending on various circumstances (for example, consider the fact that the consumption of coffee is predominantly a morning activity on workdays, and weekends will likely have different levels of demand for coffee than weekdays).
However, as businesses operate under the principle of economies of scale, as in as quantity of goods produced rises, cost per unit goes down (generally speaking), it is in the businesses' interest to slightly over stock as opposed to under stock (especially when considering the business model of low profit yields but moving high volume, maintaining the image of dependability and availability would far outweigh the cost of over stocking). In addition to this, the logistics of maintaining a predictable/stable number of goods transported also has a positive effect on the overall cost efficiency of the business (as we will later discuss in part 2).
NOTE: When I discuss over/under production, I am not talking about the economic theory of over/underproduction where excess of goods results in rippling negative consequences to sales, and prices. Rather, I am simply describing in literal terms a situation where there are too many goods in stock for any particular given day, resulting in them being wasted.
Getting back to our point on grocery stores, they are no exception to such processes of maximizing operational cost efficiency. Let's take the example of pastries, as they are an easy food item to discuss. If a grocery store were to expect on average a total sale of 200 units of pastry goods per day, it is in their best interest to stock slightly over the expected amount. Let's assume that on a particular they, the grocery store stocked a total of 250 units of pastry goods, but had a total sale of only 180 units on that day. As a result, they have 70 units left over.
There we have it, we explored the reason (one of the primary reason, though I wouldn't go so far as saying the ONLY reason) why grocery stores have excess in supply, resulting in goods being disposed of. In part 2, we will look at the second question and explore why they simply throw these goods away instead of giving them away to people that need them.
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