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How Blockchain Can Boost Freshness for Grocery Retailers
Market analysts predict that 20% of global grocery retailers will use blockchain by 2025. Image: Shutterstock
As consumer demand for fresh food increases, retailers are faced with uncertainty: How much of the perishable produce will reach stores after its ripening period, remain unsold, and ultimately go to waste?
Take strawberries: they have a short shelf life and require stringent storage conditions. They are also wasted in large quantities if they fail to meet consumer freshness standards.
But for grocery stores that sell perishable goods like strawberries, a solution may come from blockchain, according to research by Duke University Fuqua School of Business professors Jing-Sheng “Jeannette” Song and Bora Keskin and Fuqua doctoral student Chenghuai Li.
In a forthcoming paper in the journal Management Science, researchers found that blockchain technology, used throughout the supply chain, could provide retailers with real-time data on product conditions, allowing them to optimize orders and only accept goods that meet consumer expectations.
“Blockchain is usually associated with money transfers,” Song said. “But it can also be used to provide retailers with in-depth information that determines the freshness of products arriving at stores. Then retailers decide how much to order.”
An electronic accounting system combined with the “Internet of Things”
Blockchain is an electronic ledger system that securely collects and stores information. While it has often been used for cryptocurrencies, its utility extends far beyond financial transactions, Song said. When combined with an “Internet of Things” sensor network, it can record and maintain data on harvest dates and storage conditions at every stage of the supply chain, Song said. Such transparency would allow retailers to optimize their inventory, ensuring only the freshest products reach the shelves, he said.
Food companies are already adopting similar systems, and market analysts predict that 20% of global food retailers will be using blockchain by 2025.
“But suppliers need to be persuaded to participate in the system,” Song said, and the paper provides a framework based on “smart contracts” that makes the technology “a win-win proposition for retailers and suppliers.”
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Smart contracts that could benefit both parties
The essence of this system lies in smart contracts, Song said. An application of blockchain, smart contracts are automatically executed when certain conditions are met. In the case of perishable food supply chains, contracts would automate the transaction between the retailer and the supplier when certain freshness thresholds are registered by the system.
However, greater transparency about freshness could lead retailers to order less and hurt suppliers’ profits, Song said.
But researchers have devised a smart contract that would benefit the entire supply chain, while compensating suppliers for lost profits.
“If the freshness is below a certain threshold, retailers won’t order as much. Then I compensate you,” Song said.
Such contracts would integrate retailers and suppliers, create trust in a system based on information transparency and increase the value of the entire supply chain.
“The pie gets bigger and you can share the benefits,” he said.
Real-world system testing
The researchers tested their framework with data from Walmart’s strawberry business in the United States. They found that blockchain-enabled freshness information increased the company’s annual profits by $60 million.
If numbers like that can justify the upfront investment in technology by big retailers, smaller grocers could be enticed to join the system through subscription platforms similar to Amazon’s fulfillment services, Song said.
“Tech companies that have this technology can build a platform, help small shops set it up, and help them work with suppliers on the blockchain,” he said. “The platform is a middleman that helps you with supplier development.”
The technology would also serve as a certification system that would benefit small producers, who could show unfalsifiable data on their farming practices and strengthen their brand, Song said.
The impact on waste
The researchers also show that their model would reduce waste by reducing retailers’ remaining inventory. In the Walmart example, the researchers estimated that 23 million pounds of strawberries per year could be saved from waste.
Song said real-time freshness information would also allow suppliers and wholesalers to dispose of products that are about to spoil sooner.
“Imagine imported bananas,” he said. “Let’s say a wholesaler gets them in Florida and has to take them to North Carolina. They see that they’re already ripe, so they can distribute them to another retailer in Georgia.”
“We always want this kind of dynamic information,” Song said. “It’s a win-win situation. Blockchain provides that.”
This story may not be republished without permission from Duke University’s Fuqua School of Business. For more information, contact media-relations@fuqua.duke.edu.
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[This article has been reproduced with permission from Duke University’s Fuqua School of Business. This piece originally appeared on Duke Fuqua Insights]