This is yet another post about the intersection of operations research and my frugality.
I occasionally stop by Jimmy John’s to pick up some day-old bread for $0.50 per loaf. I purchase a loaf for each one of my kids and then let them do whatever they want with it for dinner. They love it. Whenever I am in a Jimmy John’s, there is a huge stack of day-old bread. When I try to pick up some day-old bread at the grocery store, there are limited loaves and they disappear quickly. I often have to pay full price.
Is there an optimal strategy for how much bread to sell/bake each day?
The answer must be yes. The costs and revenues seem to be different for the grocery store and Jimmy John’s. At the grocery store, selling too much bread one day will eventually lead to a glut of day-old bread sold at a discount, since it’s unlikely that all of the bread will be sold for full price. Bread is usually discounted to 1/3 – 1/6 of the original price. Those who buy the bread at a discount may have purchased bread at full price if no discounted bread was available, thus leading to lost revenue. Over time, the regular availability of discount bread may make frugal shoppers like me unwilling to pay full price. I suppose a variation of the newsvender problem can be used here.
I don’t think the grocery store is analogous to Jimmy John’s (JJ). There is no “full price” bread available at JJ, since the fresh bread is used in sandwiches. The day-old bread also doesn’t seem to discourage people from buying sandwiches. This is interesting, since the bread is about 1/10 of the price if a sandwich – why not make my own sandwich with JJ bread and pocket the savings? I’m not sure that most sandwich consumers think the way I do. If the extra bread costs < $0.50 per loaf (cost = production + storage costs + labor cost to sell it), then JJ makes a profit for everyone who comes in to buy a sandwich and leaves with an extra loaf. Perhaps this is the dynamic that JJ aims for. Interestingly, the day-old bread I purchased yesterday clearly had just been taken out of the freezer, so Jimmy John’s preserves the day-old bread for future sales, rather than selling leftover bread that has been sitting out at a discount and possibly donating whatever is left.
Do you enjoy day-old bread? Do you see it priced in a way that would lead to lost revenue from the seller’s point of view?