Any suggestions on breaking this cycle, anyone?
Human nature forbids it.
It doesn't matter what area of operations we're talking about, the worst employee creates the rules for everyone.
In a sewing factory with 20 employees we had one woman cause a dress code due to her lack of sense, discretion, and respect for others and another woman cause the attendance policy.
Give people the opportunity and someone will be misdating food on purpose in order to steal it for personal use and someone else will be selling it out the back door. What works at a small scale in a high-trust environment doesn't work on a large scale for the general public.
The area where more production than customer facing occurs. That area is mostly set up to be able to separate waste with little to no added labor.
Maybe separate production areas exist in very large stores that handle great volumes, but in our moderate-sized store it's intentionally set up so that things are made in front of the customers as an assurance that they can trust our practices since they can see what's going on.
There would always be an addition of labor to sort and separate different kinds of waste. Just peeling the stupid little plastic stickers of the oranges that I cut for garnish takes time that I could use for something else. Which is why I don't take them off anything that I peel (except, of course, at home where feeding the fruit peels to the chickens is a given).
Ask the meat dept what happens with the bone/fat/scrap/spoiled. Most likely* it gets picked up by a rendering plant for proteins to go to animal feed and fats to go to cosmetics. We can't go whaling anymore.
It all goes into the trash.
Grocery stores don't have real butchers cutting up large sections of carcasses anymore. The meat comes in vacuum-sealed in heavy plastic pre-trimmed from the factory. They do *some* cutting of these pieces into final portions, but there is very little waste from that cutting.
Close date items are discounted. End-date items are trashed. They can't even be frozen and given to the food pantry. I know because I often have breaks with a couple of the butchers and we've lamented the loss of unsalable but edible food together.
One such example is prisons.
Unpaid labor is one way to deal with the labor cost of separation and processings.
But unless it's for use only in the prison itself -- some prisons have farms, I think -- then you get into the ethics of involving prison labor in the consumer production streams and undercutting goods made by honest workers who have to be paid a competitive wage.