Retailers are facing unprecedented pressure to increase sales, decrease costs and retain customers. And grocery retailers are no exception; the industry has reached new competitive heights thanks to the rise of omni-channel and new store formats. As a result, the battle for profits and shopper loyalty has never been more fierce.
In response, stores have implemented more effective promotions, better displays and the regular introduction of new items, and while these tactics can be effective for generating demand and moving product, there is still one age-old problem grocery retailers have yet to conquer: on-shelf availability.
Research from the Trading Partner Alliance consisting of FMI and GMA found that the product out-of-stock rate remains at an average of 8 percent and exceeds 10 percent for promoted items. Supply chain complexity, data silos and disparate business systems are resulting in empty shelves. Chronic out-of-stock items also have a negative impact on buyer sentiment and behavior; the same Trading Partner Alliance research revealed that shoppers rank product availability among the top three factors in deciding where they shop for groceries. However, every time a shopper enters a store, one out of every 12 items on their shopping list will not be on the shelf, and this number drops to one in 10 for items featured in store promotions.
With such a direct impact on revenue, shopper loyalty and sentient, why has on-shelf availability been so difficult to achieve? While the answer can be attributed to a number of factors, simply stated, it is because the industry is data rich but insights poor. In other words, grocery retailers and suppliers alike are separately generating an unprecedented amount of data, but lacking an effective means of collaboration to drive real insights and value from raw information.
To effectively solve the problem of out-of-stock items and empty shelves, retailers and suppliers alike need to tackle the root cause—a lack of visibility into data—by coordinating with one another to ensure cohesive, integrated processes. Achieving on-shelf availability requires instant access to intelligence that encompasses a combination of unified data, analytic insights and collaborative decision making.
This all sounds great in theory, but let’s take a look at what the new age of retailer-supplier collaboration looks like in practice, and the resulting value it drives. Let’s say a multi-national consumer packaged goods company, servicing thousands of grocery stores, wanted to increase on-shelf availability and reduce out of stocks in support of higher profits and customer satisfaction.
CPGs, and other suppliers, typically have limited visibility into a retailer’s store and sales data. They usually only see orders and shipments of their products to their distribution centers. Missing from this view is sales data, forecasted demand and end-to-end visibility of inventory. As a result, both CPG companies and the grocery retailer are left with no real way to measure out of stocks, identify root causes and take corrective action.
This scenario is exacerbated when items are on promotion. Further complicating this is the reverse effect where supply outpaces demand resulting in excess post inventory and unexpected shipping costs. In either case, operational excellence requires informed decision making that guides trading partners through planning, execution and tracking cycles. For example, there’s often a sense of urgency on where to relocate products out of distribution centers to meet spikes in demand. How much product should be ordered for the upcoming promotion? Do additional orders need to be placed after day one promotional results are analyzed? Demand variability at the store, day and SKU level needs to be addressed every single day and aligned with supply, logistics planning and in-store daily execution.
Clearly, addressing the out-of-stocks problem is more nuanced and complex than it may appear at first glance. By adopting a new approach to retailer-supplier collaboration and connecting information, silos, suppliers and retailers can analyze demand forecasts and inventory at a more granular level to find out where out of stocks are most likely to occur and adjust to reposition and prioritize products accordingly.
Collaborative planning and decision making has long been an obstacle for CPG suppliers and grocery retailers. However, shared analysis of integrated data and immediate access to those insights has the potential to change the game when it comes to on-shelf availability. Collaborative operations between suppliers and retailers are paving the way for an “always on” environment capable of uncovering new, real-time insights, improved decision making and measureable results that translate directly to the bottom line. Leading retailers and suppliers working to enhance their collaboration efforts will continue to grow in highly competitive markets where margins are at a premium.
This post originally appeared at The Shelby Report.