Out of stocks in the Fresh Departments – Solving the last 100 feet

Much has been written on the negative impact of out of stocks on the retailer; solutions range from complex technology solutions to a collaboration of retailers and their suppliers. Out of stock conditions continue to plague retailers and we have seen it remain at a consistent eight percent, and climb to ten percent for promotional items. According to a study by research firm IHL Group, as reported in the Wall Street Journal, out of stocks cost retailers approximately $634 billion annually.

In a grocery retailer’s fresh departments, the impact is more concentrated and costly given the gross margin dollars involved versus the center store departments. But study after study rarely mentions this opportunity; the focus remains on automated replenishment systems and product placement.  The majority of solutions lead us to believe that technology and data will solve all of our problems. The truth is that technology will enable retailers to identify true out of stocks on a timelier basis, but it will not solve the last “100 feet” problem every grocery retailer struggles with.

In a Forrester Survey in May 2017 commissioned by Square Root, store operations executives were asked how they measure store performance. Key performance indicators that closely affect profit rose to the top of the responses. Beyond those, respondents also track and measure operating margins, average inventory shrinkage, and sales per employee hour. Planograms, or store layout, and shopper value were among the bottom two priorities. This is in-line with what we see in stores as out of stocks, planogram compliance, and maintaining variety throughout the selling day are not discussed or reviewed by store management on a consistent basis.

The list of enablers that retailers have adopted at an accelerated rate over the past 5-10 years continue to improve the retailer’s ability to reduce out of stocks. These enablers include better automated ordering systems, improved supply chain and reduction of lead times, and production planning software. But the view from customers and the studies cited above, prove retailers failed to move the needle in a positive direction.

Solving “The last 100 feet”

Solving “The last 100 feet” involves the following tools and collaboration between merchandising and operations. The typical out-of-stock average we find on core items during an initial assessment is 25-30%.

The Current State: The lack of clearly defined enablers necessary for effective production management means decision makers at the store use their personal biases to make assortment decisions, and production quantity decisions.

Planograms: Planograms are typically present but very generic. They are usually at the commodity level and do not include SKU level information or placement.

Variety Lists: Store level decision makers have limited knowledge of what the merchants want them to carry. Surprisingly when we engage merchants for the “core items” the responses range from “everything” to “we are working on it”.

Shelf Labels: The standard in fresh departments for shelf labeling is unique to fresh. For fixed weight items, we now see shelf labels on consistent basis in the fresh departments. We typically do not see shelf labels or planograms for random weight product such as beef and pork which are coincidentally the production planning items.

Below are 6 focus areas for retailers to solve “the last 100 feet” to their fresh out of stocks:

Maintain core item lists: Merchants should have a list of core items to be merchandised in every store along with clusters of required assortments based on a combination of store volume and demographic.

Create SKU-specific planograms: Merchants must maintain department-specific planograms at the SKU level to give store operations and leadership a clear vision of what product is required.

Implement Shelf tagging: All random weight production categories must be shelf tagged in accordance with the planograms. Tags do not have to contain price information, but should include a description of the item with the corresponding PLU.

Adopt a ‘Hole is a hole” mentality: Treat your fresh cases as you do your center store shelves. Treating a hole as a hole in grocery leads to better ordering through automated replenishment. Leaving a hole in fresh will create a sense of urgency to produce products which in turn leads to better in stock position and increased sales. When combined with production planning, you will be able to maintain variety while not negatively impacting shrink.

Identify Production Scheduling: Review key positions in production categories to ensure the skill sets are scheduled to resolve out of stock situations based on your store’s business patterns.

Increase store leadership involvement: Incorporate AM/PM out of stocks walks for store management/department leads. Combined with the “hole is a hole” approach will aid store management in detecting out of stocks visually and create a sense of urgency.

By adopting a holistic Fresh Solution – our clients have achieved a 2-5% sales lift and 15-30% reduction in shrink. Contact us to schedule an assessment and benchmarking study to better understand your opportunities for improvement.