Manufacturers lose tens of billions of dollars each year due to out of stocks. Reduce out-of-stocks, lost sales, and annoyed customers with this advice.
Balancing shopper demand with controlling inventory has always been a struggle. Despite all available technology, shelves continually go empty during promotions. This happens in all channels and with almost all retailers, including the most sophisticated retailers in the industry. Sadly, few brands truly leverage their technology to support promotions at store level.
Several years ago I read about a study that calculated the lost opportunity due to out-of-stocks in mainstream grocery. It was estimated that out-of-stocks cost retailers and manufacturers tens of billions of dollars each year. There have been several reports since that have all focused on the ineffectiveness of promotional spending and the low trade marketing ROI. As a result, reducing out-of-stocks and targeted promotional campaigns have become a major focus for CPG brands and retailers. This is an even bigger problem in the natural channel.
Full shelves + good assortments = happy customers
Promoting a brand that a consumer can’t find on the shelf is a huge waste of money for the manufacturer and it creates a negative impression for both the consumer and the retailer. Some customers will only give a brand one opportunity to convince them they deserve a place in their shopping cart.
From the consumer point of view, out-of-stocks are extremely frustrating, even causing them to shop elsewhere when they can’t find what they want. This erodes shopper loyalty for both the brand and the retailer. To the retailer and brand, this equates to lost sales and/or missed opportunities to bring new customers into the category.
A favorite organic brand of mine is frequently out-of-stock in both natural and conventional, even more so when it’s on sale. This is due to poor planning by the brand and a lack of shelf-holding power at retail. This makes the brand especially vulnerable to being discontinued at retail. Natural organic stores need brands that commit to keeping their shelves full and their customers happy. Brands failing to meet this basic objective will disappear from retailer shelves and be discontinued. Once a brand is kicked out of a store, it is almost impossible to get back in.
This is one of the main reasons the practice of category management started. Its mission was simply to reduce out-of-stocks, increase sales, increase shopper loyalty, and increase contribution—the profitability of a brand. Category management has now evolved to fully understanding consumer buying habits and helping brands and retailers meet consumer wants and needs.
First impressions, done right
There are several tools to help eliminate out-of-stocks. Most canned topline reports won’t point out distribution gaps and opportunities. In order to address this issue, you need weekly or daily item-level sales data by store. This level of reporting gives the brand “line-of-sight” to each store. It can help you identify and correct potential out-of-stock issues and plan for promotions. This will also help you calculate the expected lift (sales increase due to a promotion) for planning promotions while helping you to pre-sell in enough product to the retailer to meet the needs of their shoppers.
For example; a store typically sells 14 items on an average week, the item comes packed 12 units to a case, and there are 1.5 cases on the shelf. When promoted, the sales are 21 items per week. The item should be reordered every five days under normal conditions and every three days when promoted—assuming next-day delivery. This will keep the product on the shelf with no back-stock. Brands need to help retailers anticipate shopper demand and account for the retailer’s replenishment schedules.
Understanding your sales at this level of granularity will help you improve shopper loyalty, reduce out-of-stocks, maximize promotions, and eliminate overstock issues after the event. Remember always that consumers have a lot of choices, and most won’t give you a second chance to make a first impression.
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