Does Whole Foods have a backroom problem?
According to a report from Business Insider, the rollout of an order-to-shelf inventory system is being blamed for frequent stock outs in at least some Whole Foods’ locations.
The system, which first began being implemented in 2016, basically moves some products directly from the loading dock to store shelves to reduce the need for backroom storage and more efficiently bring product to shelves. The benefits of what’s also described as a “store ready” distribution model include reductions in inventory, store labor, waste and shrink along a with promise of better in-stock positions since items are being replenished more quickly. Such a system also helps supports online delivery from store.
On a quarterly conference call in February 2017, Ken Meyer, Whole Food’s EVP of operations, said its order-to-shelf initiative had cleared Whole Foods’ backrooms of all items except “never-outs” or items continually re-stocked. He said, “It’s creating a really strong, efficient process, from the way the goods are received in the back door to bring them right out to the shelf. And it’s really improving and helping our out of stocks, as well — dramatically.”
Target rolled out a similar automated ordering system around the same time.
“The concept is pretty simple,” CEO Brian Cornell was quoted by Supermarket News as saying in an analyst meeting in February 2017. “When a store sells one bottle of shampoo, we put one bottle of shampoo on the next store delivery truck within hours.”
But interviews with seven Whole Foods employees by Business Insider indicate that, while less food is spoiling in storage rooms, out of stocks have been more of a regular occurrence on shelves. The problem is exacerbated, according to the report, when there is an unexpected increase in shopper demand or a product shipment delay.
Barclays, in a note in early January, wrote that it had likewise witnessed empty shelves inside Whole Foods stores, although the analyst felt the problem may be due to increased shopper traffic following the Amazon merger. “This is a high class problem if in fact sales have really accelerated — but is also an execution issue resulting in lost sales.”
- Whole Foods Market (WFM) Q1 2017 Results – Earnings Call Transcript – Seeking Alpha
- Supply-chain changes drive results at Target, Whole Foods – Supermarket News
- Is order-to-shelf technology the future of retail distribution? – Food Dive
- Whole Foods has a ‘high class’ problem that’s leading to ‘entirely empty’ shelves – Business Insider
- Are out-of-stocks driving shoppers online? –RetailWire
- Retailers Rethink Inventory Strategies – The Wall Street Journal
DISCUSSION QUESTIONS: Are you a fan of order-to-shelf inventory management systems for grocers? What are the primary execution challenges for grocers attempting to reduce stock in backrooms?