Grocer taking inventory
Photo: iStock / Portra

How Can Grocers Improve In-Stock Levels?

Through a special arrangement, presented here for discussion is an excerpt of a current article from Frozen & Refrigerated Buyer magazine.

Pre-pandemic, poor forecasting was often tied to regional differences or shifting consumer preferences, and was often pinpointed as the cause of grocery’s high level of stockouts. Today, there are a whole slew of contributing factors.

At the supply chain level, David Wendland, VP of strategic relations at Hamacher Resource Group, says the pandemic not only revealed an over-reliance on off-shore production and current distribution networks, but shortages of raw materials, packaging materials and available labor.

Labor challenges, including lack of personnel and training, are also a considerable issue in restocking shelves and planogram compliance at the store level. Only 37 percent of grocers in the U.S. and Europe recently surveyed by Retail Insight felt they had enough staff to stock shelves adequately.

Ken Morris, managing partner at Cambridge Retail Advisors, says successful marketing campaigns and promotions can lead to stockouts, although promotion stockouts should be expected (and planned for).

Another common cause of out-of-stocks is poor inventory management, which some grocers are addressing through artificial intelligence, RFID and effective product substitution practices. Similarly, many out-of-stocks stem from inconsistent or inaccurate data management.

Vendor collaboration can be part of the solution as some grocers, including Kroger, clearly communicate with vendors to identify what’s in stock and help ensure a smooth inventory flow into the warehouse, according to Adnan Durrani, CEO of Saffron Road. At the same time, grocers should prioritize vendors that consistently deliver on time and in full (OTIF) and ensure suppliers aren’t prioritizing competitors with fill-ins over them.

Adding backup suppliers to the mix highlights a continued shift from just-in-time to just-in-case inventory replenishment. Keeping safety stock, however, is expensive and can take away warehouse space that might have been used to bring in new innovations.

Streamlining the assortment can help boost on-shelf availability. Mr. Wendland believes it’s
critical to identify what he calls “Never Outs” and then make sure they’re… well, never out. “These are the items within the category that represent the majority of sales (think 80-20 rule) and/or are game-changing new products that are heavily promoted, differentiated and incremental,” he explains.

However, SKU rationalization at the expense of innovation risks losing customers to chains that offer the variety they crave.

BrainTrust

"In-stocks are a constant issue for grocers. One thing they can do is focus on their most important SKUs."

Gary Sankary

Retail Industry Strategy, Esri


"While some supply chain issues can’t be prevented, better forecasting and real-time inventory visibility would significantly reduce out-of-stocks."

David Naumann

Marketing Strategy Lead - Retail, Travel & Distribution, Verizon


"The only advice I could offer to keep the fixtures well fronted to overcome the gaping holes. It’s all in the presentation now."

Rich Kizer

Principal, KIZER & BENDER Speaking


Discussion Questions

DISCUSSION QUESTIONS: What are the reasons for high out-of-stocks in grocery and what solutions do you see? What lessons can be taken from the chronic shortages seen during the pandemic?

Poll

13 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Dr. Stephen Needel
Active Member
1 year ago

All of the factors cited above are contributing to a high rate of out-of-stocks. There are no solutions per se, but there are some things grocers can do to mitigate the situation. First, keep your shelves stocked — if that means overstocking some items, go ahead. Better the perception of full shelves than lots of holes. Second, understand which vendors have issues and reconsider their placement on your shelves. If Vendor A keeps on telling you they have a material or transportation problem and Vendor B doesn’t, ask yourself why you’re still carrying Vendor A’s products. Finally, educate your customers. If you are unable to obtain a popular product because of vendor issues, put up a shelf tag — don’t let your customers think it’s your fault.

Dave Wendland
Active Member
Reply to  Dr. Stephen Needel
1 year ago

These suggestions are great, Stephen. Thanks for sharing.

David Spear
Active Member
Reply to  Dr. Stephen Needel
1 year ago

Stephen,

You are spot-on re: vendor segmentation. Such basic analysis reveals some eye-popping results, where some vendors are notoriously out-of-stock. If patterns emerge, retailers must take actions to mitigate these situations.

Dave Wendland
Active Member
1 year ago

Thank you for the shout out, Denise Leathers. All retailers — and perhaps most noticeably grocers — must maintain a very tenuous balance between tried-and-true items and innovative newcomers.

As you point out in your post, labor challenges, continued supply chain disruptions, and shifting shopper behavior have all put pressure on in-stock condition. I’ve seen the emergence of new technologies to address out-of-stocks (e.g., AI, RFID, robots) and the reskilling of staff to manage shelf integrity. Retailers (and brands) have also reassessed their assortment depth and breadth. Likely accelerated by the pandemic, the changes being made today will create stronger, more agile operations.

Gary Sankary
Noble Member
1 year ago

This is an “all of the above” situation. In-stocks are a constant issue for grocers. One thing they can do is focus on their most important SKUs. Not all in-stocks are created equal. When grocers understand the roles their products play in their assortments and serve for their customers, they can focus there if needed to ensure their forecast, supply chain, and store processes support guaranteeing the availability of those products. Being out-of-stock in playing cards for a few weeks vs. being out of milk. Pick wisely.

Ken Morris
Trusted Member
1 year ago

Yes, retailers should use “all of the above” strategies to reduce stockouts, especially RFID, vendor collaboration, and better staff coverage. Better usage of planograms is always a plus. Grocers should gather as much data as possible around planograms and the customer’s “moments of truth” while dwelling at shelves and displays. Many grocers set a planogram and forget it, but that is leaving margin on the table. It is imperative to understand movement from a customer perspective. Do I buy more private label when it’s at eye level in the prepared foods aisle? What effect does signage have? We need to A/B test item placement and movement and understand the customer journey in the supermarket. Until we do, stockouts will continue to erode margins. 

Meanwhile, retailers can improve staff’s effect on stockouts through strategies such as cross-training on planogram compliance and increasing shelf checks and leveling rounds. Don’t wait for stockouts, know when a SKU is starting to run low—especially on “never outs.” With a well-trained and optimized workforce, retailers can keep their shelves stocked and avoid frustrating stockouts.

Rich Kizer
Member
1 year ago

Every grocer I have spoken with is pulling their hair out over lack of density on in-stocks. When customers come in and see gaping holes in the fixtures, it sours them. The only advice I could offer to keep the fixtures well fronted to overcome the gaping holes. It’s all in the presentation now.

Richard J. George, Ph.D.
Active Member
1 year ago

Overall a well documented description of the situation confronting retailers. I would only emphasize the enhanced interaction between manufacturers and retailers. Plus, SKU rationalization — despite some innovation downsides — needs to be done more analytically.

David Naumann
Active Member
1 year ago

The reasons cited in the article and by the panelists above all contribute to out-of-stocks that irritate customers and reduce revenues. While some supply chain issues can’t be prevented, better forecasting and real-time inventory visibility would significantly reduce out-of-stocks. The grocery industry is notorious for inventory accuracy challenges and they are a prime candidate for RFID inventory tracking, at least for higher value items (IMHO).

James Tenser
Active Member
1 year ago

I’m a sworn enemy of “safety stock,” which ties up cash, increases labor costs and creates perishability. But there is an optimal stock level for each item in the store that can be determined empirically based on real-time perpetual inventory and forecast demand (including forecasted promotional demand).
The huge missing element in this conversation is computer automated re-ordering (CAO) that leverages those two data sources.
Every supermarket must make a nightly decision for every item it carries – “order another case now or wait?” For a chain of 100 stores carrying 40,000 SKUs, that’s four million binary decisions every night. Bad choices on even one percent will result in 40,000 under- or over-stocks.
Even a perfect CAO can be thrown off temporarily by unreliable suppliers or external supply disruptions, but those systems are more resilient and likely to correct inaccuracies faster than humans, limiting negative impact.
Accurate inventory levels normalize the demand signal, which results in better space, assortment, pricing and promotional decisions. Accurate orders also help vendors forecast their own warehouse withdrawals, eliminating excuses.

Georges Mirza
Member
Reply to  James Tenser
1 year ago

That is a very good point as well that I missed. CAO is an immediate solution while other automation solutions mature to scale.

Brad Halverson
Active Member
1 year ago

As others have noted, this has been caused by multiple issues, some worsening during the height of the pandemic as labor shortages and supply chains were taxed.

A tried and true practice toward solutions is to get out of the four-walled office, bring the reports and spreadsheets, and walk down the aisles. Walk with the team who orders and stocks products, ask questions and listen (don’t criticize) as you see holes and chronic shortages. You’ll learn plenty about supply issues, vendors, and valuable tendencies about what your business and people are facing. The takeaways and priorities will be obvious from this exercise.

Georges Mirza
Member
1 year ago

Many of the culprits mentioned play a part in causing out of stocks. The historical issue to the problem that has the potential of minimizing it is a better planning process coupled with accurate shelf data collected from cameras and robotic solutions in near real-time. Once those data feeds are available, along with supplier data integrated into a collaborative portal, we will start seeing real improvements.