Photo: RetailWire
Would online grocery benefit from low inventory alerts?
A university study finds telling online shoppers that grocery supplies are low can help retain them over the long term.
The study from Boston College assistant professor of business analytics Dmitry Mitrofanov and Benjamin Knight, a senior data scientist at Instacart, provided product availability information to a random sample of more than 840,000 Instacart customers.
Customers were 25 percent less likely to purchase low-availability items when told supply was running low. At the same time, many were content enough to switch to purchasing plentifully stocked items to avoid a surprise out-to-stock. The shift from low to high-stock items helped reduce the number of stockouts.
Overall, providing low product availability information resulted in a 5.3 percent increase in revenue per customer and a 4.9 percent increase in order frequency over time.
Providing product availability information also improved shopper sentiment when stockouts do occur. “More specifically, even if customers decide to purchase low stock items after the warning and consequently experience a stockout they are less dissatisfied because of the reference effect — by sharing low item availability information we reset customer’s expectations with respect to the probability that their order will be successfully fulfilled,” said Professor Mitrofanov in a press release.
Out-of-stocks and related poor substitutions are among the primary complaints around online grocery shopping.
A December 2022 survey of consumers who had bought groceries online in the previous 90 days from Chicory found product availability issues (41 percent) to be the third biggest challenge with ordering groceries online, behind high fees (47 percent) and lack of control over product selection (43 percent).
In a 2022 Lucidworks survey of U.S. and U.K. consumers who shop online for groceries at least once a month, over half of those polled said a low-in-stock notification would influence their purchase decision and 80 percent of those customers said they would be more inclined to make the purchase if alerted when desired products were low-in-stock.
Poor inventory visibility may be a hurdle, however. Auburn University’s RFID Lab found traditional store inventory accuracy is typically below 70 percent.
- Stock running low? Consumers want to know – Boston College
- The Online Grocery Shopping Report – Chicory
- Shoppers Stay Hungry Online: Groceries on the Internet in 2022 – LucidWorks
- “Sorry, the product you ordered is out of stock”: Effects of substitution policy in online grocery retailing – Journal Of Retailing
- Can AI solve e-grocery’s erratic out-of-stock substitutions? – RetailWire
- RFID-Enabled Visibility and Retail Inventory Record Inaccuracy: Experiments in the Field – Auburn University RFID Lab
Discussion Questions
DISCUSSION QUESTIONS: How would you rate the pros and cons of letting online grocery shoppers know when inventories are low? How much visibility do most grocers have into their inventory?
Poll
Loading …BrainTrust
Ken Morris
Managing Partner Cambridge Retail Advisors
Steve Montgomery
President, b2b Solutions, LLC
Availability and inventory levels are useful for grocery shopping, not least because substitution is a major issue and causes dissatisfaction and hassle for consumers. The slight issue in grocery is that keeping perfect real-time inventory is extremely difficult due to the high volume and fast turnover of products as well as the enormous number of SKUs. That’s probably why an indication is best rather than trying to provide accurate stock levels.
Great points Neil. An average inventory accuracy of below 70 percent for grocers is a challenge for online grocery orders. Grocers may be running low on many items and not even know it. Real-time inventory tracking and visibility would be extremely valuable for the grocery industry, but it still probably doesn’t produce a positive ROI. In the meantime, providing shoppers alerts on low inventory items will help increase customer satisfaction by avoiding unacceptable substitutions.
Instacart does it pretty cleverly. They warn if inventory quantities seem low, and if they’re really low you can “request” the product. You’re right. Substitutions are a total drag.
When I have received low inventory alerts it has generally triggered my “competitiveness gene,” ensuring I hit the Buy It Now button. Perhaps that is not the right move when dealing with perishable items, as the quality and/or condition may not be ideal. My gut tells me that grocers don’t have very good real-time inventory tracking, and even less so with perishable items. But if I’m making my world famous scungilli salad and there’s only one can of conch left one the shelves, I’d like to know so I’m not caught short.
Is there anything more frustrating than having your delivery of groceries, without warning, come up short? Other than not getting the delivery at all, I am sure this leads the complaint list.
I imagine the second biggest complaint is when the in-store shopper makes a substitution, and it is an unacceptable substitution.
Making the online shopper aware of inventory levels lets the shopper choose an alternative or change their plans entirely. Whole Foods does this already. I have seen the decision process, and it is positive.
Pros:
Cons:
I agree with all of this. I went to a store yesterday, the system said they had four left of an item I needed, so I got in my car and drove 15 miles to the store. When I got there, they really only had one left. I got lucky, but if I were needing this exact item there really is no substitute for it.
100%. I’ve also done the same only to find out they had none in stock. As expected, team members blame the inventory system. But the damage is done in terms of customer trust when these systems don’t operate accurately.
Pros: Honesty. Cons: None that I see.
Out-of-stocks erode goodwill. Shoppers must do without an item or shop elsewhere, foregoing the promise of convenience.
Pros of advising customers of low inventory include building trust with transparency and showing that the grocer cares about the customer experience. Cons include customers shopping elsewhere to avoid availability issues and grocers needing to invest in inventory visibility.
Most grocers have limited visibility into their actual inventory. Loblaws is phenomenal at advising of low inventory and offering a choice among three substitutes.
The biggest challenge here is grocers having visibility into inventory levels. If a grocer has dedicated online inventory then it is less problematic than if they are pulling inventory from a store where customers shop. Since the inventory in a common store is not real-time, they have little idea of the actual inventory levels. The goal should always be perpetual inventory, and real-time visibility into what’s in-stock. This is a real problem and one that won’t be quickly solved.
There is some very interesting psychology at play here. Typically people are more inclined to buy something if they feel it may be in limited supply. In this case, however, shoppers have been burned so much by out-of-stocks and poor quality substitutions that they are acting more rationally than normal.
I believe inventory alerts have many merits, both as an industry analyst and a consumer. As an analyst, I certainly think that “forewarned is forearmed” applies here: low-stock alerts can help people manage their choices — and their urgency — while also minimizing frustration when stockouts do occur for items where they have been alerted. As someone who shops for groceries exclusively online, I can attest to the notion that the stores that fill my orders completely most often earn my highest loyalty, and low-stock alerts help me ensure higher rates of “perfect shops.”
Letting shoppers know when the inventory of an item is low provides the shopper with a most important element when shopping — choice. They can make the decision to order the item knowing it may not be in stock or choose to order an alternative. It’s their choice and not that of the grocer’s staff or a shopping service.
Possible stock outages and unwelcome substitutions are the primary reason I continue to do my own grocery shopping. My confidence level in online shopping would go way up if I learned to trust low inventory alerts.
I appreciate the effort when retailers provide low inventory alerts. Even if they are directional in nature, it provides a piece of intel that is important to consumers, enabling them to make decisions they otherwise might not be inclined to make.
Target tells you when stock of an item you are looking at in a store is low, in fact it gives you the number of that item left. It makes me act fast if it’s something I need.
As a consumer, I would much rather know when an item is low on stock so I can make my own decision, rather than having to have to go without or have to look for a substitution. Being transparent about inventory levels can only be helpful to a shopper.
Perpetual inventory and the ability to drive an outstanding commitment to promising availability to grocery customers have become the Holy Grail in the supermarket industry. One of the most friction-filled experiences along the shopping journey has been the challenge of finding the right product at the right price and the right location.
With the rise of e-commerce fulfillment, grocery customers expect clear and transparent communications and alerts on inventory availability. The customer expects this and wants to control which products are available for substitutions. With these capabilities, grocery companies will lessen their dependencies on Instacart and vertically integrate the entire micro-fulfillment customer journey. Real-time and accurate inventory availability capabilities are a true competitive differentiator.
As someone who deals with a lot of food allergies in our household; I would probably do the opposite of what the 25 percent who were less likely to purchase low-stock items. If notified, I would purchase them right away! If the product happened to be out-of-stock when my order was being picked, I would simply decline the substitution.
We work with several grocers on this issue and I can tell you the key is not just having visibility into inventory, that puts the grocers in a “reactive state” and they are always behind. When grocers (or any retailer) can layer machine learning and predictive analytics with prescriptive actions or recommendations; it really eliminates the surprises, keeps customers happy, and improves their profitability.
It’s interesting that this is even a question. The shopper e-commerce experience is all about known inventory levels. You walk into a store and you’re disappointed but not surprised to find an out-of-stock. You adjust.
But Amazon and other online sellers indicate how many items remain for purchase. Target as well, as is cited in these comments. This is a minimum level shoppers expect from e-commerce. But grocery e-commerce orders fulfilled by supermarkets are most often picked from the floor. That dynamic environment is an inventory accuracy nightmare — accurate inventory there may be an impossibility. If it’s my turn to bring the drinks to soccer, I’ll clear out a few shelves. There goes the inventory.
Closed automated grocery fulfillment systems are being used by some supermarkets to get to inventory accuracy. The primary focus might be labor reduction but these systems offer a high percentage of ordered items from dedicated inventory with inventory visibility and accountability.
Bravo to supermarkets for making e-commerce fulfillment from stores work. Phase in next-gen inventory accuracy to achieve order accuracy and high customer satisfaction. Otherwise someone else will get e-commerce grocery inventory accuracy right and take at least a large chunk of grocery items ordered through e-commerce.
Assuming that the money spent putting this in place can’t be more wisely used to ensure that inventories don’t run low in the first place, I think this is a shopper benefit — if it’s halfway accurate. Being the skeptic that I am, when I see an “only five left” I think it’s just a persuasion to buy, not necessarily truthful — particularly if I do buy and check back later and still see five left. I mean, how hard is the arithmetic behind keeping online inventory correct post-purchase?
First and foremost — retailers need a real-time perpetual inventory process to support their own operational requirements, especially precision re-ordering, to meet present and anticipated demand. Sharing that view with digital shoppers would be a second-order benefit, but it comes with perils.
Why? Because of the time gap between when an order is placed online and when it is fulfilled from store shelves. During busy sales days, even an hour can mean the difference between a perfect order or one with critical missing or substituted items.
Warning shoppers about low-stock situations seems righteous, but could lead to worse disappointments or the perception of being “played.” Trust may be built for this over time, but that will take impeccable execution.
Impeccable execution means managing On-Shelf Availability to the highest possible standard, so that instances of low-stock and out-of-stock are rare. I’d propose that retailers measure and manage the frequency of low inventory alerts and substitutions as key performance indicators. The percentages should be vanishingly small.
Interesting question(s).
A lot of the answers, of course, depend upon how accurate the information actually is. Which leads me to my own question: keeping in mind today’s other topic (about consumer trust), how would people feel about retailers who try to create a sense of urgency by understating inventory levels? Hmmm….
Advising customers of low inventory with a general range is a helpful tool, saving them hassle of time and money. In some cases, fear is even a great motivator to spur on a purchase sooner than later.
But potential dangers are great in losing customers trust when actual inventory numbers are posted, giving no room for common errors or glitches. And mistakes will be made.
Grocers have been pursuing real-time inventory for decades. It can be done, but there is a cost and commitment to make it run accurately.
Yes. OOS are a huge problem since retailers have issues keeping products in stock due to logistical shortages and unavailability of labor to keep the shelves properly stocked.
Online grocery orders have some unique challenges that don’t affect other e-commerce industries. For example, if you are planning a dinner and are relying on an online grocery order to arrive in full and on time in order to make your planned dinner, then there is very little room for something to go wrong if you are placing that order a couple hours before you plan to start cooking. Though it is wonderful to have online grocery ordering as an option, it can also turn into a stressful experience if something critical to your dish goes out of stock. You either have to adapt and prepare something different, or you decide last minute to run out and try to track down the critical ingredient. At that point, you’re probably regretting ordering online to begin with. However, when the grocer indicates there is low inventory, it gives the customer the necessary transparency to potentially avoid the above scenario. Providing a low inventory notation should be considered a best practice. This allows the customer to either take the risk if the ingredient isn’t critical or to either select a substitute or change the item all together.
Walmart has done an excellent job in how customers can select substitutions, and if one ends up being made, Walmart will provide the customer an opportunity to either accept it or decline it. Fry’s, a grocery chain, identifies when groceries are in low supply and substitutions can be selected. In Fry’s case, Instacart is handling the shopping and can text with the customer to confirm when items are out of stock or accept a substitution. Either way, the more visibility the customer has to inventory challenges, the more satisfied they will be that they have the opportunity to take action to avoid frustration at the time of delivery.