You never get a second chance to disappoint a customer! OUT-OF-STOCKS – a multibillion dollar opportunity

Customers want what they want when they want it.  If they can’t find what they are looking for, they will shop your competition or buy your competitor’s products.

Consumers typically shop at many stores across several channels to find all the items on their shopping list.  The objective of every savvy retailer is to meet all of their customer’s needs while they shop in their stores – in a single shopping trip.

Brands and retailers spend a small fortune on customer acquisition and then on maintaining shopper loyalty. Out-of-stocks essentially invite the shoppers you have worked so hard to acquire to shop your competition.

Several years ago a study was done to calculate the lost opportunity due to out-of-stocks in mainstream grocery.  It was estimated that out-of-stocks cost retailers and brands tens of billions of dollars each year. As a result, reducing out-of-stocks has been a major focus for mainstream brands and retailers. Natural brands and retailers can benefit from what they learned.

The pitfalls of out-of-stocks

Out-of-stocks continues to be a huge problem in the natural channel, especially during promotions. Consumers find it extremely frustrating not being able to find what they are looking for.  It can even cause them to shop elsewhere.  That equates to lost sales and/or a lost opportunity to bring in new customers into the category. Promoting a brand that a consumer can’t find on the shelf is a huge waste of money and gives customers a negative impression of the brand and your store. Some customers will only give a brand one opportunity to convince them they deserve a repeat purchase. Out-of-stocks make brands especially vulnerable to being discontinued at retail.

Out-of-stocks are typically due to poor planning by the brand and a lack of shelf-holding power at the retailer. Retailers need brands to commit to keeping their shelves full and keeping customers happy. Brands and retailers must work together collaboratively to solve this problem. Brands that fail to meet this basic objective quickly disappear from shelves. Once a brand gets kicked out of a store it is almost impossible to get back in.

Keep shelves stocked at all times!

This is one of the main reasons the practice of category management started. It’s mission was simply to reduce out-of-stocks, increase sales, maximize inventory efficiency, and increase the profitability of a brand and the category. Category management has now evolved to fully understanding shopper’s buying habits and helping brands more effectively meet consumer’s needs.

Topline reports won’t point out distribution gaps and opportunities for improvement. In order to address this issue, you need weekly or daily item level sales data by store. You need line-of-sight data for each store selling the item to identify and correct potential out-of-stock issues. This will help you calculate the expected lift (sales increase due to a promotion) for a planned promotion and help you pre-sell enough product so that the retailer can meet all the customer’s needs. Understanding your sales at this level of granularity will help you reduce out-of-stocks, maximize promotions, reduce over stock issues, and keep shoppers happy.

Merchandising/distribution is the first priority.  Getting a product on the shelf in the right place and at the right stores is key to every brand’s success.  Brands need to work closely with retailers to ensure that the item has enough holding power (items available for sale on the shelf) to support sales.  A common strategy is for a retailer to have several days of supply of each item available on the shelf.  For example, if an item comes 12 to a case and they sell an average of two a day, a retailer may want to have enough space on the shelf to hold 1.5 cases of product.  In this example, the retailer could reorder the item one case a week. Brands need to ensure they have additional product available at the store when their products are promoted. The goal is to have no additional back-stock (inventory) while avoiding out-of-stocks.

What strategies do you use to keep shelves full every day and during promotions?