These Beliefs Persist, Despite the Data:
Out-of-Stocks Aren’t a Problem Today
For some reason, brands think that out-of-stocks are a problem of the past. Maybe they trust inventory control tech to make sure it never happens. Whatever the reason, out-of-stocks are even a bigger risk in the omnichannel world. With online purchasing, click-and-collect, and delivery companies like Instacart and Shipt, competing with traditional in-store shoppers, there are so many more ways for products to disappear from the shelves. Technology has helped solve the problem; at the same time it’s making it worse.
In many stores, the traffic from “professional” shoppers working for delivery companies and click-and-collect customers has gotten so crazy other customers may feel they are in a competition with the people wearing colored vests. That can really undermine the whole experience that many experts say shoppers still want: a sensory experience, a feeling of engagement. Yes, shoppers want both: efficiency and engagement.
In fact, some experts suggest stores divide in two: providing a storefront where traditional shoppers can get the sensory experience and customer connection they seek; and a store back that’s a robotic enabled warehouse.
Few stores are prepared to make such a dramatic shift. But neither should they accept shoppers having to elbow their way through the aisles only to arrive at a shelf that’s been picked clean by the professionals. When confronted with an out-of-stock, many customers will turn to online shopping, knowing they won’t be disappointed there. Out of stocks cost retailers almost $145 billion every year.
The high cost of out-of-stocks
The recent FMI/GMA Trading Partner Alliance On-shelf Availability (OSA) Study revealed that product availability is one of the top three reasons shoppers choose a particular store. But every time a shopper comes in the store, the report said, “One out of every 12 items on her shopping list, and one out of every 10 or less for promoted items, is not on the shelf.”
Retailers only get three strikes out: “On the first occurrence of an out-of-stock,” the report said, “the typical shopper will substitute another item 70 percent of the time; on the second occurrence the shopper is equally likely to substitute, make no purchase, or go to another store; and on the third occurrence, 70 percent will go to another store.”
This applies to both in-store and online out-of-stocks. It sends the shopper the message that you’re not that serious about, or up to the challenge, of meeting their needs like the marketplaces like Amazon are. That’s something no brand or retailer can afford to communicate.
My Single Source Stores Have Got This
Some single source stores are probably doing a fantastic job of merchandising. Others, however, may be charging too much, or committing too little effort. Brands have to stay on top of how stores are managing their products in store, including shelf space, promotions, and demos. As some of our clients have experienced, though they pay monthly for the service to new items stocked, those new items have not been placed for more than a year.
Single source has always been controversial. Before Whole Foods was acquired by Amazon, the company was reportedly looking for ways to reduce grocery prices and cut costs. Several stories came out in 2018 alleging that the company’s single source merchandising strategy was edging smaller brands out of Whole Foods. Since many smaller brands depended on Whole Foods support, and many customers liked having local brands, this dramatically changed the retailer’s identity in the minds of customers.
But larger brands weren’t getting any breaks either. Companies reported that—in private negotiations with manufacturers— the store was asking four times what other retailers do for their merchandising services—up to three percent of sales in order to reduce prices.
CPG companies may not have the choice of handling their own merchandising with retailers, but they need to resist the temptation to address lack of control by losing interest. Maybe the system should be “trust but verify.” Collect data on sales across retailers and across stores and verify that merchandising is being done according to the agreements in place. If sales of any product lag, single source merchandising might be among the reasons. With profits being earned on incremental sales, no factor can be ignored. Whoever is handling the merchandising, it will always be the job of the producer to make sure their product is getting the treatment it deserves.
It’s Too Pricey to Invest in POS Data
There was a fad in the 1980s of people buying exercise equipment and never using it. The conclusion was that buying home exercise equipment was a waste of money. That was not an accurate conclusion.
That’s what often happens with POS data. In Askuity’s 2018 POS Data study, only 63 percent of brands said they were actively leveraging their POS data to drive sales and 92 percent said they believed they could do more with it. As an article in TotalRetail put it: “Retailers expect their buyers to be looking at the data and providing value-added recommendations on a regular basis.”
Brands can’t do that if they’re not collecting the data in a visual format that lets them quickly analyze what’s happening in store and why. Investing in that is not a waste of money; it’s the way both retailers and brands make more money.
Used correctly, POS data can fatten your bottom line by directing smart choices that increase revenues and reduce costs. Instead of continuing to invest in products, discounts, promotions, or marketing vehicles that don’t move the needle, POS data gives you insight about what is moving the needle so you can continue to push it upward. Retail profits are incremental today. And the more granular the profits, the more granular the data must be. Bigger brands know this and invest in the data.
In the omnichannel world, the ability to respond to change is crucial. Collecting and using data from every channel is the only way to stay on top of change as it’s happening.
Latest posts by Bruce Nagle (see all)
- Competitive Pricing And The New Normal - June 19, 2020
- How CPG Companies Can Stay Ahead of the COVID-19 Curve - May 13, 2020
- Current Impact of COVID-19 on the Grocery Industry - April 24, 2020
Comments are closed.