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Managing out-of-stocks: Your multi-billion opportunity

Customers want what they want when they want it. Here's how out-of-stocks could be crippling your natural store's revenue.

Several years ago, a study from RIS News and IHL Group found that mainstream retailers lose $93 billion in annual sales due to out-of-stock products. The two biggest reasons why? Buyers' planning mistakes and store management failing to execute. As a result, reducing out-of-stocks has been a major focus for traditional CPG ever since, but natural CPG can also benefit.

Empty shelves mean lost businessThe pitfalls of out-of-stocks

Out-of-stocks continue to be a huge problem in the natural channel, especially during promotions. It can even cause consumers to shop elsewhere. That equates to lost sales and/or a lost opportunity to bring new customers into the category. While consumers typically shop at many stores across several channels, the objective for the savvy retailer is to meet all their customer’s needs in a single trip. Out-of-stocks greatly reduce the likelihood of this happening.

Plus, 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 of a repeat purchase. Out-of-stocks make brands especially vulnerable to being discontinued at retail.

Retailers need brands that commit to keeping shelves full and keeping customers happy. 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.

Keeping shelves stocked

This is one of the main reasons the practice of category management started. Its mission is simply to reduce out-of-stocks, maximize inventory efficiency, increase consumer takeaway and increase the profitability of a brand. Category management has now evolved to fully understanding consumer buying habits and helping brands meet consumers' needs. 

Merchandising/distribution is the first priority. Getting a product on the shelf in the right place and at the right stores is key to any brand's success. Manufacturers need to work closely with retailers to ensure that the item has enough holding power (items available for sale on the shelf) to support consumer takeaway. 

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. The goal is to have no additional back-stock while avoiding out-of-stocks.  In this example, the retailer could reorder the item one case a week. 

What strategies do you have to reduce out-of-stocks? Share in the comments.

 


Daniel Lohman 
CMS4CPG.com logo
is the owner of Category Management Solutions (CMS) which provides innovative strategic solutions for natural and organic CPG companies interested in gaining a significant competitive advantage.

Discuss this Blog Entry 4

Joe R (not verified)
on Jan 23, 2013

Yes managing out of stocks is not an easy task. There are many systems and software on the market to collect and analyze data which helps with selecting the correct items and quantities.
However, at some point it comes to investing in inventory. You never want to sell out entirely unless you are discontinuing the item. If you are selling out there is no way to know how many sales you have missed by having an empty shelf. An item should always have some product on the shelf before the next order arrives. The trick is to manage the amount remaining on the shelf, not too much, not enough. This applies to all points of the supply chain from manufacturer to retailer.

SteveW (not verified)
on Jan 25, 2013

Natural Products companies can utilize third party support by sending them into the stores to audit for out-of-stocks, correct the situation by stocking the product if it is in inventory and/or communicating the OOS situation to the dept. manager to re-order and reset their replensishment levels. Then you can take the data back to your buyer and communicate the OOS situation so they can learn from it. You cannot be in all the stores, but third party providers can!

Ken Dailey (not verified)
on Feb 17, 2013

Out of stocks and inventory control are key areas of communication and collaboration needed to align to retail and manufacturer teams around a common goal - Sales!
Demand planning is a key area that can help if goals are aligned at a top level. Unfortuantely true demand planning direction is lacking on both the retail and manufacturer side and this disconnect leads to out of stocks... You can't sell to the demand ceiling from either an empty warehouse or store. Turns and margins need to be carefully considered based on the category role and adapted to work into the overall go to market strategy.

on May 21, 2013

Your post is very exciting and informative. I am planning to decide on a career move and this has helped me with one aspect. Thanks man!
Bill

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