THE BUZZ: Are Out-of-Stocks Driving You Out of Your Mind? - RFF Retailer Magazine, November/December 2003
By Warren Thayer
Out-of-stocks and poor planogram execution seriously undermines the profitability of refrigerated and frozen food departments, but many retailers accept them as inevitable. They don't have to be according to Tarrytown, NY-based SPAR/Burgoyne Retail Intelligence, which has made its business the past 63 years to poke around in stores to diagnose and fix problems.
The company's team, which works with major manufacturers in nearly all channels nationwide, routinely finds mis-stocks, missing shelf tags and insufficient facings in its audits. And don't underestimate what a few seemingly minor mistakes can mean. SPAR helped one manufacturer of refrigerated juices and drinks generate an additional $12 million in annual volume by reducing out-of-stocks and planogram mis-steps. (Not bad considering there were no additional costs or slotting fees.)
The 12 market, monthly auditing process took two years and involved checking three to five chains per market and 10 to 20 supermarkets per chain/market. In the end, SPAR had projectable data with which to quantify voids by chain and by market.
And what were the most common problems? First, chains did not set their order-up-to levels high enough to have sufficient stock on hand. Second, many store employees did not frequently replenish existing stock.
In some cases, product was not on the shelf despite being authorized and in the retailer's planogram. In others, shelf tags were incorrectly positioned or maintained. Ultimately, the manufacturer recalibrated order levels to provide sufficient backroom stock, and its retailer partners worked to improve in-store stocking discipline.
In another example, a leading manufacturer of margarines and spreads had SPAR look into out-of-stock problems being experienced in planograms it had customized by keying on consumer types (health-conscious vs. comfort food groups) chain images and local brand development indices.
The team audited 30 stores in each of four markets over a period of six months and found shelf tags were missing 8-10% of the time. Because the missing tags were never scanned, product was not reordered.
Further, product was mis-stocked or out-of-stock 10-25% of the time. This included stocking incorrect products and incorrect numbers of facings. For example, salted butter sometimes replaced unsalted butter, or tubs were displayed instead of sticks. There were also voids and low stocking levels for many products. Clearly, poor planogram compliance was resulting in unnecessary stock-outs, but at the same time, SPAR auditors found that some planograms were successful-and some unsuccessful-regardless of the store or market. By meshing these in store findings with scanner data, the manufacturer was able to create much more effective planograms.
Additionally, the new information allowed the manufacturer to develop broker alerts to flag mis-stocked products and missing shelf tags and to improve reorder procedures to limit voids. Over time, the incidence of out-of-stocks and mis-stocks declined to only 5-8% in the audited chains, an improvement of 50-68%.