Stockouts almost always top off the worst nightmare lists for retailers, and for a good reason. Not only do they lead to lost sales, but out-of-stocks also result in reduced customer satisfaction and lower loyalty levels.
And yet, 71% of consumers feel that out-of-stocks are even worse in-store now than they were during the COVID-19 pandemic. Out-of-stocks are costing retailers nearly $1 trillion in sales, which inevitably has a huge financial impact on the CPG brands supplying those retailers too.
But why is an OOS occurrence so costly? And what can you do to prevent it? Let’s take a look.
Why are out-of-stocks so bad?
Bad customer experience
Customers expect to find the CPG products they want and when and where they want them. Fail to provide that convenience, and you’ll end up with frustrated customers. It’s simple.
This can reflect poorly on both your brand and your retail partners — it’s essentially a lose-lose-lose scenario.
Reduced customer loyalty
When customers can’t find your product in-store or online, what do they do? If it’s a CPG product they really need, the majority of consumers will simply buy it from another brand.
NielsenIQ research found that 30% of consumers would try another retailer, and 70% of consumers would try another brand if they couldn’t find their preferred product in-store.
If a consumer tries this new product and happens to love it, you’ve lost a loyal customer along with all of the time, money, and effort you put into winning them over in the first place.
Negative brand equity
In CPG, convenience is king. You have to make it super easy for consumers to find and buy your products.
Fail to do so, and you risk damaging your brand in the eyes of consumers. Disappointed customers, who view your brand as unreliable, are more likely to leave negative reviews that harm your reputation.
Sales loss
Every time a consumer can’t buy a product because of a stockout, you miss out on a sale. If a customer switches brands on you, you’ve lost that recurring sales income over a much longer period of time.
To restock shelves at short notice, you may also end up paying a rush fee to get your deliveries to the right place as quickly as possible.
That’s why regular stockouts can really start to eat into your sales and profit figures.
What causes stockouts?
Some stockouts are created on purpose.
Remember Coca-Cola’s “Share a Coke” campaign? It was based around the scarcity principle — the idea that you can build buzz around a product when there’s only limited stock available.
But for the majority of CPG brands, a stockout is not a problem you’ve created on purpose and it’s not a problem you want. An OOS situation is usually down to one of the following factors:
Mistakes in item counts
If you don’t have an accurate picture of the stock available in a particular store, you can’t prevent stockouts. Miscounts can happen in a number of different ways.
If you’re relying on manual systems, there’s huge potential for human error in either the count or the data input. Even if you use inventory software, technical issues can affect its reliability. Lastly, there’s stock shrinkage to consider. This is where goods are either stolen or damaged.
Poor forecasting and reporting
You need reliable reports and forecasts if you are to predict consumer demand accurately.
Sometimes you’ll experience an unseasonable spike in demand that is entirely unpredictable. But if you don’t anticipate a surge that tends to occur at the same time each year, your forecasting and reporting methods are to blame.
Logistical problems
Supply chain problems became a huge concern for businesses during the COVID-19 pandemic, and it’s not a problem that looks set to go away any time soon.
Logistical problems — whether global or local — impact the number of stockouts your brand experiences. Products can get held up, delivered to the wrong place, or delivered later than the agreed schedule.
Cash flow mismanagement
You know that a stockout is looming, but you don’t have the ready money to purchase the products or ingredients needed to prevent it. Poor cash flow management can get in the way of a steady product supply.
Poor stock replenishment practices
Sometimes, the reasons for an out-of-stock lie with your retailer. If their staff aren’t properly trained to monitor stock levels and replenish them, shelves will sit empty for longer.
How to avoid out-of-stocks in CPG
You can’t avoid all OOS risks. Some issues are for your retailer to resolve rather than you. However, there are lots of different strategies you can employ to avoid out-of-stocks from your end.
Build a great relationship with your stores
Your CPG business relies on strong partner relationships. When you have a great relationship with your retailers, you can work together to avoid OOS scenarios.
Aim to share real-time inventory data with software that tracks both sales and stock. This will help you to get ahead of stockouts and replenish shelves before they’re left empty.
Track out-of-stock trends
Keep a log of any OOS occurrences. Close tracking will reveal patterns.
Perhaps your plant-based burgers always sell out during barbecue season. Or your fruit smoothie drink gets a sales boost during January’s health kick.
Auditing and recording — either manually or with the help of demand planning software — allows you to anticipate product demand more accurately.
Build a consistent distribution schedule
This is where forecasting comes into play. You should use at least one of the following:
- Quantitative forecasting: where you use historical sales data to predict future sales
- Qualitative forecasting: where you use expert opinions, outside analysis, or market research to predict future sales.
Using this detailed insight, you can better predict stock movement and plan a distribution schedule accordingly.
This will help you to execute orders more reliably, build better relationships with retailers and reduce the profits lost to stockouts.
Find a reliable direct store delivery (DSD) distributor
Buffalo Market's white glove direct store delivery distribution help keep shelves stocked at all times. Our data-and tech-driven model predicts when and where products sell best, so we can ensure inventory is exactly where it needs to be.
To learn more about how Buffalo Market can help your CPG business avoid out-of-stocks, schedule a demo with one of our experts today!
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