We’ve all been there… you’ve got a busy day and rush to the shops to buy those last-minute groceries. Maybe you’re preparing a stunning dish for that all-important date, or making sure you’ve got a carton of milk and plenty of cookies for visiting relatives?
But disaster strikes. You reach the shelf, and nothing’s there!
It’s not ideal to say the least, and often an outright inconvenience.
Products frequently out of stock due to short shelf-life or quick sales are what’s referred to as “high-touch point” merchandising. If you think it’s annoying as a customer, it’s even worse for manufacturers and retailers.
Out of Stock (OOS) situations cost billions of dollars every year, resulting in lost sales, disappointed customers, and slow business growth.
So, what can be done? Today, we explain the issues caused by Stock-Out scenarios and what CPG brands can do about it.
What is OOS or "Out of Stock"?
Let’s begin with a basic explanation.
While different retailers have various classifications for OOS situations, we’ll work with a simple definition:
OOS happens every time a product isn’t available to purchase when a customer (or retailer) would expect it.
With the ongoing impact of global transportation issues, labor shortages, and the knock-on effects of the pandemic, US retailers face an average of 12% OOS levels on food and drink. This compares with 7-10% previously.
Unsurprisingly, high-touch point products are most impacted by stock issues.
What are the common problems with high-touch point products?
The biggest problem with high-touch point products is they’re susceptible to going out of stock.
During the pandemic alone, OOS high-touch point CPG products resulted in a loss of over $3 billion sales. As well as lost sales, labor costs increase with persistent re-orders and manual stock auditing.
With growing consumer focus on health, fresh produce, and sustainability, average shelf lives correspondingly decrease. While this is an incredibly positive trend in itself, it poses challenges for manufacturers, distributors, and retailers.
Misjudging stock levels has significant knock-on effects for all businesses along the CPG supply chain. It impacts customer loyalty, increases operational costs, and results in lost promotional investments.
With consumers in mind, two of the biggest issues are:
Customer dissatisfaction
If customers repeatedly experience shortages at a particular store, they’ll simply shop elsewhere. As well as negatively impacting retailers, customers may also swap to different brands to fill the gap.
That brand loyalty you’ve been carefully building with honed promotional activities? Gone. If substitutions are needed on more than one occasion, customers will probably switch for good…
Negative reviews
What does dissatisfaction lead to?... Negative reviews.
We know sales don’t just occur in physical stores. Leading retailers and CPG brands are heavily focused on e-commerce and digital sales.
If a customer tries to make a purchase on your website only to find the product is unavailable, this increases the chance of negative reviews across the web.
This may also dissuade new customers from your brand, perceiving your products as unreliable and unavailable.
So, what can be done?
The first thing brands and retailers must do is understand why high-touch point products are going out of stock.
A massive range of factors influences stock levels. This could be underestimating a surge in customer demand, delays either from suppliers or distributors, simple human error, or retailer cash flow issues reducing investment in new inventory.
Of course, OOS situations are sometimes out of your control. In business, it pays to prepare for the worst, however.
So how can you mitigate potential risks?
It’s time to look at solutions…
4. Solutions for high-touch point CPG merchandising
1. Invest in inventory management
We’ve already seen that OOS scenarios are the number one problem for high-touch point CPG merchandising. And what causes this? Poor inventory management.
Make sure you’re prioritizing investment in up-to-date inventory management software, as well as tech-enabled product tracking and management tools. This won’t just help overall stock levels but will also improve your company’s processes and efficiencies too.
2. Sustain your safety stock
Safety stock is just that, your safety net.
This refers to excess product kept in case of unforeseen emergencies or delays – and means you’ll never disappoint customers through low inventory.
To calculate the amount of safety stock you need, look at your maximum daily sales and lead times, as well as your average daily sales and lead times. After calculating your maximum amounts, subtract your average daily sales and lead times from this.
The remaining figure provides an estimate of the amount of safety stock you should always have available.
3. Focus on future forecasting
Predicting future demand is hard.
With automated inventory management software tools, this job can be easier, however. You can analyze busy and quieter periods based on strong data-points, helping you make better decisions about future stock levels.
For instance, use sales data to compare sales during specific seasons and holidays, or during promotional activities. A good inventory management software also allows you to optimize stock levels across multiple locations, and factor in long-term trends.
As an added bonus, this will help prepare for any decreases in demand. While consumers don’t want out of stock products—you don’t want to be left with surplus stock either!
4. Collaborate with a great distributor
A great distributor (like us at Buffalo Market!) can effectively support CPG brands working with high-touch point products.
How?
With a focus on direct-to-store delivery (DSD) we assist with the entire product journey, from the moment it leaves your premises to being sold on store shelves. We send sales reps to stock and manage displays, plan promotional campaigns, and alert brands when stock levels need replacing.
This distribution model is perfect for rapid replenishment of stock, promoting greater collaboration and communication between manufacturers, distributors, and retailers alike.
Buffalo Market is the leading distributor of mission-driven food and beverage brands. We move mountains to get your goods on the right shelves, so you can focus on growing your business and creating great products. Get in touch today to tell us about your brand, and let’s get to work.
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