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

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.

The 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 

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.