Out-of-stocks: Is this a problem? Or is this an opportunity?

by Paul Schlossberg
Posted On: 3/19/2018

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 Paul Schlossberg
Right now you're thinking that this is silly: "Out-of-stocks are NOT a problem in my business."

There are two reasons why you probably feel this way: (1) we do not have many out-of-stocks; and (2) if we are out of a product, people will just buy something else.

You are wrong! Do you know how many out-of-stocks you have right now? Think about all of your locations, including vending, micromarkets and onsite foodservice. Odds are the out-of-stock situation is worse than you think it is.

If you don't believe me, please check out the excellent report prepared by Field Agent in 2015, "Identifying Critical Issues in 21st Century Vending." The study covered 500 consumer surveys and audits at 250 vending machines.

One of the most important questions in the machine audit was "Are there any out-of-stocks in the vending machine?" They found 62% of the machines had out-of-stocks. And there were more than 4 empty slots per machine.

In my snack sales management experience, it became obvious that out-of-stocks were a serious problem. We came to realize it was an opportunity, if we could figure out how to address it.

We learned from our retail colleagues who were selling to convenience stores. Consider what their research discovered.
•    A person usually walks into a convenience store with three possible product choices in mind.
•    If the first item cannot be found quickly (whether out-of-stock or in-stock but not easily spotted), the second item becomes #1.
•    Now if item #2 (the new #1) cannot be found quickly, then item #3 reaches the top of the list.
•    Like the first two items, if item #3 (the new, new item #1) cannot be found quickly, something else occurs. But it's not what you expect. The person leaves and does not make a purchase.

Again, you do not accept that people will leave and NOT make a purchase when they are thirsty or hungry. Here is some other research to ponder. There was a study in Convenience Store News about ten years ago.  Among the conclusions:
•    Out-of-stocks in convenience stores are equivalent to 3% in lost sales. Let me restate that: if they fixed out-of-stocks, sales would increase by 3%.
•    The average out-of-stock level is 9.2%.
•    The worst days for out-of-stocks are Sunday, Wednesday and Monday. Just think about Monday and out-of-stocks. At most of your locations Monday is your opening day. Starting out the week with lots of out-of-stocks is not a good way to encourage shoppers to keep coming back for more during the week.
•    29% of customers would NOT substitute if their preferred products were out-of-stocks.
•    For beverage shoppers, they would purchase the same brand in a smaller size. That is not meaningful in our business, as we usually only offer one size of a beverage brand.
•    For candy and snack buyers, the implications are even worse for us.
              » 32% of candy shoppers would leave without buying.   
              » 27% of snack shoppers would leave without buying.

People today have a very low tolerance for retail stores running out of their preferred brands. This applies in almost every line of business, not just in our channel. One of my friends is a long-time consultant in the convenience store channel. He told me that the old rules are gone. Shoppers were once forgiving and might return one or even two times if a store disappointed them. He said "Now it is one-strike and you're out. Shoppers know that other stores are nearby and will have their preferred products. Why bother returning to a store which cannot give you what you want?"    

That's why you cannot afford to ever be out-of-stock on the best sellers. Don't forget that the best sellers are different across the many locations you serve.

WHAT TO DO ABOUT OUT-OF-STOCKS?

This action plan will get you started:
•    Get calendars and schedules from your key accounts. You want to know when they will have more (or fewer) people onsite. That will help you plan in advance for service cycles and inventory levels.  
•    Monitor your sales activity versus inventory par levels on a frequent basis. This is even more critical at your best locations. If you don't have monitoring software systems, shame on you. If you have the capability and are NOT using it, that's a huge mistake. You're losing sales you should be making.  
•    Think carefully about reducing the number of marginal items you're selling. What's a marginal item? It is a slower seller AND it delivers lower penny profit per unit sold. Drop some of these less productive SKUs and add more inventory of your best sellers.
•    Visit your locations on a regular basis. You'll see what out-of-stocks look like to the people who are shopping at your locations every day.
•    When you are out of the office, stop in at convenience stores near your best locations, Pay attention to out-of-stocks. You'll learn that we are not the only business with out-of-stocks opportunities.

We all want to increase sales and profits. We must find new ways to "sell more stuff." Here is an opportunity you should attack aggressively. Fix out-of-stocks.


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Paul Schlossberg is the president of D/FW Consulting, working with clients to merchandise and market products in impulse-intense selling environments, such as vending, onsite foodservice and convenience stores. Based in the Austin, TX area, he can be reached at Paul@DFWConsulting.net or 972-877-2972 or www.DFWConsulting.net.