GROCERY INNOVATION // week 3

This series will be published Thursday’s and will review trends, tips and technology to optimize grocery planning. To sign up for series updates - CLICK HERE»

Customer Awareness

The movement towards customer awareness is a growing trend in today’s retail market. As grocers seek new business tactics, they will find that one of the most profitable strategies is creating a customer-driven supply chain. For grocery chains, the secret to success lies in the drive towards localized inventory.

Local demand signals

There are a variety of demand signals that need to be monitored on a local level, these signals include: the time of day activity occurs, local events, sports schedules, weather, seasonality, social trends and local buying habits. To add to this already complex problem, this must be done at a SKU/store level, in real-time to optimize profit from perishables. Grocers are one of the only retailers who have a legitimate need to plan inventory by the hour in order to avoid situations of ‘scarcity and abundance’.

Departments like dairy, meat, produce, sea food, bakery, deli, etc. sometimes have a lifecycle that is measured in days (or even hours). The key to optimizing profit with this merchandise is timing. Integrating time-phased planning for fresh products requires a strategy and an execution that aligns store-specific assortments with localized signals of demand. In order for stores to execute on their strategy, they must have the ability to plan in advance for known demand signals, and to execute quickly for signals that change on a day-to-day basis.

Local Suppliers

Utilizing local suppliers in your chain will also help you appease your customer’s needs. According to a report from the Food Marketing Institute on grocery shopper trends, consumers continue to show strong support for locally grown products.

Nearly three-quarters (72 percent) of shoppers say they purchase locally grown products on a regular basis.

Some of the reasons they like to buy local:

• Freshness (82 percent).
• Support the local economy (75 percent).
• Taste (58 percent).
• Environmental impact of transporting foods across great distances (35 percent).

Local demand insight for perishables

When grocers have local demand insight, they can optimize their recipes and manage their yield in order to align their fresh produce to that localized need. They can manage orders based on transit costs and locality of suppliers, as well as understand local factors that drive the demand of specific product types. Grocers will notice immediate increases in margin with their fresh and perishable goods, because they will be minimizing waste while achieving their availability goals.

Local demand insight for non-perishables

Because the majority of non-perishables are shelf stable with long code dates, the time-phased element to the demand, delivery, and sale is related to carrying cost, customer service levels and the cost of money invested. The majority of allocation/distribution projects tend to focus on determining how much inventory to push to a given store. Theoretically these items can remain in the store until someone buys them or until they are marked down as part of a clearance initiative.

Non-perishables are typically divided into two groups, fast moving consumer goods (FMCG) and slow moving consumer goods (SMCG). FMCG are typically intended to be completely consumed by the customer (like paper towels, charcoal, pet food, etc.). SMCG are intended to be replaced someday but on a far less predictable buying curve (like flatware, dishes, light bulbs, decorations, home décor items, etc.).

What is most important for FMCG is the replenishment strategy. FMCG are typically replenished based upon a combination of assortment, demand and time. Having local demand insight on how to most efficiently pack and move those goods during the replenishment cycle will help grocers reduce costs. Grocers usually do not mind carrying some additional inventory for FMCG because demand is usually high and sell through is complete soon after delivery.

Since slow moving goods typically remain in the store for a long period of time, demand is less important. However, these goods can cost a tremendous amount of money in inventory carrying costs and typically end up eroding the overall margins of the store through markdowns and inventory reduction initiatives. The strategy for SMCG relies on having an efficient initial allocation that takes into consideration local transit vs. national transit as well as size and pack optimization.

Assortment and SKU rationalization

Assortment and SKU rationalization ensures that every product serves a purpose at each store. Grocery chains need to align their inventory with regional and cultural product preferences. Grocers will find that in some stores – natural products sell more rapidly, in others – cultural products perform best, while in some – discount items move quickest. To understand this level of SKU/store analysis in real-time with 46,000+ SKUs and over 500 stores would be impossible with spreadsheets. Grocers need the right technology to ensure they are able to get their order right.

Sustainable Practices

The FMI reports, that despite the volatile economy, consumers are still concerned with sustainable practices. More than half (59 percent) of shoppers say retailers’ efforts in the areas of recycling and sustainability are important. The vast majority of retailers (94 percent) sell reusable shopping bags and more consumers (40 percent) are bringing their own bags when they shop for groceries. There is growing evidence that sustainability can make sound business sense, reducing costs and increasing consumer loyalty.

Metrics to drive inventory

In order to adapt to those differing habits, grocers need to have the ability to turn transaction data into an action plan for the store and customer. Grocers must first consider what detail of transaction data is necessary and then compare the factors of demand to the conditions of the transaction.

In an industry where one mistake can wipe out hundreds of good decisions, shopper behavior and local buying habits are the most important metrics for grocers to utilize in their inventory decisions. The quicker a grocer can understand and react to this information, the quicker they will increase sales and service levels while reducing inventory waste.

Learn more

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For resources on allocation, visit: http://quantumretail.com/solutions/allocation-replenishment/resources

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