CHICAGO -- Rationalizing product mix for certain categories has enabled Dominick's Finer Foods to cut down on out-of-stock merchandise. "Consumers vote against out-of-stocks with their wallets and their feet," warned Herb Young, group vice president of sales, marketing and advertising for the Northlake, Ill.-based chain.
Young, speaking at the Food Marketing Institute's annual convention here, addressed the importance of dealing with out-of-stock merchandise.
As reported, a study conducted for the Coca-Cola Retailing Research Council by Chicago-based Andersen Consulting found 8.2% of items are out-of-stock, costing the typical supermarket 3% of sales per shopping trip. Supermarkets lose 0.5% of their sales base annually due to out-of-stocks, the study found.
While the results of the study were originally released at FMI's Midwinter conference, a more complete report was available at FMI's annual convention.
According to Young, Dominick's recently conducted its own study with a vendor, involving 15 test stores and 15 control stores. In the test stores, over 25% of stockkeeping units in one category were eliminated. The test stores saw an incremental 2% gain in sales, Young said. "To put the frosting on the cake, profitability also went up," he said.
Young offered two reasons for the sales increase. First, faster- moving items within the category got more shelf space, and were therefore in stock more frequently. Secondly, with fewer SKUs, it was easier for consumers to see the products that remained.
"The challenge is to maintain our position as Chicagoland's most complete food store, while cutting SKUs," he said.
Dominick's is also exploring other ways to reduce out-of-stocks. The retailer has developed a multifunctional task force that includes operations, distribution, logistics, merchandising and methods and productivity. The group's first task is to identify and measure out-of-stocks, said Young. In one case, three stores are charting the rain checks they issue, both by day and by week. Working directly with store managers has helped senior management at Price Chopper Supermarkets, Schenectady, N.Y., reduce out-of-stocks, said Neil Golub, president.
"For years, we've been operating under a faulty set of assumptions regarding out-of-stocks, like 'it's no big deal,' " Golub said.
Another false assumption store managers had is that out-of-stocks were tied to the warehouse service level, Golub said. According to the study, 97% of out-of-stocks on warehouse-supplied items could be traced back to incorrect ordering at the store level, inadequate shelf capacity or items that were not being restocked. Coincidental to the Coca-Cola study, Price Chopper targeted one of its districts as an area to improve the service level. Managers in that district named out-of-stocks as one area the chain needed to address.
Once senior management began discussing the issue with store management, they found the managers had a very different perspective on out-of-stocks, Golub said. "Managers felt they had 20,000 items to worry about, and that's a lot. And how on earth are they going to keep track of all those items?" he said. Store managers knew they had problems but didn't know how to fix them. Store-level managers also perceived senior management as not being terribly concerned about out-of-stocks, he said.
Store managers did present several barriers to resolving the issue, Golub said. "Some managers argued full shelves were the only thing they could accept as a matter of personal pride," he said. "Shelves with holes were viewed as unprofessional, and customers saw the holes as sloppy management.
"The group began to see that a changed strategy might help, but they needed the commitment of senior management that their solutions would be accepted and it would be OK," he said.
Once they received approval to deal with the problem, store managers developed an action plan: leave the holes open, attach the proper signs to the holes and use out-of-stock lists to identify problem items.