How to Outsource 100% of Inventory Risk & Guarantee Margin Expansion Across Fresh

Since the pandemic’s inception, the grocery store has reflected changes happening at a broader level; surges in COVID-19 cases spur bulk-buying, financial struggles drive shoppers to seek deals and labor challenges result in operators looking for ways to improve efficiency.

Most recently, price hikes and supply chain disruptions have impacted retailers and shoppers alike. According to the Bureau of Labor Statistics, several grocery categories ended the year with wholesale prices 15-20% higher year over year. Perimeter categories, such as meat, produce and dairy, have been particularly vulnerable to price hikes. And shoppers have taken note: An IRI poll found that 80% of consumers are concerned about price inflation at the grocery store.

In addition, retailers have reoriented their strategies and consumers have shifted their shopping habits as they navigate supply chain challenges. According to a survey by Shelf Engine, 25% of grocery retailers cite “product availability, quality and consistency” as their No. 1 ordering challenge, while 18% cited “inventory management.”

Getting ordering right is a worthy strategic focus; stockouts can impact store sales and loyalty. More than one-third of consumers said they had experienced out-of-stocks during their most recent grocery trip, according to IRI. While 28% just purchased a different brand or variety of the out-of-stock item, most shoppers opted to take their money elsewhere. Twenty-nine percent said they skipped the purchase, while a whopping 39% said they bought what they wanted at a competing store instead.

So how can retailers surmount these challenges to reduce shrink costs and keep products on the shelf? First, focus on the abundant opportunities in fresh departments. Next, proactively eliminate the cost of shrink in strategic categories.    

Opportunities on the perimeter

Retailers can intuit why shrink reduction should be a priority, but stopping shrink at its source—in fresh departments—may not be as straightforward. According to Shelf Engine's internal analysis of IRI data of total 2020 sales as well as a report by Progressive Grocer, highly perishable categories make up roughly 39% of grocery sales, yet contribute significantly to the challenge of food waste. Especially amid supply chain disruptions, ordering enough product to avoid stockouts while keeping waste to a minimum is a balancing act.

Striking this balance is particularly important to the success of perimeter categories, such as the prepared foods, deli and dairy departments. Not only do perishable items come with a shorter shelf life, but fresh foods have been—and will continue to be—the products driving differentiation and outsized growth at the supermarket.

Perimeter products are a source of competitive advantage for brick-and-mortar stores, even as many shoppers are turning to ecommerce for other foods; according to a report by FMI and Deloitte, 7 in 10 shoppers still prefer to buy fresh foods and beverages in-store. It’s largely for this reason that 80% of food industry executives say that expanding fresh food categories is a strategic goal for the next one to three years.

Reducing shrink in strategic categories

According to Shelf Engine, grocery shrink is often more than 160% higher than reported, and shrink discrepancies are found to occur more than 75% of the time for both large and small grocers. Common culprits preventing grocers from having a clear picture of their shrink are human error and manual processes. Miscommunication between vendors and store employees, failure to scan damaged products and labeling mistakes underscore the often vast difference between the shrink volume retailers report and the shrink volume Shelf Engine identifies in its audits.

Shelf Engine presents a solution to eliminate this human error and manual work: Cutting-edge technology that intelligently forecasts on-hand inventory and predicts consumer demand to generate more accurate orders. Achieving more accurate orders for perimeter categories improves product availability to drive incremental sales, and less shrink unlocks margin expansion. Grocers who adopt Shelf Engine’s performance-based solution see more than a 50% increase in gross margins on average. What’s more, Shelf Engine buys back what doesn’t sell, eliminating risk for grocers entirely, and automates the entire forecasting and ordering process so grocers can spend more time on other in-store tasks.         

By leveraging opportunities on the perimeter and taking control of shrink, retailers can expand their margins in these more profitable categories, reduce the stockouts that disappoint shoppers and gain a competitive edge. To learn more, visit shelfengine.com.