NEW GMA STUDY SHOWS RISING INCIDENCE OF OUT-OF-STOCKS

BARBARA MURRAY

WASHINGTON -- The costly problem of out-of-stocks at supermarkets is increasing, despite years of efforts by retailers to tackle the issue, according to a new study done for the Grocery Manufacturers of America here. The study, "Full Shelf Satisfaction: Reducing Out-of-Stocks in the Grocery Channel," is being released today by the food and beverage makers association at its annual executive conference in White Sulphur Springs, W.Va. It provides an in-depth look at direct-store-delivery categories.

The study found that, on average, only 92.6% of food and grocery products in the top 25 categories is available for sale to the consumer at any given time.

Or, put another way, about 7.4% of the time, a consumer cannot find the product he or she wants to buy because it is not on the supermarket shelf. This is a little worse than the last major study of this subject, done in 1996 for the Coca-Cola Retailing Research Council, which reported average daily on-shelf availability of 93.5% of category sales volume.

This report, and previous studies that focused on different categories, found that almost 40% of consumers would postpone their purchase or buy the product elsewhere. This puts almost 3% of supermarket sales at risk, resulting in the loss of almost $200,000 in annual sales per average supermarket (stores with $2 million or more in annual sales) for the top 25 categories.

These new findings come at a time when food retailers have honed their product assortments with the aid of advanced technology and concentrated their efforts on efficient fulfillment.

However, the study also indicates that pressures to cut retail costs and improve margins through a measure of efficient product assortment may in fact be part of the cause for shortages at the shelf.

The study was the project of the GMA's Direct Store Delivery committee. Roland Berger Strategy Consultants, New York, conducted the study with input from a Chicago company called ems, which covered 25 additional categories with 95 million data points.

The report tracked 1,600 items in seven DSD categories in 20 stores for 14 consecutive days. Also, 1,000 shoppers were interviewed about their response when confronted with an out-of-stock situation, by ems, which also provided daily out-of-stock data for the top 25 grocery categories (not necessarily DSD) from 500 more stores across five regions: Atlanta, Chicago, Dallas, Philadelphia and Los Angeles.

Erin Harcourt, director of industry affairs, GMA, said it was the first time the GMA looked at the out-of-stock problem from a consumer viewpoint.

Out-of-stocks ranked third among ways retailers could improve, according to the shoppers surveyed, behind shorter checkout lines and more promotions.

According to the study, when faced with an out-of-stock situation, 40% of the shoppers postpone purchase, or purchase elsewhere.

That is "a real eye-opener," said Joe Patti, vice president, retail planning and category management for Anheuser-Busch, St. Louis, who chaired the subgroup.

"Twenty percent of the time, they won't buy at that store. That is the bad news, but the good news is that all of us believe that it's a solvable problem," he said.

"Many retailers are in denial when it comes to out-of-stocks," Patti told SN. "Many of them know that it's a big, big industry problem, but many don't fully realize the impact on the stores and, more importantly, on the shoppers."

Other study sponsors were the Coca-Cola Co., Coors Brewing Co., Dean Foods, Dr Pepper/Seven Up, Sara Lee Bakery Group, Frito-Lay, Kraft Foods, Miller Brewing, Pepperidge Farm, Pepsi-Cola and Schwan's Consumer Brands N.A.

Another member of the subcommittee, Dave DeCoster, director, category management, Coca-Cola North America, said that while carbonated soft drinks was not the category with the highest out-of-stock rates, at 6.1%, CSDs do have the highest-dollar total of lost sales due to out-of-stocks, at $14,810 per store. This is a loss, he told SN, that he thinks can be reduced by 30% to 40%, if CSD manufacturers and retailers work together on the six proactive steps contained in the report.

Tom Greco, chief customer officer for Frito-Lay, Plano, Texas, told SN that in general, the out-of-stock issue has escalated significantly because of the technology investments over the years, so that it is measured more accurately. A widespread impression that DSD categories are immune to being out of stock might emanate from the fact that retailers measure their compliance out of their distribution centers and know their fill rate, he said. "But what's important is that it is on the shelf. Now that they can measure scan sales by the hour, they can ask themselves, 'If I'm not in stock, why not?"' Greco said he thought the study would prove helpful. "In categories which are discretionary in nature [like salty snacks], being out of stock is more of a problem because it becomes a lost purchase."

The study notes that ever since the beginning of the Efficient Consumer Response initiative in 1993, some retailers have been trying to reduce back-room inventories to reduce the cost of storage. They face a dilemma, though, because by cutting back on safety inventory, they risk running out of product.

Other causes are rigid store-delivery schedules and inflexible receiving procedures, physical space constraints, limited communication and collaboration, lack of in-store disciplines for DSD categories, inadequate planogram compliance, and lack of alignment and quantifiable metrics.

Potential solutions, the report said, are to optimize delivery and merchandising schedules; implement appropriate space, effective assortment and tailored planograms; improve collaborative planning, forecasting and replenishment; align in-store merchandising practices; improve in-store disciplines for DSD categories; and implement a joint scorecard with quantifiable targets.

Four percent of the time, this study found, the needed product was in the store's back room. The percentage more than doubles for the soft drink and beer categories. Also, it said, the current methods of order-generation for DSD products keep products unavailable for up to three trading days, despite the fact that product is stocked in nearby distribution centers.

"One of these problems is just communication," Patti told SN.

Increased on-shelf availability can boost sales by 2.9%, important in such a competitive industry where profit margins are slim. Losses per store due to out-of-stocks were calculated to average $75,000 a year for the seven major DSD categories studied, and lost sales can range from about $4,000 to just under $20,000 per category.

Previous GMA research has determined that DSD categories represent 66% of the volume of the top 20 consumer packaged goods categories. Although many assume that DSD availability levels are superior to that of warehoused merchandise, this study shows that for more than 60% of the time that DSD items were out of stock on the shelf, store management was either unaware of it, or assumed that the product had been ordered by the manufacturer.

"This largely reactive attitude toward DSD on-shelf availability is further evidence of the communication gap between the average DSD manufacturer and the store manager," the report says. Most store employees don't know how to reorder DSD merchandise, it stated, and concluded that the trading partners must work together to solve this issue.