A new wave of changes in shopper behavior is hitting retailers. Two large-scale studies conducted by Retail Insight demonstrate that on the one hand, retail customers complain about an increasing number of products being out-of-stock in-store. On the other hand, shoppers want retailers to reduce their environmental impact and significantly reduce food waste.
These expectations are not easy to manage. If a retailer increases product availability, this typically results in an increase in food waste. Equally, as retailers look to provide seamless online shopping and delivery services, the increased channel exposure can create major challenges to a retailer’s inventory record accuracy.
The challenge with product availability
A recent UK-based study conducted with over 1,000 shoppers revealed that 82 per cent had experienced out-of-stock products in the past 12 months – a significant rise from 71 per cent in the previous year. Even when ordering online, 60 per cent of shoppers experienced similar out-of-stock issues – an increase of 6 per cent since 2022.
To make matters worse, 32 per cent reported items being listed as in-stock online but unavailable when they arrived in-store. A further 25 per cent also experienced store associates not being able to find an item, even though it was listed as available in-store.
These results are symptomatic of an industry-wide problem with product availability caused by various factors including shelf gaps, faced over items or phantom inventory – the discrepancy between stock listed in retailers’ systems and the items available on shelves for shoppers to buy.
The true cost of an out-of-stock
This increase in out-of-stock occurrences is causing shoppers to walk away from their regular stores. More than a quarter (27 per cent) said they question their loyalty to a grocer when regularly experiencing out-of-stocks, and 21 per cent would abandon their shopping mission altogether and leave the store without buying any other items.
This is not what retailers want to see, particularly when set against a financial climate where margins are under increased pressure. However, it is representative of the changing retail landscape: Customers have an expectation that the product they desire should be available when they want it and where they want it.
It is, therefore, no surprise that retailers are looking for dedicated solutions to support them with product availability. One such provider, Retail Insight, focuses on optimising retail operations. Their Regional Vice President, Florian Strecker, commented: “When items are hidden, damaged or unavailable, the resulting lost sales can be as much as 8 per cent of revenue.”
The long arm of product availability
The challenge that retailers and companies like Retail Insight face into, is that product availability isn’t just an ‘on-shelf’ issue. It can typically start with a retailer’s single source of truth, their inventory record. On average, 60 per cent of retailers’ inventory records are inaccurate. Immediately, this can mean that a retailer believes they have more stock than they actually have, causing lost sales due to phantom stock. This then causes replenishment issues, which further increases availability challenges.
Add to this the increasing complexities supply chains face with rising energy costs, climate change impacts on production, and inflation across markets, and you have a recipe for margin-zapping lost sales. In fact, 57 per cent of shoppers believe that the rising food production costs are to blame for poor product availability. Increased logistics costs were identified as a large contributor, particularly in the UK, where 40 per cent blame Brexit for the rise.
Interestingly, in the face of these challenges, retailers often underappreciate the volume of information they are amassing, even if it is in lost sales. This data can be used to solve issues with product availability, replenishment and phantom inventory, something Retail Insight has a lot of experience doing. “By using real-time data, retailers can build a more accurate picture to ensure better product availability, putting the right product on the right shelf at the right time to keep their customers happy and encourage shopper loyalty”, explains Florian Strecker.
Why retailers should leverage cognitive technology
Retail Insight believes that successful solutions are built on a fundamental understanding of the nuances and complexities that come with the retail industry. Without this, solutions are destined for a short shelf-life. Cognitive technology is the augmentation of human subject-matter expertise and analytics with advanced mathematical techniques. It can include the use of AI and ML where appropriate, but it enables a more pragmatic, practical, and impactful approach to decision-making.
Retail Insight uses this technology to tackle phantom inventory and product availability. Leveraging a retailer’s POS and inventory data, the business can create actionable alerts that show where and when items are unavailable, with the solution also able to identify the root cause. This enables grocers to make smarter decisions in the replenishment process and minimize out-of-stocks.
Equally, Retail Insight can train data models for each store to automatically detect, alert, and correct inaccurate inventory in real-time. Many of their clients point to the increase in productivity and recovered sales as helping them hit their sales targets despite the macroeconomic pressures that retailers face. But retailers inadvertently face another challenge if they increase product availability: increased waste. With more products available across your channels, you are more likely to experience increased waste when items go unsold.
Sustainability is becoming increasingly important to shoppers
The impact of inflation and climate change is shifting shopper needs, who increasingly want sustainable products and low prices. This is revealed by the second shopper study conducted by Retail Insight in the US. When it comes to sustainability, an estimated 408 US-Dollar billion worth of food is thrown away in the US each year despite higher grocery prices and the rising cost-of-living.
The shopper study revealed that even with these pressures, 79 per cent have tried to be more sustainable in their buying habits over the last 12 months.
For example, more than two-fifths (43 per cent) make sure they only buy the food they really need to reduce waste in their household – an increase of 4 per cent compared to 2022. Another 38 per cent of shoppers have started meal planning to cut down on over-buying groceries that could lead to food waste (up 3 per cent year-on-year). And a further 33 per cent of consumers opt for price-reduced groceries whose best-before date is about to expire. In doing so, they want to help retailers reduce food waste.
With the cost-of-living in the US rising by 13 per cent compared to the previous year, and the average household spending 167 US-Dollar per week on groceries, 78 per cent of the survey participants said they are trying to reduce their spending on food.
Balancing act between low-prices and sustainable products
Yet, this reduction of spending is paired with a conscious effort to purchase greener and more economical food items. They expect retailers to follow suit with more sustainable behavior and products. More than three-quarters (77 per cent) stated retailers could do more to improve their environmental performance.
This is a 10 per cent increase from last year, in large part driven by Millennial (86 per cent) and Gen Z (81 per cent) respondents. Interestingly, two-thirds (66 per cent) of shoppers felt that retailers were spending too much time promoting other green initiatives, such as recycling, and not enough time focusing on reducing food waste.
“Our research in the US shows that despite the ongoing squeeze on household spending, consumers want budget-friendly ways to shop with an environmental conscience. This is prompting more acceptance and demand for marked-down food that cuts costs and reduces waste,” Retail Insight’s Regional Vice President, Florian Strecker, comments.
Smarter markdowns and reduced waste
With an increasing demand for marked-down goods, retailers must maximize their revenue opportunities and look at solutions to increase recovered sales, decrease stock in consistently wasted ranges, or improve their donation process. Many retailers are incorporating cognitive technology to gain full control over their food waste journey. In the US, for example, one retailer is using Retail Insight’s waste-reduction solution – WasteInsight – to monitor which departments are regularly experiencing high waste volumes and address recurring issues with suppliers to ensure that they’re not over-purchasing items if demand is not being met.
Other retailers in the UK, such as the Co-Operative Group, are using data to optimise their price reduction process. In doing so, they dynamically markdown products near expiry and immediately understand how much stock should go into the stock exit process – such as donating to charity or into surplus product bundle sales.
“Currently, 90 per cent of retailers discount at various stages before the best-before date on fresh or unrefrigerated products that are nearing the end of their shelf life,” explains Strecker. While these discounts may help drive demand, they are not optimised to maximize volume or profit. Therefore, retailers miss out on profit margins and create excessive food waste – a situation where retailers can only lose. By adopting dynamic discounting models, retailers ensure that they do not miss out on margin opportunities. These data-driven insights optimise food waste reduction and improve forecasting accuracy, enabling retailers to sell more and waste less.
Optimising retail operations in the face of changing shopper behavior
It is clear from the research conducted by Retail Insight that shoppers’ demands are evolving. There is an increased focus on product availability, a drive for sustainable practices and a need for low costs. These are complex challenges to solve, and in some cases the solutions are counter-intuitive. As already discussed, when increasing product availability, retailers run the risk of also increasing.
As a result, retailers need to embrace new technologies and solutions that are built on a fundamental understanding of the retail industry, have the capacity to scale and don’t have a detrimental impact on margins. Technology providers like Retail Insight enable retailers to unlock the potential of their own data using cognitive technology to optimise in-store operations. They can be live in-store within weeks, can scale seamlessly and are quick to value.