Reinventing Grocery: The Pressure to Replenish

This week’s blog post is the second in a series taken from our webinar and eBook, Reinventing Grocery | The Timeline to the New Normal. To read the first and third parts of the series in Reinventing Grocery: The Timeline to the New Normal, please click here and look for the posts titled “Reinventing Grocery.”

Today:

Looking at data from three different regional Agilence customers, we’re able to see that shoppers rushed to buy more of everything in-store. Grocery demand had been steadily rising until March 13 when it seemed like the entire world came to a halt. Internally, we’ve been calling this the Hanks Peak since it was the day that Tom Hanks and his wife Rita Wilson announced that they had tested positive for coronavirus.

On the same day, Italy confirmed almost 200 deaths in 24 hours, President Trump halted travel from Europe to the United States for 30 days, the NBA suspended their season indefinitely as a player tested positive, Disney World closed, and the NCAA hoops tournament was to be played without fans. Unsurprisingly, this overwhelming influx of news pushed shoppers to get out and stock up on all kinds of items in store thanks in part to the news cycle focusing on items like toilet paper being out of stock across the country.

When we break it down by category we see that customers were stocking up on center aisle foods like non-perishable pastas and soups but eventually leveled off and after their initial few rounds of “panic-shopping” but eventually leveled off and those departments as people began getting into quarantine routines. Grocers obviously saw an increase in sales for cleaning supplies but also items like sharpie markers and printer ink as people were forced to work and teach from home.

Based on the trends we’re hearing directly from grocery executives, grocers are focusing on the 20% of the items that produce 80% of the volume. In many cases, there’s not enough inventory to run “sales,” leading to higher average prices across the board, but consumers are adapting well to these shortages as long as they are getting “some” version of the item they set out to purchase.

As grocers continue to stock critical items, customers have become more accepting of out-of-stocks for their desired product, instead purchasing an off-brand or different brand than usually buy since it’s the only available option for that desired product.

In a recent interview, Scott McClelland of H-E-B Supermarkets in Texas said “Rather than 40 kinds of bacon, let’s bring in two. And the customers have been super understanding and they realize that in a time of crisis, everybody has to be flexible.”

Even though consumers may have less of an ability to get “special” items, these reductions will also help put less stress on Operations, which will have a long term impact on the breadth of varieties. Some very successful grocery customers already limit variety in center store and some cold items focusing only on core movers, which may have some major impact on grocers and suppliers creating winners. 

Tomorrow:

As we shift to look at inventory in sales for the next few months, grocers need to consider how an increase in stock hitting the shelves will impact them in terms of expired shrink down the line.

The truth is, hecking dates might not be a priority for you today. One grocer recently reached out and told us that they’ve seen sales up 500%, rivaling that of the day after Christmas. During this initial hoarding phase with category after category getting wiped clean of inventory, you’ve effectively sold through any of your expired shrink concerns that were once on the shelf. You can now use the labor hours once used rotating and pulling expired products for more timely critical actions like fulfilling online orders and helping stock shelves. But how long until expired shrink starts to return to a baseline?

Grocers focus on the slowest movers as the top drivers of expired shrink – rightfully so, as the 25% of a stores inventory that turns the slowest accounts for more than one-third of expired losses. However, the 50% of inventory selling the fastest in stores also accounts for roughly one third of losses as well. On a normal day, high turn products expire due to a lack of rotation when stocking.

In terms of grocery sales volumes, the closest phenomenon to what we’re experiencing with coronavirus sales is a store grand opening. The store is fully stocked with fresh food just like how grocers now are stocked with fresh food after selling out of everything.

When we look at store grand openings, dairy and meat take essentially three months to reach their own peak for shrink, with meat dropping off after that. Grocery takes around five months, which is not as long as you might expect considering the shelf life is two or three times longer than what we have in dairy and meat. The reality is that items that grocers get from the warehouse are do not always have their full shelf life.

It’s entirely possible that this data throughout 2020 and into 2021 will shift toward an even higher portion of loss coming from these top sellers as that dash to fill shelves leaves rotation practices at the wayside and we de-emphasize reordering and filling slow movers.

While daily operations might not include checking dates and rotating the shelves, make sure you keep those dates and timelines in mind so you’re prepared three to six months from now when your expired shrink starts to ramp up again. 

Since we’ve discussed which categories have seen the most growth during the coronavirus pandemic, let’s take a closer look at what categories saw the least amount of growth.

As you can see from the graph (below), adult nutritional category sales are down 73%. Second on the lost is candy, which saw essentially flat sales. The candy category has always been one of the highest expenditure categories in the grocery department. When we looked at stores that have continued their diligent date checking processes through the pandemic, we saw candy stand out yet again as a top expired category even more so as a percentage of the total loss than before. 

The Future:

As we move to the future six months from now and beyond, it’s time we take a look at our skew optimization plans. On a SKU level, the decision making isn’t as black and white. It’s not all about discontinuing or keeping an item; many times the right answer is something in between

Take a look at the first item on the chart (below). The Lala Blended Yogurt Mixed Berry Flavor is a product that stands skinny on an end and is easy to carry 40+ units without actually taking up much horizontal shelf space.

Assume that your monthly sales on that yogurt is 30 units, yet your shelf capacity is 60. You’re effectively guaranteeing half of your inventory becomes shrink on a monthly basis on a product that only has a 30 day shelf life.

This might sound far fetched, but it’s a case we see play out over and over again in stores. Right now you’re armed with a new set of data. You can look back at historical sales and merge the data with what you saw grow and not grow during the pandemic. Consider putting a spotlight on these kinds of items that need to be discontinued, or in the Lala case, might just need a couple less facings. 

If 20% of our variety is driving 80% of our sales, we have the ability to cut back on the products that we’re carrying to make shopping our stores easier for customers.

While some of your top mover inventory may settle back into their regular grooves, what about the items that were selling poorly during the pandemic? How these items are purchased and displayed need to be taken into consideration as you update or design future planograms.