How your digital marketing can circumvent a $15B Grocery Out of Stock problem
CPG’s go to market strategy and digital marketing has undergone quite the transformation over the last decade going from a single channel world to an omni-channel one. In the old world a product was developed and launched, sold into customers, marketed to the masses through mainstream media, product was pushed down linear supply chains into the supermarkets, and shoppers put it in their cart once they saw it on an end cap or shelf. The roads to the cart were pretty darn linear and predictable. Fast forward to today and the omni-channel world is upon us. There are virtual digital storefronts complementing and competing with physical stores, their supply chains mixed together in an act of gymnastics to keep up with their competitors. Traffic is driven from a mix of sophisticated and increasingly personalized and targeted shopper and brand marketing. Thanks to the virtualization of grocery, the jobs of marketing have ballooned, and it’s now also an opportunity to bring them directly to a personalized digital shelf and checkout experience. In a decade it feels like we went from a quaint system of roads that supported our Grocery industry to a complex network of highways and complicated exchanges–all unlocking more evolution, possibilities, and a more efficient –albeit complex—connection between goods and consumers. This is a lot of lifting by you and your organization and it’s getting done in short order!
While our new omni-channel CPG highway system continues to hum and evolve, an annoyance from the old world continues to surface: out of stocks— the road equivalent of potholes. Usually small enough that most people barely notice them, out of stocks are a never ending battle for those in the fulfillment trenches. Just like pot holes—the supply chain manages to fill them in quickly—and then others quickly re-appear like a never ending game of whack a mole. It’s an expensive game for the industry though; grocery out of stocks represent ~$15 Billion in missed revenue during a normal year in the United States—a glaring opportunity for retailers and brands alike3. If you’ve ever played the MIT beer game— an immersive and illustrative exercise in how demand affects supply– you’ll understand why the grocery industry’s average of 5 stock points for finished products (we won’t even get into semi finished or raw materials) causes those regular stock imbalances on the shelf for your brand. The average out of stock rate in grocery averages 5-7%3,4. That’s bad, but it gets worse. If your product happens to be on promotion you can expect OOS to rise another 3-5%pts1. It’s a hard pill to swallow to invest trade dollars into a promotion that might have a > 1:10 chance of hitting a dead end–that’s enough to make any finance manager cringe.
Unfortunately 2020 was a banner year for potholes. We experienced a trifecta of pandemic pantry stockpiling, supply chain constraints, and astronomical levels of meals at home. Just one of those alone would have caused ripples through grocery inventory. A Basketful analysis of June inventory levels revealed out of stock rates as high as 31% for sampled categories at a major US retailer2. In August, grocery wide out of stocks were still averaging around 10%—3-5pts higher than normal years4. Navigating a road to a shelf that actually had your product suddenly became a lot more complicated.
The beauty of a digital shelf is that it reinvents the road system. As a famous doctor once said, “where we’re going, we don’t need roads”. A data driven path to cart, powered by dozens of national retailer integrations, gives you a highly customized shelf that is immediately relevant to that person, in that place, and at that particular time. In 90210 there might be 9 grocery retailers available, but only 7 which have your new item launch authorized for distribution. Furthermore, another 2 might be out of stock. Basketful’s shelf shows them the set of 5 retailers that have your specific assortment of product available. Their friend across town will get a completely different shelf similarly tuned to their subset of stores and availability. Phoning it in and letting the retailer provide a substitution, or worse yet letting a competitor replacement occur, is a wasted opportunity. Research shows that when a product is out of stock, 85% of consumers do not delay the purchase—they settle for a substitute.4 Basketful dynamically makes an informed play call across 140M+ store/product combinations to route around the potholes and get your brand directly in the cart. Suddenly you as a marketer are joining in the battle against out of stocks and distribution voids, are designing tens of millions of planograms on the fly, making every marketing impression more efficient, all while helping win the sale in a virtualized store. Not bad for a day’s work.
1Maximize the impact of point of sale data with Data-to-Action Analytics, Genpact, 2015
2Basketful June Out of Stock sample Analysis, 6/1/20-6/30/20
4Plugging Out-of-Stock Gaps in Consumer Goods, EKN/Microsoft, 2016