Competition in fresh products is intensifying, with more grocers and convenience retailers using the category to differentiate and draw customers. The fact that 41% of grocery retailer sales are derived from fresh foods highlights just how important it is for grocers to manage this category well. Getting your inventory levels right can make a massive difference in who will win in fresh and who, unfortunately, is likely to lose.
Why is fresh such a challenge for retailers, and what could solving it mean for them?
Fresh departments represent the majority of the total shrink in a store — a growing line item that’s been negatively affecting profit margins as grocery retailers try to respond to rising consumer demand for fresher and healthier products.
Overall costs are rising across the board, and lot of it — from rising minimum wages to rising utility bills — is out of your control. That’s why it’s so important for grocers to make concerted efforts to control what you can, and the best place to start is decreasing shrink, the biggest line item negatively impacting net margin. Increased inflation and increased price pressure from discounters have also contributed to higher costs and lower sales, which highlights the importance of reducing fresh shrinkage.
What’s the opportunity for grocers that can reduce their fresh shrinkage?
Reducing fresh shrinkage really is low hanging fruit (sorry, pun intended) that any retailer should already be taking advantage of. If you decrease shrink without negatively impacting fresh sales, you could see a 2-3% potential increase in profit margin and significant savings in your most important department. Once you’ve found the right solutions and experienced partners to guide you through the changes required, these benefits are easily within reach, offering a rapid return on investment by battling shrinkage. Reducing fresh shrinkage really is low hanging fruit (sorry, pun intended) for a retailer that they should immediately take advantage of.
What are some simple and some less obvious things a retailer should do to combat shrinkage?
A simple starting point for retailers to reduce fresh shrinkage is empowering store employees to suggest order quantities when creating orders. Their direct store-level input into order quantities helps to maintain availability rates while reducing spoilage.
Retailers can also find significant benefits from examining the impact of production planning on shrink, as well as how it can be coupled with forecasting to combat the issue. You can have a significant impact on margin and revenue by linking production planning for packaged fresh goods (which could include prepared items like sandwiches and processed ones like guacamole) and knowledge of how much of each ingredient will be ordered.
A third way to reduce spoilage is better detection of phantom inventory with a new generation of artificial intelligence and machine learning solutions. Combining the expertise of store operatives with new technologies gives grocers a fail-safe strategy for optimizing how they manage fresh to reduce waste and maximize margin and profit.
Final thoughts
In an increasingly competitive market for fresh products, grocers need to adopt solutions that can make an immediate positive impact on demand forecasting and inventory management in fresh departments, and include production planning as a focus area in the fight to reduce fresh shrinkage. It’s more important than ever for retailers to elevate the importance of how they reduce waste — ensuring they maintain availability while maximizing margins and revenue.
Amanda Oren, VP of Industry Strategy, Grocery brings two decades of retail strategy experience, with a background spanning merchandising, e-commerce, cross-channel operational improvements, category management, and system implementations. She now focuses on demand and inventory planning, helping grocery retailers leverage RELEX to optimize their operations and drive growth.
