Turning Grocery Supply Struggles into Opportunities

Grocery retailers have much to consider around how to navigate operational and customer experience strategy related to product availability in an ever-changing environment. Referencing recent research, we shared detailed insight and tips for staying relevant with consumers amidst the uncertainty, including:

• Surveying your customers regularly and performing impact analyses to predict what will drive their likelihood of continuing doing business with you and recommending you to others, including inventory and product selection.
• Electronically intercept customers leaving your stores using geolocation technology to ask them about their experiences in finding all their desired items and more.
• Perform (and track improvement over time) mystery shops, both in-store and online/ curbside pickup, to assess store-level execution around stock availability and substitutions.

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KEY TAKEAWAYS:

• Consumer concern about out-of-stock items took root at the start of the pandemic and continues to be a significant issue.
• Dissatisfaction with out-of-stocks at grocery stores is costing retailers significantly in short term revenue and potentially in long term customer loyalty.
• Strategies such as limiting the variety of offerings to ensure that consumers’ preferred brands are regularly available are viable.
• These strategies, however, must be executed with care and supported by research specific to the brand’s customer base.

At the onset of the COVID-19 pandemic, with uncertainty abounding, the nation’s grocery retailers were thrust into the spotlight as a critical and essential industry. They helped ensure their communities had access to healthy food, toiletries, cleaning supplies and other essentials. Store management and staff interacted face-to-face with the public and worked to keep stores clean and sanitized daily while important details about the virus unfolded.

With consumers in panic-buying mode for two months, shelves were emptied quickly and keeping them stocked became impossible. Now with over a year of the pandemic behind us while panic buying is no longer the culprit, the grocery industry continues to find challenges in maintaining sufficient stock of in-demand items.

Well-documented supply-chain issues and changes in consumer behavior and demand (e.g., increased number of meals prepared at home, less travel, purchase channel shifts) have contributed to staggering figures in lost sales during the pandemic. While the industry is adapting, these challenges continue today, and how brands respond will have major implications for their respective market share and customer loyalty.

To find out more about the implications of this ongoing reality, Ipsos recently surveyed 1,000 grocery consumers about their experiences, behaviors and preferences as they relate to the inventory situation at their primary grocery stores. While some of the findings should be alarming to brands, they also represent critical opportunities for those that prioritize understanding their customers and executing strategies and tactics to keep them loyal despite ongoing supply chain challenges.

Here’s what consumers are saying.

Inventory is still an issue:

• Two-thirds (65%) of Americans say that grocery stock availability is worse today than before the pandemic, an indicator that we are not out of the woods.
  • Nearly half (47%) of households with children reported that their primary grocery store is out of one or more of their desired items at least half of the time.

Out-of-stocks cause consumers to divert their business elsewhere, sometimes for good:

• 45% purchase items from a store other than their primary grocery store once a month or more because of out-of-stocks or unsatisfactory online order substitutions at their primary grocer.
  • Critically, this number rises to 60% for households with children and 62% among the 18–34 demographic.
• Nearly one in four (23%) will shop else - where next time if 1–3 items from their list are unavailable, and 37% will find another store if this number increases to 4–6 items.
• Almost one in five (18%) of households with children changed where they primarily buy groceries because of dissatisfaction with inventory or unsatisfactory online order substitutions.
• Stock availability is more important than price for earning online/curbside customers’ business.
  • While almost half (46%) state that sticking with the store they are most familiar with drives where they will place their online orders, 31% say that stock availability is the determining factor, compared with 24% who are driven primarily by price.

Clearly, the stakes could not be higher for grocers when it comes to staying competitive around inventory.

While continuing to manage the supply chain and work toward consistent inventory levels across product categories is critical, some brands are leveraging other strategies to supplement this effort, including:

Intentionally limiting selection of brands and varieties:

For example, strategies that limit the selection to a smaller number of varieties and/or brands is a way some retailers are approaching this. In fact, according to data provided by Nielsen, the average number of product offerings in grocery stores dropped more than 7 percent in a 4-week period from mid-May to mid-June this year. The thinking is that smaller selection will drive efficiency not only for the retailer, but also for consumers (in-store and online), reducing time and expense for both.

In fact, 39% of grocery consumers from our study report that they have noticed reduced selection of brands and/or varieties over the past year at their primary grocery store. This strategy appears to have merit, as more consumers than not (38% vs. 30%) said they would prefer a smaller selection of brands/ varieties if it meant that one of their top 2–3 choices would always be available (32% were not sure). For brands to successfully execute on this, obtaining customer feedback specific to their footprint and stores will be critical.

Offering alternatives to customers’ first choice:

Consumers understand that sometimes their favorite brand or type of an item may not be available, and therefore must decide whether to choose an alternative, or as is often the case in online/curbside pickup, have a proposed substitute presented to them.

Though 39% of consumers express flexibility to accept a substitute in any product category, not all categories are created equal when it comes to this. Most consumers have one or more categories in which they will not accept an alternate product. Fresh food categories including meat (35%), produce (28%), and dairy (27%), are primarily what consumers will not accept substitutes for, while others such as frozen meals (13%) and paper products (15%) have fewer consumers taking a hard line.

What’s Next?

Grocery retailers have much to consider around how to navigate operational and customer experience strategy related to product availability in an everchanging environment. Here are some tips for staying relevant with consumers amidst the uncertainty:

• Surveying your customers regularly and performing impact analyses to predict what will drive their likelihood of continuing doing business with you and recommending you to others, including inventory and product selection.
• Electronically intercept customers leaving your stores using geolocation technology to ask them about their experiences in finding all their desired items and more.
• Perform mystery shops, both in-store and online/ curbside pickup, to assess store-level execution around stock availability and substitutions. Track improvement over time.