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    Can't Believe the Hole Thing

    Retailers look for ways to ensure full shelves in the middle of the store.

    Think you have problems? C-store gondolas across the nation can't get over that awful, empty feeling that something's missing in their lives.

    Out-of-stock levels for products merchandised on convenience store gondolas run 8 percent to 10 percent, even though relatively stable demand patterns for these items should help operators keep product holes to a minimum, according to Dave Benish, vice president of Gerke & Associates, a consulting firm based in Columbia, Mo.

    "Retailers do a pretty good job in this area of the store, but there is room for improvement," he said. "There are certain trouble spots, for example sweet snacks and bakery items. Quite a few of these items are direct-store delivered, so logistical issues come into play. Plus, as retailers carry more and more fresh products, there is a need for more frequent and smaller deliveries."

    To keep products within reach, Art Whetstone, vice president of information systems at Calfee Company of Dalton Inc., is overseeing the implementation of decision-support software at the headquarters of the 140-unit Favorite Markets chain. Professional Datasolutions Inc.'s FocalPoint software is expected to help executives get a handle on out-of-stocks, among other aspects of store operations. Each day, a "no movement" analysis will flag any top seller that hasn't sold in the past 24 hours.

    "After scanning for years, it is good to use more of that information," Whetstone noted. "It's a bit overdue, but we are getting there."

    The Dalton, Ga.-based company also is installing PDI's Store Assistant software for use on hand-held data terminals. With the new tool, store managers will be able to upload a computer- suggested order from the backroom PC to a handheld device, go to each product on the shelf, scan the product (or barcode if the product is already out of stock) and either accept or override the suggested order. The handheld data is then downloaded back to the PC.

    "This will help us do more intelligent ordering," Whetstone said. "It's a start. The ordering process has been a little loose and lack of discipline has been a problem. We should all be happier when this software pulls it all together."

    Giving managers the ability to print shelf tags in-store also should help them keep the right products in the right place, he noted. The handheld device will allow store employees to download new prices or other data to the store PC, which will create and print new shelf tags onto label stock. "Right now, we are switching grocery suppliers and there is always a problem of getting the labels out to the stores and timing price changes with the arrival of the tags," he said.

    Also using technology to battle out-of-stocks is The Store 24 Cos. Inc., the 81-unit chain acquired in April by Tedeschi Food Shops Inc. of Rockland. At Store 24 sites, customers find the products they want out of stock 8 percent to 12 percent of the time, said Andy Steele, sales marketing manager.

    "It's something we struggle with," he admitted.

    Like his counterpart at Favorite Markets, Steele uses scanning data to flag products that haven't sold in the previous day. "When you sort that information by store and by item, you see big holes," Steele said. "You can see if the out-of-stock is an ordering issue at the store, a stocking issue at the supplier or if we are simply out of the product. I hate to say it, but most of the time the problem is store-related — not enough was ordered."

    Still, kinks in the supply chain happen. Store 24 receives an out-of-stock report from its primary distributor daily. "Right now, there has been a fruit drink out of stock at our wholesaler's warehouse for the last month," said Steele. "The manufacturer won't ship in full truckloads to the warehouse. But our customers don't care; it turns into our problem. So I found a different distributor for the product. In a case like that, the onus is on me to act quickly."

    To head off out-of-stocks, Steele often forces product out to the stores. For instance, in the warm weather, preordered Gatorade and water products are shipped out to the stores. Other times, Steele often uses the red-flag report to determine which products he'll pre-book.

    Sometimes managers are alerted to the shipment coming; other times they aren't. "If we let the manager know in advance that product is coming, he may not order it during the regular order cycle," Steele said.

    The chain also uses shelf labels to keep products in the right place and instructs store employees and vendors to leave holes bare. "If someone comes to the store, sees Snickers are out in bagged candy, and double-faces the empty peg, it's hard to see the out-of-stock," he said.

    What's on the Truck?

    Two challenges any retailer faces in the middle of the store are controlling direct-store-delivered items and the increasing popularity of fresh products, which have shortened freshness dates. "The demand for DSD products will only grow, because the demand for freshness will increase," Benish said. "People will look to c-stores to have fresh products."

    Retailers who have experimented with scan-based trading — when retailers pay DSD vendors only after the product has sold — have realized lower out-of-stock levels, noted Mindy Cox, an analyst for Gladson Interactive Solutions Inc., a retail services firm specializing in shelf tags and space management. "With scan-based trading, the manufacturers have a greater invested interest in having the right product on the shelf."

    Some DSD vendors "have their way" with independent operators, added Ted Gladson, president of the Lisle, Ill.-based firm. "They take more than their share of space, more than they deserve if you look at the category with activity-based costing. If you look at wholesaler-supplied items in the middle of the store, they might be more profitable, but don't get the space they deserve. If you look at the payback and space requirements of all the products and see there is too much space for DSD items and wholesaler items are squared, that leads to overstocks and understocks."

    One challenge for vendors is physically being able to deliver fresh products in a timely way, Benish said. "Suppliers must be responsible for having those products in stock when they are requested. There needs to be stronger communication between the retailer and DSD supplier — that can be through the IS system, not just verbal — and the supplier's infrastructure has to be good enough to deliver those products."

    The c-store industry's efforts to standardize technology — helping retailers' and suppliers' computers talk to each other through XML and other standards — is laying the groundwork for better flow of information. "The problem is there are so many players in the supply chain, whose systems are very different. Small DSD vendors, large ones, small chains, large chains, independent stores — the diversity is great," Benish said.

    Another problem: Most store-level systems in the c-store industry do not feature computerized ordering programs. "There is usually no system in place for managers to review manual sales history or sales forecasting," noted Peter Steele, senior vice president of development for The Pinnacle Corp., based in Arlington, Texas. "If it's too hard to get out of the system and takes too much time, it's not practical for them to try. If sales of an item are ramping up, the only way the manager really knows that is by personal observation at the checkout."

    What's more, turns of items stocked on gondolas vary widely. The stocking level for a high-turn item makes little sense for a low-turn product. "It's very hard for a manager using gut instinct to place a great order on everything in the store. Staple items needed in an emergency — like drain cleaner — should never be out of stock," Pinnacle's Steele said.

    Other items are extremely brand-loyal. "These are hard to identify, but that has to be factored into the reorder algorithm," the c-store technology firm executive said. "A system needs to let the retailer have complete flexibility in the reorder calculation, because what works for one assortment of items may not work for another."

    At Flash Foods Inc., store managers are held responsible for DSD stock levels. Each product in the store is planogrammed and tagged, noted Phil Settle, director of marketing for the 158-store chain based in Waycross, Ga.

    "We try to offer a big variety and the vendor wants the space, but sometimes when you give it to them, the vendor lets product go out of date," he said. "Some route guys are held accountable for stales, so he wants to keep the inventory close and you run out of stock. That's where we say, 'Hey, we love displays. Build them big, but rotate.'

    "I don't care if a product goes out of date, as long as it is taken out of the store and it is not out-of-date to my customers. If the vendor won't pull product, we pull it. We check all of our code dates on all of our products once a quarter. Many chains don't do that."

    Flash Foods has created a "vendor hotline" to fill holes, no matter the source of the problem. Store employees report DSD out-of-stocks to the marketing department via the hotline, and an employee on the other end coordinates calls to each vendor involved.

    "If the driver is off his normal schedule or business has picked up on an item, I'll do everything I can to get the vendor to give us a special delivery," Settle said.

    But product freshness isn't the only out-of-date difficulty. Plano- grams are often too old to be useful. "Store demographics change and many stores don't have the right mix and space allocation of product on the shelf, which leads to out-of-stocks," Benish said.

    Perceived out-of-stocks can be a problem too. "This has to do with store layout," he said. "Often, retailers will put the same product in different parts of the store and customers think there is only one display with chips or health and beauty aids. They don't see the main supply is on the gondola."

    While the problem of out-of-stocks on products merchandised in the middle of the store is complex, c-store retailers shouldn't give up hope. "Though there haven't been as many gains as we would have liked in the last decade, the industry has laid a lot of groundwork for future significant improvement," Benish said. "It doesn't look like much is happening in the stores, but behind the scenes things are happening and we will see major developments in the coming decade. As the cost of technology comes down, I'm optimistic we will solve the problem.

    "Take heart in the fact other retail segments have 8 percent to 10 percent of out-of-stocks also."

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