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Flash Foods Inc. significantly reduced out-of-stocks at the checkout — while slashing inventory costs by seven figures — by implementing a computer-assisted ordering program used now for cigarette orders and soon for other categories.
The new system, developed by The Pinnacle Corp., works off an initial inventory count and each day's scanning data, then generates an order that will bring cigarette stock up to a two-week inventory level — a number that fluctuates by SKU and sales trends.
"When managers were ordering manually, we were overstocked on the slower-moving brands and under-stocked on the best-selling brands," said Phil Settle, director of marketing for the 158-store chain, based in Waycross, Ga. "This new system eliminates out-of-stocks on the fast-selling brands because replenishment is based on what is sold. If there is an out-of-stock now, it is due to one of two things: the initial inventory was entered wrong or the product is not being scanned correctly."
With a thriving carton business — approximately 45 percent of cigarettes sales are sold by the carton — the chain's top 25 percent of tobacco SKUs account for 75 percent of sales.
"To set each store's mix, we only eliminated an SKU if it showed absolutely zero sales," the marketing executive noted. "If there were any sales whatsoever, we kept a quantity on hand. Since we sell by the carton, even the slowest moving SKUs were kept at a two-carton level."
Many c-store operators' efforts to reduce inventory only perpetuate out-of- stocks, he explained. "Most chains try to cut cigarette inventory by limiting the amount the stores can order — but stores aren't overstocked on the items they are really selling. When stores try to reduce through ordering, they end up only having on hand what they are not selling."
Other chain executives draw a line at a chosen movement number, and drop every SKU with sales under that figure. "That is just asking customers [of those cigarette brands] to go to another store," Settle said.
Because sales peaks and valleys occur with promotional activity, Flash Food's computer-assisted ordering system compares a 13-week sales history of each product with a two-week sales history. If a brand's sales have picked up out of the ordinary, the suggested order is based on the last two weeks' average.
Promotional and seasonal shifts in sales are the leading causes of out-of-stocks at the counter, noted Mindy Cox, an analyst for Gladson Interactive Solutions Inc., a retail services firm specializing in shelf tags and space management. "Retailers could do a better job planning for increased promotional activity. Three percent of everyday products and 15 percent of seasonal or promotional items are typically out of stock"
Retailers do not forecast sales of promotional and seasonal items very well, agreed Ted Gladson, president of the Lisle, Ill.-based firm. "C-stores don't have a plan in place for doing that.
"You can't just say 'I think I'll order a gross.' You have to say, 'Last year I ordered a gross, I ran out three days before a holiday. This year, I better over-order.' The retailer has to do that — even if he has a cash-flow problem."
Rating convenience store operators' ability to keep products in stock around the checkout area, Dave Benish gives the industry a "C+."
The checkout is the trickiest area of the store to keep products in stock, according to Benish, vice president of consulting firm Gerke & Associates Inc., based in Columbia, Mo. "You have very high turnover rates on these high-demand items, like cigarettes, but you don't have much space," he said.
What's more, impulse items and general merchandise often experience demand surges. "Because of the unpredictability of sales, that area is vulnerable," he noted.
Ironically, while most of a retailer's store payroll dollars go to manpower at the checkout, busy employees often miss opportunities to plug holes in the stock within an arm's reach. "Displays for candy and other products are often built into the counter, and employees can't see if they are out of Snickers bars unless they walk around," Benish explained.
The checkout experience itself exacerbates the out-of-stock problem in any c-store, Benish said. People are hurried and pay quickly. "The decision time to buy a second product that may be nearly as good as the first one is pretty minimal, while in another part of the store, customers are more likely to make a substitution," he noted.
At Sheetz Inc., products around the checkout are controlled through tight planogrammed merchandising. Any product not in a contracted counter cigarette display is merchandised in cash-register racks. The racks hold impulse items retailing for 99 cents or higher, such as top-selling candy bars and gum, cookies, meat snacks, etc.
"The racks help the manager keep the area well-stocked," said Sharon Vaughn, sales manager for Sheetz Inc., operator of 27-stores based in Altoona, Pa. "It's very easy for that area to become out-of-control without planograms."
New cash-register racks, being rolled out now, wrap around each register's front and side. "The idea is to eliminate freestanding displays on the counter and give the customers as least 24 inches of space to check out," she said. "Plus, they eliminate the guesswork about what should be at the counter."
Managers, equipped with suggested-ordering software tied to scanned sales data from the POS registers, are allowed some flexibility with the racks. For instance, they may empty a slow-moving shipper and merchandise that product on the counter displays. "Almost anything you put there will sell," Vaughn said. "The key is making the right initial decision of what to put there."
At The Store 24 Cos. Inc., the 81-unit chain acquired in April by Tedeschi Food Shops Inc. of Rockland, Mass., candy and general merchandise, such as nail clippers and Chapstick are merchandised in nine bins around the checkout, which are planogrammed.
"I notice on store tours the bins are often out of stock, even though these are just a few products that are relatively easy to keep track of," said Andy Steele, marketing sales manager.
To support inventory levels, Steele sometimes oversees forced distribution of these products. "But that can be a double-edged sword," he said. "We have to teach managers to do their own ordering and the distributions are just a way to keep the pipeline filled from time to time."
Steele is developing a special order guide for the checkout area to help managers keep those products top of mind.
Each store is mystery-shopped quarterly to measure merchandising-related performance. Approximately one-third of the score is based on out-of-stock levels. "We started with scores in the 70s and those have increased into the 90s," Steele noted.
Still, there is no 100-percent foolproof system to eliminate out-of-stocks at the counter, Sheetz's Vaughn said. "You have to rely on the employees." Sheetz managers complete shift walks, which include checking out-of-stocks at the counter and coffee areas. Mystery-shopper scores, which affect managers' bonuses, are based in part on products being in stock.
At Flash Foods, stores are inspected twice a quarter — once with no notice — and out-of-stock levels are important parts of those inspections. "I'd rather see a hole on the shelf when a product is sold out than product spread around," Settle said. "Once you spread, the manager will likely miss the hole. If out-of-stocks [are a problem], they are in jeopardy of not passing the inspection or getting a lower score, which lowers the manager's bonus."
Still, the chain also has a leg up on many operators: They have their own distribution warehouse. "If a product we run out of is a warehouse item, we can get a special truck out right away."