Empty Shelves, Lost Revenue: The Toll of Out-of-Stock in the Alcohol Industry
The cost of being out of stock on the retail shelf affects not just immediate sales but also loss in customer loyalty and future purchasing behaviors.
Solutions to this rampant problem go well beyond better inventory management. It requires a multifaceted approach, including leveraging technology solutions, a culture shift inside organizations, and making stock management a top priority.
The cost of being out-of-stock
According to a study by RetailWire, overstocks and out-of-stocks across all consumer product categories cost retailers $1.1 trillion globally in lost revenue, with out-of-stocks alone responsible for 4.1% of lost revenue for the average retailer.
When faced with empty shelves, shoppers are 52% more likely to immediately turn to online shopping, significantly impacting traditional retail sales.
Regarding wine, spirits, and beer sales, retailers that prioritize this issue simply cannot do it alone. It takes all three tiers of the adult beverage industry to work together. But, as you will read below, it all starts with the brand owner.
How complex is the problem?
It’s tempting to look at this issue solely as an inventory management problem, but it is far more complicated than that due to all the tiers involved.
Sometimes, the out-of-stock is the retailer’s fault.
Or the out-of-stock is the distributors’ fault.
Even the out-of-stock is the supplier’s fault.
But, ultimately, the buck stops with the supplier/brand owner.
If you read this article as a supplier, you might be tempted to say, “I have no control over what the distributor and retailer do!” But you have more control than you think, and the moment you accept the ultimate responsibility, you are in a marvelous posture to DO something about it.
It requires a shift in mindset and culture on behalf of the brand owner.
As a brand owner, your bailiwick is the fundamental “4 Ps” of brand marketing (Product, price, place, and promotion). Caring deeply about your responsibility to meet consumers’ expectations and delighting them with your offerings is non-negotiable.
Therefore, it is imperative that you prioritize effective stock management.
A supplier could easily deflect and defend from their culpability in the problem IF there weren’t tools available to deliver on this imperative.
Visibility is the key!
Imagine for a moment that you (the brand owner) had a clear line of sight into every step in the supply chain, including distributor inventories in every US market and shelf inventory at the retail level, minimizing out-of-stock situations.
Ten years ago, this was inconceivable. But in 2024, it is a matter of fact. “Digital Collaboration” is well within every supplier’s grasp.
So what, exactly, is “Digital Collaboration?”
- Sharing relevant information about inventories, accounts, KPIs, execution data, and workflow through an integrated software solution.
- Bring your entire distribution team to the table.
- Streamlining performance agreements.
- Analysis of performance and results.
- Automation of approval processes.
- Building efficient planning and reporting across your supply chain.
We’re talking about real-time access to the information you need to deliver on the “4 Ps.”
“What does a system like this cost?” is the obvious question most will ask. The better question, however, is, “What is it costing me now NOT to have this visibility?”
Here are the true costs of stockouts:
- Lost revenue and profits due to out-of-stock items
- Loss of customer loyalty
- Loss of a first-time customer
- Increased costs of acquiring a new customer
- Lost points of distribution at the retail level
- Loss in market share
- Loss in brand awareness
- Increased costs in expediting orders to remedy stockouts and having to move inventory around
- Diminished ROI of your marketing and promotional efforts
- Tying up cash in poorly managed inventory
At a glance, it does not seem wise to trust the items on the above list to the “other tiers.”
A commitment to helping the retailer is a commitment to helping your customer
If, as a brand owner, you adopt and embrace a culture of the buck stops with us, you are taking the first step toward solving the problem.
The rewards for embracing this organizational shift in your culture dramatically reduce the ten costs of out-of-stock situations outlined above.
But, as stated at the outset of this article, you cannot accomplish this alone. Nor do you have to! You have business partners who want the same positive outcomes – especially for their retail customers.
Help your distribution partners help you by deploying sophisticated, fully integrated software solutions. In turn, you effectively enable your distribution partners to help the retailers.
Other industries are well ahead of the adult beverage industry, but that gap is closing. The problem is that most adult beverage brand owners are a) unaware of the current solutions and b) are too quick to relegate responsibility to their distributors.
Where do you start?
To help set you on the right path, take a moment to consider the five things you must get right:
- Category management
- Inventory management
- Retail space management
- Data and analysis
- Real-time reporting
Next, take a hard look at how you manage these components now.
For example, are any of your processes manual? Are they fully integrated (digitally) with your distributor partners’ systems to avoid out-of-stock instances? How much time do you spend managing these components? How quickly can you make the necessary adjustments? Do all internal stakeholders (executives, finance, IT, marketing, sales, and operations) have a seat at the table?
When you decide you’re ready to drive superior decision-making and deliver improved business results, you’re well on your way to justifying the “cost” of investing in technology solutions.
Need assistance?
We invite you to learn more about the solutions available from Andavi. Simply click on this link to start the conversation. No obligation or heavy-handed sales pitch.
We aim to equip you with the most advanced tools in our industry to help you succeed!
