The necessary condition for a product to be sold is to be present on the shelf. Does it always happen like this? If the answer was yes, the FMCG world would be an ideal one. Unfortunately, both producers and retailers face what we call Out-of-Stock, meaning the lack of products on the shelves, situation which generates hundreds of millions euro in losses every year.

On Shelf Availability – first rule in increasing sales

The situation can be even worse if the so called „Must Have Products” or „Golden SKUs” are missing from the shelves, as Pareto Principle is applicable also in the distribution of sales within one’s own product portfolio. Hence, in beer category, 8% of products are responsible for 80% of sales, in chocolate bars 7%, in tea 18%... to make a long story short – a relatively small number of products are driving the biggest sales volumes.

On the shelf or non-existent

The performance indicator for shelf availability is... OSA – On Shelf Availability. Based on Retailplus research in many categories, in traditional trade in Central, South-East and Eastern Europe (including Russia and Ukraine) the availability level of „Golden SKUs” (those who generate 80% of sales) has been relatively constant between 2009 and 2011: 87-88% for beer, 84-85% for chocolate bars, 88-89% for tea. The situation is similar in the modern trade, where, at a certain moment, only 4,6% of retailers have on the shelves the entire assortment agreed with their producers. On the other side of the coin, 45% of retailers have a general level of OSA between 60% and 80%. In reality, data reveal a high level of Forward Out of Stock (Forward OOS), which generates high opportunity costs, both for producers and retailers.

But what availability really means, how can it be measured so that to have an accurate and complete picture, how should it be reported to be able to react fast in a „fast-moving goods” environment?

Availability = presence?

In the classical methodology, product availability is mistakenly considered as presence within an outlet. However, let’s add to this indicator an important qualitative layer – the place within the store where the product really is. An SKU is present only at the shelf, only in secondary placement, only on display, only in the cooler or in all this places? Normally, available means that a product can be easily found by shoppers, even when they don’t look for it.  At the same time, is compulsory to measure product positioning at the shelf or in the cooler, because it is not the same thing if a product is placed at eye or knee level, if it is in the centre of the category, on its left lower part and so on.

Also, measuring availability should and have to take into consideration the existence of a Minimum Stock on the shelf, on display, in the cooler. For example, if we have only one beer bottle in a cooler, is that beer present? Yes, it is present. Is that beer available, too? No, it is not. In a couple of minutes that beer could be bought by a shopper and the product will be OOS. Or, even worse, the beer bottle will remain left in the cooler because people tend to avoid grabbing an astray product on a shelf.

And here it comes the performance indicator called Near Out of Stock (NOOS) which tells us for how many days our products are available for shoppers. In this way, the shelf replenishment cycle can be considerably improved, with obvious gains on the supply chain side, too.

Also present and visible

Increasing on shelf availability is not only a stock function, but also a visibility one. The space that a brand has on the shelf / cooler compared with the space of other brands has a direct impact on product visibility. In the classical methodology, this is measured by the Share of Shelf (SOS). However, as shown above, sales are inherently linked with availability and availability is inherently linked with stock and visibility. Following the same logic, SOS is inherently linked with stock.

At least for high rotation categories, measuring Share of Forward Stock (SoFS) is a must. And this is because it is highly possible that a product has a high SOS, but the shelf to be empty in depth. In this situation, SOS data alone is not only insufficient, but also deceptive.

Visibility can also be measured for secondary placements implementation and location in store. Also, POSM presence as well as other branding materials can have their impact on increasing visibility, so their execution should be monitored too.

Obviously, for some categories there are some specific performance indicators. For example, availability should take into account the sell by date (for dairy) or presence of cold products (for beer, soft drinks, water) in some channels during season. It is useless to be fully stocked in yoghurts if tomorrow the entire stock expires, it is useless to be present during summer with the entire beer portfolio in a HoReCa outlet if your products are not cold, but those of your competitors are and so on. It is important that the performance indicators to be relevant, to offer a coherent and complete image on the way brands are performing in store, to be easily audited by the field auditor and easily read / interpreted by the beneficiary.

Now that we have the data, what’s to do?

Just to identify and collect relevant execution indicators is not sufficient. In order to be efficient, reporting should allow problems solving in quasi-real time. Obviously it doesn’t help us to know, on August 10^th, that we had an OOS problem in the North region on June 5^th. We need, therefore, an actionable reporting tool.

Solution: implementing an “alert” system which enables the person responsible of measuring execution standards to send the sensible information to the one responsible for the actual standards implementation. It is highly advisable to alert the sales agent / distributor when a NOOS situation for “Golden SKUs” is found in a store. In this way, stock disruptions can be avoided in most cases.

Imagine what would be like if a product is available 30 out of 30 days instead of 28 out of 30 days. It means 7% additional sales in that store.

Also, alerts are highly recommended when producers’ and retailers’ investments in store could be affected. Sales agents should be alerted when coolers or displays are “polluted” (non exclusive), key account managers should be alerted when share of shelf is not according to contracts, retailers’ regional managers should know when a store does not respect freshness standards for fruits and vegetables and so on.

Incentive performance execution

Since improving performance execution leads to sales increases it is natural for producers to bonus their sales force also for the quality of execution, not only for the actual sales. But to be able to do this we need to define some scoring models where each performance indicator needs to be evaluated based on its importance in increasing sales potential. In other words, shelf availability of a “Gold SKU” should be rated higher then cooler doors cleanness.

Do better what you already do every day

Store execution can be highly improved in all categories, with direct impact in sales increases. In a time of flat sales at most, both producers and retailers have a handy tool to add sales and tool is right before their eyes, namely in the store. It only needs some willingness and vision.

As long as the systems are already in place – sales force, incentive schemes, trade marketing standards, market insights budgets – use them wisely! Or, in other words “do ordinary things in an extraordinary way” and you’ll reach excellence both in execution and in sales.

Alexandru Zudor

Managing Director SE Europe, Retailplus