The store habits holding your ordering system back

When shrink comes in over target, the ordering system usually takes the first hit. Before joining Afresh, I spent most of the past decade in consulting helping retailers optimize wall-to-wall performance and enabling technology to help deliver on sales, margin, and shrink performance. Anytime I heard that a system wasn't working, I almost always found that the problem came back to a misalignment between the people and processes around it.

When diving into performance, I always start with financials to see which departments are not performing and know where to start looking. But numbers will only tell you so much: I've seen meat departments where ordering adherence and performance metrics looked right, but the team said they were seeing some of the worst shrink they'd ever had.

Coolers and freezers were lean on inventory, and in-stock availability was good on the sales floor. But digging into the sales floor, we saw there were many items with short shelf lives, especially in the pork and poultry categories. Digging deeper upstream revealed that the store’s DC was consistently overbuying in pork and poultry and sending a significant amount of product with short codes across multiple categories. The store teams were following best practices when placing orders, yet seeing less-than-desired financial performance. The DC issues never showed up in a report—only in store walks and in conversations with teams.

When I walk into a supermarket, I'm looking for anything at the store level that could keep the technology from performing the way it was intended to. Here’s a guide for some of the items that I look for.

Drivers of in-store loss and waste

Product stacked higher than the standards

Many retailers have documented standards. You can ask them and get a sheet showing exactly how the display should look. Most consider two layers high (maybe three for fast-moving or hard items) to be in stock and ready for business in Produce and Meat. Bakery may go three or four layers high depending on the items and packaging. Yet, I’d often walk the floor and find multiple examples of displays not following standards, like on-the-vine tomatoes and stone fruit stacked four layers deep, immediately compromising the quality of the product as soon as it hits the sales floor.

A good rule of thumb is to look at how the product ships from the supplier: A case of oranges is probably four or five layers deep at most, avocados a couple of layers, and a lot of stone fruit comes one or two layers to a box. When you stack higher than the fruit traveled, the bottom layers carry weight they were never packed for, so the entire bottom layer is bruised and ready for the bin by the time the display sells down. When you see six-layer-high avocado displays in a store, you’re seeing quality and shrink issues waiting to happen.

Produce starts dying as soon as it's picked, and the cold chain is the only thing extending its shelf life. It’s important to take special care when displaying product outside refrigeration, where shelf life is shorter than in a refrigerated case. And as you stack higher in a refrigerated case, the top of the display climbs out of the cold and into ambient air, and that product turns faster.

Deep stacks also break first-in-first-out rotation. Whoever restocks a four-layer display isn't going to pull everything off to put the new product underneath. So fresh product goes on top, the old product ages at the bottom, and eventually you're either selling aged fruit to your customer or throwing it out.

Space that doesn't match what sells

I can't tell you how many times I've walked up to a display and seen the same case-wide facing on every item. It happens a lot in citrus and apples. For citrus, I see juicing oranges, premium oranges, cara caras, blood oranges, and grapefruit, all with the same amount of facings. That citrus doesn’t sell at the same rate, so the space for each one should follow what it actually sells. When everything has even facings, that's a first sign to dig in. Sometimes the merchant's plan was right and execution in the store drifted, and sometimes the item was overspaced from the start because there was little to no guidance on the display size.

This matters because display size is an input to the order. Say the blood orange display needs two cases to look full, and the store sells a tenth of a case a week. A good ordering system will still recommend enough product to keep that display full. The system is doing exactly what you asked it to do, and the shrink is coming from overspacing and slow inventory turns, not inaccurate orders.

Hard items aren't exempt. An oversized potato display in a store that doesn't move a volume that aligned to the allocated space is shrink waiting to happen. Potatoes may seem hardier, but they come out of the dark ground—so under the lights of a sales floor, they start to turn green, and there’s your next batch of shrink.

Production running ahead of demand

Cut fruit is easy to overlook, because it often runs on its own production forecast separate from the ordering system. But the raw product ordered for cutting and the cut fruit sales both land in the Produce bucket. So when cut fruit shrink runs high, the whole department gets penalized. The same goes for fresh prepared in Deli, Meat, and Seafood.

A store only generates enough hours for that day’s production, not sales demand three days from now. Overproduction leads to selling aged product to your customer base or not selling it at all and seeing it turn into food waste. In-store markdowns are the easiest indicator of production challenges—especially when walking a case and seeing a sea of red or yellow markdown labels.

Some easy items to check on your next store walk

Start with your numbers so you know which departments and items to focus on. Then start your walk with the following guide.

On the sales floor

• Compare stack height to the written standard and to how the product ships, since anything higher puts weight on fruit that wasn't packed for and compromises long-term quality

• Check the bottom layers of stone fruit, avocados, and citrus, where bruising and age show up first

• Look for new product sitting on top of old, which tells you rotation has stopped. First-in, first-out rotation is key to both real and perceived freshness.

• Compare facings within a category to what each item actually sells, and flag any category where every item gets the same space

• Check if the standard is full all day or a build-up and sell-down. A store that closes with full displays has product aging for an extra 8 hours with no one buying it. This is critical for items displayed in ambient temperatures but shipped in refrigeration.

• Understand actual orders vs. recommended quantity. Heavy backrooms and sales floors are leading indicators of poor financial results.

In-store prepared

• Count markdown stickers and check the dates, because heavy markdowns point to overproduction

• Ask how much of the marked-down product actually sells

• Review actual production vs forecast and discuss large variances with the store team

• Overproduction wastes labor hours on the day of production

Backroom and cooler

• Compare backroom inventory to the floor. A lean backroom with a full and fresh sales floor is a leading indicator of financial performance

• Look for poor organization. The same item stored in more than one spot makes first-in, first-out rotation nearly impossible. This goes for both backrooms and sales floors.

With the store team

• Ask when and why they override ordering or production recommendations

• Ask how display sizes and space allocations are determined in the department

• Ask what is working well and what challenges they are experiencing with their store technology

This list isn’t exhaustive, but it contains important areas to review where in-store people and process may not be aligned with ordering and production. Once you improve those processes and workflows, you’ll see the financial results start to match.

Michael Hurst is Vice President of Account Management at Afresh. Before joining Afresh, he spent most of the last decade in consulting helping retailers optimize operations and drive financial performance.