When it comes to effectively tracking sales data and inventory, technology is changing at breakneck speed. If your company isn’t keeping up, then it’s probably behind the competition.
By Traci Dawn Carneal, Contributing Editor
In the fast-paced world of data collection and analysis, experts seem to agree on at least one thing—tracking sales by item, not category, is vital to reaping the business benefits.
That’s one of several insights on inventory best practices that two leading convenience store industry advisors shared with CSD recently.
While the two have some differing opinions (i.e., the feasibility of tracking by Universal Product Code, or UPC, rather than the vendor ID), retail experts usually agree on the core principle of using sales data to manage inventory and optimize profitability.
“We are seeing operations of all sizes go to item-level inventory,” said Mark Lotstein, president of ROG Consulting LLC, a retail optimization firm that works primarily with small to mid-size c-store operations, including point of sale (POS), petroleum equipment service and human resources training. “It makes so much sense. We’ve taken clients from 40-50 days of on-hand inventory down to 10-20 days of in-stock. If your average store has $80,000 to $100,000 dollars of product potentially, the math on that is pretty significant.”
ROG Consulting has saved some of its sizable clients half a million dollars or more just by reducing the amount of store inventory, freeing up both capital and shelf space.
WORTH THE INVESTMENT
“Anyone who thinks item-level inventory is too tough or complicated, or isn’t meant to be done by the little guy, is 100% wrong; yet a surprisingly large percentage of c-stores—big, medium and small—doesn’t use data analysis,” Lotstein said.
Even subscribers of data tracking systems should be aware of where gaps might lie.
“People do a lot of things right or they wouldn’t be in business, but that doesn’t mean they can’t do more,” Lotstein said. “In our industry, where pennies and nickels can make a huge difference in profits, accurate and consistent data analysis is especially useful.”
Consider this scenario: During the course of a year a Hershey bar goes up two cents here, three cents there. By the end of the year, that two or three cents is now nine, 10 or 12 cents. Suddenly, a margin of 45% drops to 40%, which impacts profitability.
Industry consultant Bill Scott said tracking item-level sales is consistent with maximizing margins.
“Suppliers will occasionally raise prices and often their staff will miss the increase, so it chips away at profits over time,” said Scott, founder of StoreReport LLC & Scott System Inc. “I have observed many cases where items that were marked up at the beginning of the year for a 30% profit (on 43% markup) ended up at a 10% profit by year’s end.”
As Lotstein reasons, retailers can never know where their profits are coming from without item-level inventory.
“If you have seven flavors of wintergreen or spearmint gum, probably three or four account for 80% of your sales,” Lotstein said. “The potential exists that one of those flavors is earning you a 47% margin and the other is only earning you 38%. But you won’t know unless you track sales at the item level.”
DEVIL IN THE DETAILS
Other benefits of effective item-level inventory are identifying shortages more accurately. ROG Consulting has worked with clients who do department-level inventories only, and they often write off hundreds of dollars from any one category.
They also often don’t know if the product shortage is due to theft.
“If you do item-level tracking then perhaps you recognize that all of the missing inventory is Pepsi products, then you at least have a starting point for solving the mystery,” Lotstein said. One ROG client discovered an assistant manager had been stealing a certain brand of cigarettes after moving to item-level inventory.
Another goal of efficient inventory is having a well-stocked store without too much product on hand. This can be a challenge when managing a mix of new items with traditionally popular products.
Since 80% of new products shipped to c-stores don’t sell, being a supplier’s guinea pig for new items can be detrimental to the c-store’s bottom line, Scott said.
“They should demand statistics on new items, and if the items are so new there are no statistics, they should wait until there are statistics before they order,” Scott said.
Lotstein, however, disagreed.
“You want the buzz of a new product,” Lotstein said. “You should try new products because that’s the only way to know if it sells. If you don’t have the latest Frito-Lay chip during the Super Bowl, your customers will get it somewhere else.”
Setting up a data tracking system is not as hard as some think, according to Lotstein.
“If you get a decent price book and scanning software, the toughest part is setting it up and implementing it,” Lotstein said. “Once it’s up and running, it’s pretty simple and straightforward.”
Of course, there’s different data software out there—some designed for small retailers and some for mid-sized companies and larger.
First, experts suggest that retailers need to have a good back-office scanning software, but it has to be the right one for their business. C-stores might have to rethink ‘why am I doing it this way.’
Assuredly, there are convenience retailers that have data software that has been in place for five, 10, or even 15 years. However, technology is changing at breakneck speed, and if your company isn’t keeping up, then it’s probably behind the competition.
If the original way it was built—your price book, the infrastructure and your training—wasn’t comprehensive to begin with, it can preclude you from making actionable decisions due to the lack of clear and effective data.
ON THE HORIZON
When Scott visualizes the ultimate item-level tracking system, he sees stores ordering and tracking sales by UPC. “The UPC is the only qualifying identifier that defines an item absolutely,” he said.
Lotstein agreed, but doesn’t see it happening in the convenience industry soon. “In a perfect world, it would be great if retailers could order and track items by UPC, but distributors go by vendor ID number, and they likely aren’t going to change that,” Lotstein said.