From the outside, not much changes at a grocery store. If you run one, you know that couldn’t be further from the truth.
Between seasonal changes, upcoming holidays, the latest industry trends, and everything else, grocers have to pay close attention to shifts in customer demand to keep shelves stocked and customers happy.
Implementing regular grocery sales forecasting is crucial to staying ahead of sudden changes in demand and proactively preparing for upcoming events.
While many small grocers do some basic demand forecasting, modern technology has made it easier than ever to get a deeper understanding of the trends that affect their business the most.
Get a handle on grocery sales forecasting in this comprehensive guide. We’ll cover:
- The basics of grocery demand forecasting
- Types of sales forecasting to use in your business
- Top grocery sales forecasting challenges
- Six practical tips for better sales forecasting
Let’s jump in.
What Is Grocery Demand Forecasting?
Demand forecasting uses sales data and other external and internal factors to predict future customer demand for certain products. External factors include:
- Seasons
- Times of month/day/week
- Holidays and events (e.g., Thanksgiving or game days during football season)
- Weather (e.g., people tend to buy more products in cold weather, or certain supplier lead times go up when snow is in the forecast)
- Competition
- Customer preferences
- Promotions
Sales forecasting is another aspect of inventory management and merchandise planning that focuses less on current stocking needs and more on preparing for future surges in demand so you can keep customers happy.
Accurate forecasting helps stores:
- Avoid stockouts or overstocking during busy seasons
- Improve decision making
- Help understand customer preferences and behaviors
- Reduce inventory costs
- Create action plans for supply chain disruptions or other unpredictable events
Grocery sales forecasting is not a crystal ball that will solve all of your stocking challenges, but implementing it is still extremely useful.
Commonly Used Grocery Sales Forecasting Methods
There are many ways to forecast demand, but these are some of the most common methods used in grocery stores and independent supermarkets.
- Time series: Time series analysis (also known as passive demand forecasting) uses historical sales data to identify repeatable trends in customer demand and is best suited for sections of the store or items with predictable demand fluctuations, such as during holidays, game days, or specific product lines.
- Collaborative: This method involves sharing sales data and forecasts with your suppliers to improve stock management and reduce waste. It’s especially helpful for small grocery stores with close relationships with their suppliers.
- Scenario planning: This method is used to create detailed plans for various scenarios that could impact the business, such as fuel price hikes, tariffs, or local population growth. While not perfect, spending time planning your response to common challenges will help you react faster when they occur.
- Causal: This method looks at the relationship between your sales and various factors, such as price changes, promotions, and others. A causal model is best for looking at the effectiveness of store layout changes, discounts, and similar changes — it’s also useful if you suspect certain community events, weather forecasts, and other factors cause spikes in demand.
- Qualitative: This forecasting method uses customer feedback, surveys, and observations to estimate demand. This method is best for when your historical data is limited or there’s an unexpected supply chain disruption.
- Long-term: This is a forecasting method that takes into account recurring seasonal trends as well as overall business growth to predict future inventory needs year over year.
Every type of sales forecasting method has its strengths and weaknesses, and most grocery stores use a combination of them to make informed inventory decisions.
Note: This is not a comprehensive list of forecasting techniques, but we feel these are the most helpful to know for retailers.
Top Challenges of Demand Forecasting for Small Grocery Stores
Demand forecasting isn’t easy in any industry, but grocery stores and supermarkets have a few additional challenges that other general retailers don’t.
Here are some of the top reasons why grocery sales forecasting can be so difficult, especially for small businesses:
- Lack of visibility: Small grocers using outdated inventory systems lack visibility and data, making it difficult for them to make informed decisions or react quickly to changes.
- Seasonality: The grocery industry is highly seasonal, both in what products are in demand and what’s available.
- Supply chain disruption: The grocery supply chain is particularly susceptible to disruptions from labor shortages, extreme weather, and more.
- Perishable inventory: Produce, meat, dairy, and eggs all have limited shelf life, making managing them (and other perishable inventory) a logistical challenge.
- Varied product types: Grocery stores often carry more than just basic ingredients, necessitating collaboration with a wide range of different suppliers.
- Consumer behavior changes: Dietary fads, news stories, economic changes, and more can quickly shift customers’ grocery shopping behaviors.
- Regulatory changes: Food safety standards and laws can change, necessitating sudden shifts in suppliers or purchase orders.
Combined, all of these factors can make keeping your shelves stocked and your customers happy feel chaotic.
Grocery Store Sales Forecasting: 6 Tips and Tools
Fortunately, implementing sales forecasting best practices and modern technology in your independent grocery store will have a massive impact on your ability to stay on top of demand.
Here are six vital tips to get started:
1. Have a Specific Goal in Mind
Before diving into your sales data, you need to know what you’re looking for. Start by determining the problem. Are certain sections of the store frequently overstocked? Do you find your produce section tends to be empty on certain days of the week?
Once you identify the problem, set quantifiable goals that include:
- What time you’re forecasting for (e.g., a quarter, the last two weeks of December, the duration of a specific promotion)
- The product(s) you’re measuring, the product category, or the department
- What outcomes you expect or hope to see
This will help you narrow down the exact data you need and measure it against your expectations.
Related Read: 5 Challenges of Operating a Grocery Store (+ How To Overcome Them)
2. Gain Better Visibility With Modern Inventory Systems
It can be impossible to know exactly what’s going on with your inventory if you don’t have a holistic view of it. Unfortunately, many smaller grocery stores are still relying on outdated systems, which limit their ability to address demand proactively.
Luckily, most modern grocery point of sale (POS) systems come with inventory management software built in. Inventory management systems track and update stock levels whenever you receive an invoice or make a sale.
This effectively allows you to see inventory levels in real time and tracks your sales and inventory data for use in demand forecasting and other reports.
Most importantly, the right POS system will do most of the hard work for you. So, don’t worry about having to take all the raw data and crunch the numbers yourself. Instead, you can view and filter all of your sales and inventory data in easy-to-digest visual reports.
While implementing demand forecasting isn’t impossible without inventory software, it is much more time-consuming and prone to errors. In other words, without the right software, by the time you figure out what you should do, it’ll be too late.
3. Know Your Community and Customers
If there were a perfect formula for grocery sales forecasting, you’d have heard about it.
Like everything else in small business, your demand will largely be determined by your customers, neighborhood, and niche. Use your intuition and the sales reports from your POS system to understand what your customers specifically come to your store to buy.
These insights will tell you which areas to look at the most.
In addition to being a great marketing tool, loyalty programs are another great way to understand your customers’ behaviors and preferences. Use your POS system to view reports specific to your loyalty program and see which types of products your repeat customers tend to gravitate towards (and when).
4. Start Easy and Level Up As You Go
Looking at the various demand forecasting methods, your head might start spinning. We don’t blame you! It can be a lot to take in.
Instead of trying to do everything at once, start with the easiest — and arguably most crucial — time series data. Look at your historical sales data to understand overall sales volume by season, then dive deeper into product categories.
Having a solid plan for predictable demand swings like the winter holidays, Thanksgiving, summer vacation, and other seasonal events is a solid starting point.
Another easy starting point is to look at the effectiveness of your promotions. Since promotions tend to target a specific subset of products, it’s easy to track whether they were effective or not.
Then, as you become more comfortable with your POS system and grocery sales forecasting, you can start to explore other numbers.
5. Streamline Short-Term Reordering With Integrated Purchase Orders
No matter how much you crunch the numbers or prepare, certain spikes in demand may take you by surprise. However, with better visibility into your inventory, you’ll be able to see those changes happening in real time and address them proactively.
Many systems support integrated purchase orders, storing your product and vendor information in one place so you can quickly reorder stock that’s running low. You can also set automated low stock alerts based on average purchase amounts and supplier lead times, so you always place orders at the right time.
These types of alerts will help you stay on top of many common stocking challenges without having to painstakingly walk the floor and scan the aisles.
If you notice that you get alerts for certain types of products more than others, it may be time to adjust your stock levels or order frequency.
6. Adjust Your Forecasts Regularly
Grocery sales forecasting is not a one-and-done activity, but something you should do regularly as economic conditions and customer behaviors shift.
Periodically review your store performance to see if the steps you took were effective or off the mark. This will help you improve your forecasting strategy for the future or maybe uncover other problems that you weren’t even aware of.
Leverage Robust Inventory Management Software for Better Grocery Sales Forecasting
With rising cost of living, inflation, tariffs, and so much economic uncertainty, the best time to start looking at sales data is now. Having a clear understanding of your inventory turnover and other key performance indicators (KPIs) will help you improve your selection, keep your customers happy, and stay competitive.
IT Retail is dedicated to giving small and independent grocery stores specialized and cost-effective tools that help simplify their day to day and provide a better customer experience.
With the latest reporting tools and inventory management features, IT Retail can help you proactively address stock challenges like never before.
Talk with one of our grocery store experts today to see if IT Retail is the right fit for your business.
