Inventory Management for Grocery Stores: 8 Tips & Tools
With rising prices narrowing profit margins and driving people into the arms of big chains, effective inventory management for grocery stores is increasingly essential to stay competitive.
But that’s easier said than done. When grocery stores have limited visibility and rely on outdated inventory processes, it can hold them back from reaching their full potential.
It’s not all bad news. Innovations in grocery store software have made it easier than ever to optimize inventory levels and gain the kinds of insights that make a real difference.
Read on to learn the biggest inventory challenges facing small grocery stores today and eight tools and tips you can use to overcome them.
Inventory Management for Grocery: 4 Common Challenges
Inventory management for grocery stores has never been easy, but seismic shifts in technology, finances, and customer behaviors have made it more challenging.
Here are four common inventory challenges that independent grocery stores face.
- Lack of visibility: Older and manual inventory processes make it more difficult to identify demand trends, shrinkage sources, causes of overstocking, and more.
- Demand for local pickup: While online grocery delivery spiked during the pandemic, the demand for online sales and local pickup stayed strong, creating complexity without the right tools.
- Competitive pricing: Inflation and the increased cost of living have made people more budget-conscious, so small grocery stores need to intelligently manage pricing to stay competitive.
- Perishable inventory: While not unique to small grocers, effectively managing perishable inventory remains a challenge, especially for stores with fewer resources than bigger chains.
Try These 8 Tips & Tools To Improve Your Grocery Store Inventory Management
Effective inventory management is at the heart of long-term success, and finding ways to optimize your inventory will help you cut costs, boost profits, and meet customer demand.
Not all of the tips on this list will be world-changing for people in the grocery industry — but whether you’re a seasoned grocery store owner or just getting into the business, it never hurts to refresh yourself on what inventory tools and best practices are available today.
Here are eight tips and tools to help take control of your grocery store inventory.
1. Use Inventory Management Software
The biggest challenge of managing grocery store inventory is keeping track of it. Products rotate in and out constantly, and the first step to optimizing inventory is having a clear picture of what’s on the shelf, what’s in storage, and what’s on its way.
However, that’s easier said than done — and when you’re using manual processes, spreadsheets, or outdated software to do it, it’s nearly impossible.
That’s why the first step to improving any inventory management process is adopting inventory management software. This software helps you track inventory against sales, manage suppliers and reorders, and make adjustments.
While dedicated inventory software used to be out of reach for many small business owners, today, it’s built in to most modern point of sale (POS) systems. Better yet, grocery store POS systems usually include several specialized features to track the status of perishable inventory.
The reason this point sits at number one is that without a holistic way to view and manage inventory, it’s hard to make meaningful improvements. So, while learning a new system might come with some growing pains, the payoff is worth it.
2. Learn Your Suppliers’ Lead Times To Optimize Stock Levels
If you’re a big chain grocer, the occasional stockout isn’t a huge deal. Customers will keep coming to you regardless. If you’re an independent grocer, a stockout might lead a customer to give up on your store.
It’s estimated that out-of-stock items contribute to nearly $1 trillion of lost sales worldwide, especially if you sell online.
However, there are a few actions you can take to reduce the number of stockouts.
First and foremost, understand the average lead time of your suppliers and vendors. Use your POS system to see the time between submitting a purchase order and receiving it. Compare this with the inventory turnover rate of the items they provide.
Used together, this will help you understand exactly when you need to reorder to keep items in stock without overstocking. If your system supports it, you can set a low-stock alert that informs you the second a particular item reaches that level.
Doing this process for every single item in your store all at once isn’t reasonable. Start with your biggest suppliers and bestselling items.
3. Connect Your Online and In-Store Inventory
Accelerated by the pandemic, many customers expect online shopping options for groceries. Even for stores that don’t offer delivery, customers still want local pickup options.
This is good news for independent grocers, as online sales are a great way to reach new customers. However, there’s a difference between having a website and offering seamless online sales.
To simplify how you sell online, use an e-commerce solution that connects your in-store and online inventory. That way, online shoppers will always have an accurate view of what’s in stock.
An accurate online inventory is also a must when connecting to popular services like InstaCart and Mercato.
4. Use the First In, First Out Method (FIFO)
Fresh produce and locally sourced meat are a big draw for many customers of small grocery stores. Ensure your perishable inventory is as fresh as it can be by using the FIFO method.
FIFO stands for “first in, first out,” and essentially says that whatever items you receive first should be sold first. For example, if you get a shipment of local dairy on Mondays and Thursdays, all of the Monday shipments should be put out and sold before Thursday’s.
Using the FIFO method will help you prevent food spoilage and ensure items on your shelves are as fresh as possible.
Most grocery store POS software supports FIFO inventory management by tracking items’ movements based on arrival time and estimated expiration date.
5. Leverage Demand Forecasting
Another distinct challenge of managing a grocery is adapting to sudden surges in demand. Sometimes, there’s no way to predict spikes in demand for certain items — but many times, it’s more predictable than you think.
Demand forecasting uses the data on your POS system combined with external data (e.g., seasons, holidays, events, weather, etc.) to spot sales trends.
For example, you might see that every time you get a snowstorm, sales of certain categories of products rise by 10% — or that during college football season, sales of certain brands of chips are consistently higher on the weekends.
While demand forecasting isn’t a perfect crystal ball, it will still go a long way toward keeping you stocked up on in-demand items.
6. Perform Regular Inventory Audits
Even with a modern inventory management system, you’ll still need to do regular inventory counts to:
- Spot shrinkage
- Ensure the inventory levels in your system are accurate
- Find problems in your counting processes
Depending on your store, you should count inventory at least once a week. That said, you don’t have to close the store and do a full inventory reconciliation every time you count.
Instead, use various cycle counting methods to count small sections of stock at a time. You can expedite this process using inventory counting tools on your POS system and hardware like barcode scanners.
7. Use Discounts and Promotions To Avoid Waste
Many store owners see discounts and sales as a way to bring in new customers and boost sales — something that needs to be planned well in advance. And while sales are certainly a valuable marketing tool, they’re also an effective way to avoid food waste.
If you find that certain items aren’t moving off the shelves as quickly as you’d expect, discounts can help.
Use short-term discounts to incentivize sales of slow-moving items. If the item is a niche ingredient that’s not as likely to be used on its own, create a custom product bundle to upsell customers.
Remember, it’s always preferable to sell an item at a discount than let it go bad and take a total loss.
If you find that you’re frequently having to discount the same items over and over again, it might be time to rethink how many you’re ordering or your pricing strategy.
8. Entice Customers To Try New Things With Educational Signage
Many Americans want to eat healthier but simply don’t know where to start. If you can give customers more confidence in their produce purchases, you have an opportunity to boost sales.
One of the bigger trends in fresh produce is the use of educational and storytelling signs to entice customers into trying something new. These include signs that:
- Give customers recipes to try
- Tell customers how an item can be used as a healthy snack
- Educate customers on a local farm or food producer
These ideas can be even more effective when accompanied by relevant product bundles or buy one, get one (BOGO) offers.
While particularly useful for produce, this is a fantastic strategy for other items in your store (especially items from lesser-known local brands).
Transform the Way You Handle Inventory With a Solution Built for Grocery Stores
Mastering inventory management isn’t just for cutting costs. It’s also essential for understanding your customers’ preferences, boosting profits, and staying competitive.
During times of economic uncertainty, you need to take every advantage you can get.
IT Retail was built by grocers for grocers, and includes advanced features like inventory management tools, customer loyalty programs, and e-commerce tools in a cost-effective package.
Speak with one of our grocery store experts today to learn how IT Retail can simplify the way you manage inventory in your grocery store.