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The Ultimate Guide to Grocery Store Inventory Management

What keeps customers coming back to your grocery store? It’s not your friendly staff, sparkling-clean floors, or even your heartwarming small business story. 

It’s your inventory.

When shoppers visit your store, they expect to see shelves full of must-have staples and coolers full of fresh, delicious perishables. If they find your selection lacking, they’ll go somewhere else — and they might not give you another chance. 

That’s why we created this comprehensive guide to grocery store inventory management. In the next chapters, we’ll share everything you need to know to keep your store well-stocked and your profits high, including: 

How inventory management affects your grocery store’s profit margins, customer satisfaction rate, and overall success

Must-know grocery inventory key performance indicators (KPIs) and how to track them

Essential tools for grocery store inventory management

Inventory management best practices and tips for adopting them

Let's dive in!

Why Smart Inventory Management Matters

There’s no way around it: Success is hard to come by in the grocery industry. 

On top of famously thin profit margins, usually ranging between 1 and 5%, you have to compete with big-box
supermarkets to offer a wide range of popular brands at affordable prices. Fortunately, an effective approach to grocery
store inventory management gives you much better odds. Here’s why: 

Success Stories

Higher customer satisfaction

When customers find what they’re looking for in your grocery store, they’ll keep coming back and spend more during each shopping trip. 

Inventory Management

Flexible Tools

Stocking your grocery store is expensive, but understanding your inventory trends can help you make more informed ordering decisions — ensuring every dollar you spend on inventory is returned in the form of profit.

Pricing

Increased profits

Improving your inventory management approach almost immediately reduces your spoilage and stockout rates. In the long term, your bottom line will benefit from optimizing your approach to product selection and pricing. 

 

In short, properly managing inventory is foundational to running a successful grocery store. It keeps your customers happy, sales flowing, and profits high.

The Real Cost of Poor Inventory Management

While we’d much rather focus on the benefits of effective grocery store stocking, it’s critical to understand the cost of inventory management missteps. 


Here are just a few ways poor inventory tracking can dent profits: 

  • Spoilage: Every spoiled steak or wilted vegetable is money down the drain. Experts say that grocery stores lose up to 4% of their revenue to spoilage — a $40,000 loss if your business earns $1 million. 
  • Stockouts: Running out of your most popular products can have major consequences. Along with a short-term dip in sales, you might lose loyal customers for good. 
  • Theft: Without proper inventory tracking, you might not spot the effects of shoplifting until it’s too late. Left unchecked, these shoplifters can cost you thousands of dollars. 
  • Administrative errors: Nearly a third of grocery store losses are caused by inventory ordering mistakes. When you order too much or too little of a certain product, you’ll either lose sales due to stockouts or lose money due to waste. 
  • Opportunity cost: A surplus of under-selling products can tie up cash and take up valuable space in your store, limiting your opportunities to stock new, more popular items. 

 

Let’s look at the tools and strategies you need to leave these problems behind.

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Grocery Inventory Management KPIs: A Glossary

“What isn’t measured isn’t managed.” 

This popular piece of small business advice is especially true when it comes to managing your grocery store’s inventory. That’s why we’re starting with an overview of must-know grocery inventory metrics. Understanding these key performance indicators (KPIs) will help you identify a baseline for your grocery store’s current inventory approach, set goals, and evaluate your success as you implement new strategies.

Inventory Turnover Rate

Measures how often you sell and replace inventory over a certain period. A high turnover rate means products are flying off the shelves, while a low turnover rate means you run the risk of dead stock and spoilage.

Sell-Through Rate

Measures the percentage of inventory you’ve sold within a certain time compared to the amount of inventory received. It can help you identify unpopular items and decide whether to discount or discontinue them.

Shrinkage Rate

Represents the percentage of revenue you lose to shrinkage. It reveals how much theft, damage, and spoilage affect your store’s bottom line.

Days of Supply

Shows how long your current inventory will last based on your historical sales. It can help you make informed decisions about order quantities and timing.

Cost of Goods Sold (COGS)

Represents the total inventory costs of products you’ve sold over a certain period. Tracking COGS can help you make smarter decisions to keep costs low and profits high.

Gross Margin Return on Investment (GMROI)

Measures how much profit you’ve made for every dollar spent on inventory. It’s calculated by combining your gross margin and inventory turnover.

Inventory Carrying Cost

Represents the total cost of holding inventory, including storage, taxes, refrigeration, insurance, and opportunity costs. High carrying costs indicate that unpopular products are using valuable space and money.

Category Profitability

Reveals how profitable each of your grocery store’s departments and product categories are. Identifying profitable categories can help you understand where to allocate your budget, shelf space, and marketing efforts.

Out-of-Stock Rate

Tracks how often you run out of popular items. High out-of-stock rates can lead to lost sales and unhappy customers.

Rate of Return

Measures the percentage of sold items returned by customers. Tracking this metric can help you identify low-quality goods that are prone to damage or early spoilage.

Must-Have Tools for Grocery Inventory Management

Ready for some good news? You don’t have to manage your grocery store’s inventory alone. 

Many grocers stretch themselves thin by relying on manual methods to track their stock levels. They physically count products on their shelves, track numbers on a paper or digital spreadsheet, and calculate their KPIs by hand. 

These methods take up valuable time and often lead to errors — which is why our number-one piece of advice is to invest in the right tools. In this chapter, we’ll explore how modern technology can make managing your grocery store’s inventory effortless.

POS System With Built-In Inventory Management

The right point of sale (POS) system is a critical ingredient for effective grocery store inventory management. You might think of a POS system as a simple tool for processing transactions, but modern, grocery industry-specific solutions can power your inventory management approach. 

Your grocery POS system should track stock levels in real time, eliminating tedious, time-consuming manual counts and recording. 

It should go a step further and analyze this data, providing valuable insights into your sales trends, most popular products, and more. 

Related Read: Grocery Store POS & Inventory Management Software: 6 Top Providers
pos system
BARCODE SCANNER

Barcode Scanner With Mobile Capabilities

A barcode scanner is an essential tool for grocery store inventory management. 

Using a barcode scanner is faster and more accurate than manually ringing up customers’ items, ensuring each sale is accurately reflected in your inventory records. 

Along with standard scanners for your checkout counter, we recommend investing in a few scanners with mobile functionality. Mobile scanners simplify spot checks and inventory counts, allowing you to simply scan an item’s barcode on the sales floor to quickly update counts and pricing. 

Deli Scale and Label Printer

Do you have a bustling deli or butcher department? Then you need an integrated deli scale. 

This tool makes tracking and selling weight-based, cut-to-order products like meat and cheese effortless. 

When a customer places an order at the meat counter, all your butcher has to do is set the meat on the scale and select the product type. Your deli scale will do the rest of the work, automatically calculating the exact price and printing a barcode label. 

Along with allowing your cashiers to ring these weight-based items up quickly and accurately, this simplified process allows you to turn every last ounce of product into profit.

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Essential Reports for Grocery Inventory Management

These tools constantly monitor everything happening in your store, keeping a detailed log of every product and sale. But sorting through long lists of unorganized data won’t help you improve your inventory management strategy. 

That’s why you need a grocery store POS system with a user-friendly reporting suite. 

Your software should break down your inventory data into valuable, actionable insights to help you track KPIs, identify your bestselling and underperforming products, spot sales trends, and make smarter ordering decisions. 

Let’s look at a few examples of essential inventory reports your POS system should generate.

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Individual Product Reports

While it might be tempting to focus on your grocery store's overall inventory levels, taking a deep dive into individual product data is key. 

Individual product reports reveal how many of a particular item you have in stock and how quickly it moves through your store. Plus, you can adjust your reorder points, set up low-stock alerts, track your costs, and manage pricing. 

Receiving Reports

Inaccurate shipments are one of the most frustrating causes of inventory management issues, but a POS system with purchase order and receiving management can prevent these problems. 

Your receiving report should compare your expected and actual amounts of received inventory, monitor your inventory costs, and make it quick and easy to add new products to your stock records. 

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Other Reports To Look For

Those are just a few examples of what your grocery store POS system's inventory reports should look like. 

If you're in the market for a new system, make sure it includes at least all the reports in this checklist. These tools will help you track your stock levels, simplify the replenishment process, and give your grocery store the best chance of profitability. 

Inventory valuation report: Reveals the total value of your on-hand inventory to help you manage cash flow and make smart financial decisions

Movement analysis report: Tracks inventory turnover across your entire grocery store and helps you identify bestsellers and slow-moving items

Low-stock report: Lists products with stock levels below a certain threshold, giving you advanced notice to replenish them

Shrinkage report: Highlights discrepancies between your inventory and sales records, revealing the impact of issues like theft and spoilage on your bottom line

Turning Inventory Data Into Action: 6 Best Practices

You’ve got the data — now what? 

Effective inventory management isn’t just about tracking stock levels and monitoring turnover rates. It helps you make informed decisions to anticipate shoppers’ needs, improve your ordering process, and boost profits. 

Let’s look at six steps to help you stock your grocery store like a pro.

1. Order Products at the Right Time in the Right Amounts

Real-time stock updates can help you avoid stockouts and prevent spoilage, but digging into your sales and inventory data is the next step.

Your POS system should calculate metrics like the inventory turnover rate and days of supply for each category and individual product in your grocery store. You can use this data to forecast product demand and order the right products at the right times in the right amounts. 

For example, your inventory and sales reports might reveal a high turnover rate for milk and yogurt, but a lower rate for other dairy products like butter and sour cream. Instead of placing a broad order to replenish your dairy cooler, you can order milk and yogurt in higher quantities or more frequently. 

This data-driven approach prevents you from running out of bestsellers, reduces waste, and ensures your inventory budget goes toward what customers actually want. 

2. Tailor Your Product Mix to Customers’ Wants and Needs

Your sales and inventory reports offer a window into your shoppers’ preferences and habits, giving you the insights you need to build an inventory strategy tailored to them. 

Along with making customers happy, paying attention to this data can help you determine which products are worth your shelf space. 

Let’s say your reports reveal a spike in sales of organic produce, meats, and dairy. Along with ordering more organic options and fewer conventional foods, you might try new ways of catering to your customers’ newfound health consciousness, like offering fresh-cut fruits and protein-packed snacks, or even designing an organic-themed endcap. 

Pro Tip: Want to provide an even more personalized shopping experience? Launch a loyalty program! Along with encouraging shoppers to spend more time and money in your grocery store, a loyalty program gives you a closer look at your most valuable customers’ wants and needs. 

3. Reduce Shrink and Protect Your Bottom Line

Struggling with empty shelves and emptier cash drawers? You’re probably dealing with a shrinkage problem. 

Fortunately, your inventory data can help you pinpoint the cause and implement strategies to protect your bottom line. Here are some common causes of shrinkage that your reports might reveal, plus actions you can take to reduce their impact on your profits:

  • Shoplifting: Install a combination of real and decoy security cameras, and reorganize your store’s floor plan to place frequently-stolen items in highly visible areas. Don’t forget to train your employees to spot common shoplifting behaviors and safely apprehend thieves. 
  • Spoilage: Use your POS system to monitor products’ expiration dates, and offer discounts on near-expiry products. Implement a first in, first out (FIFO) stocking method to sell your oldest goods first. 
  • Vendor errors: Build relationships with suppliers you can trust, and use a POS system with integrated purchase orders for easy verification upon delivery. 
  • Product damage: Invest in reliable refrigerators and freezers to keep products at a safe temperature, and train your staff on proper handling techniques for delicate items like fruit and bread. 
  • Internal theft: Use a POS system with role-based permissions and activity tracking to ensure your employees only access the features and data they need to perform their jobs.

Relying on your sales and inventory data to understand what’s happening in your store will help you address problems before they dent your earnings.

4. Plan for Seasonal Shifts

Your customers’ cravings change with the weather. In the summer months, they’ll beeline toward your cookout essentials, stocking up on hot dogs, hamburgers, buns, sides, and all the fixings. Around the holidays, they’ll trust you for feast-worthy mains, sides, and desserts. 

Meeting these needs requires careful planning. 

Well before the arrival of a new season, dig into your POS system’s data to learn how your sales and product demand have shifted historically. Maybe you notice a spike in produce sales in the early spring and fall, and an uptick in prepackaged snack demand around the start of a new school year. 

Use these trends to inform your seasonal product selection, stocking more of what your customers want and less of what they don’t. 

Your inventory reports should also reveal when you have a surplus of seasonal products that aren’t expected to sell. To prevent waste and turn these items into profit, discount them early. This is a go-to strategy for Halloween candy, Valentine’s Day treats, or pumpkin-themed goods after their season has passed.

5. Price for Profitability

An effective inventory management approach can boost profits through reducing waste and preventing stockouts, but that’s not all. Tracking and understanding your inventory data can also help you tackle one of the toughest tasks: pricing your products. 

For each item in your store, your POS system should let you record an internal cost and sticker price. It should also calculate each product’s profit margin based on these metrics, helping you identify your moneymakers and loss leaders. 

These insights can help you make more informed decisions about which products strike the right balance between meeting your customers’ grocery needs and your store’s financial needs. It should also alert you to when prices are too high or too low, prompting you to adjust pricing to increase inventory turnover or boost revenue.

6. Master the Art of Promotions

What do all of your customers have in common? They love an opportunity to save money. 

Promotions play a critical role in your grocery store’s marketing and inventory management approach. 

Along with bringing new customers through your door and increasing their average basket size, strategic promotions can help you move underperforming items, selling them before they contribute to your spoilage rate. 

Before launching a new promotion, check your inventory records, paying close attention to near-expiry items or products with slow turnover rates. A markdown will make these items much more appealing to shoppers, freeing up space for more of your bestsellers.

Getting Started With a Better Grocery Store Inventory Management Plan

Now it’s time to put what you’ve learned into action. Overhauling your grocery store’s inventory management strategy can seem like a daunting task, so we’ve put together some of our best advice for a smooth transition.

1. Set Specific Goals

Instead of trying to transform your inventory management strategy all at once, start with small, manageable goals. 

Choose one or two specific KPIs that you’d like to improve, and get a baseline measurement. Then, decide how you’d like to improve them and by how much. Last, set a calendar reminder to check the data and evaluate the effectiveness of your new inventory management techniques. 

For example, you might set a goal to reduce your spoilage rate by 10%. You plan to accomplish this by adopting a FIFO stocking method and marking down the price of near-expiry items. After a while, check your POS system’s sales reports to see how these efforts have impacted your spoilage rate.

2. Train Your Team

Managing grocery store inventory is a team sport, which means you need your team’s buy-in. 

All of your employees — from cashiers to butchers — should understand why accurate inventory management matters and how they can help. Plan regular, team-wide trainings to review crucial topics, like: 

  • How to safely handle and store perishable goods to prevent unnecessary spoilage
  • Proper stocking techniques, like the FIFO method, to ensure your oldest goods are sold first
  • How to label and sell weight-based products like meat and cheese
  • How to perform proper inventory counts and spot checks
  • Your POS system’s inventory management features and how they fit into each team member’s role

Thorough training ensures your employees stick with the right inventory management methods even when you aren’t around.

3. Lean on Your POS System

Choosing and using a POS system with the right features is the most effective way to manage your grocery store’s inventory. This powerful tool should do the heavy lifting, tracking your stock levels, analyzing your inventory data, and giving you the insights you need to make informed decisions. 

Let’s look at some key ways to use your grocery store’s POS system to manage inventory: 

  • Track inventory in real time: Check your stock levels from anywhere, at any time. This easy access to your data makes it easier to spot low stock levels before they lead to missed sales. Some POS systems will even alert you when you’re running low on a particular product! 
  • Automate inventory management: Look for a grocery POS system with automation features to save time and make stocking effortless. Your software should detect when a product’s inventory drops below a set threshold, then generate a purchase order to replace it. Once a new shipment arrives, your system should automatically update your inventory records. 
  • Sync online and in-store sales: Offering online grocery services like delivery and pickup can throw a wrench in your inventory management plan, but the right POS system can help. Look for one that seamlessly integrates with your online grocery platform to sync your online and in-store sales and inventory data in real time. 

Whether you’re starting a new store or you’re a grocery industry veteran, upgrading your POS system is the best thing you can do for smoother processes and higher profits. 

Pro Tip: Want to make the most of your POS system’s inventory management features? Look for a grocery POS provider that offers 24/7 support and unlimited training at no additional cost. Your support team will help you learn and take advantage of the system’s inventory management features, allowing you to reap the benefits with minimal trial and error. 

How IT Retail Can Help You Take Control of Your Grocery Store's Inventory

Looking for a partner to help you manage your grocery store’s inventory like a pro?
We’re here to help. 

IT Retail is an all-in-one POS solution specifically designed to help grocers like you tackle challenges like inventory management, marketing, and profitability. With our software, you can track stock levels in real time, manage perishable and weight-based products, generate purchase orders, and get valuable insights into your store’s overall performance. 

Plus, you’ll get access to our team of grocery industry experts 24/7 to help you put these features to work. 

Start your IT Retail journey by scheduling your personalized demo today. 

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