January has been a month characterized by price cuts but low prices are not the only factor eating into profits. At a time when competition is increasing, not only from the discounters, but from new players with optimized supply chains and leading distribution networks, meeting the demands of customer experience has become far harder. Limited product availability, a longstanding challenge for retailers across the globe, has led to customers across the UK becoming dissatisfied with their grocery shopping. A bad customer experience ultimately eats sales figures and margins. Worse still, the vast majority of retailers are unaware of the scale of this problem.
A new international study from Blue Yonder has revealed that current shopping experiences are far from meeting customer expectations. Despite 91% of grocery retail professionals claiming they are confident they are delivering a good customer experience, 81% of shoppers say that they have been unable to get the product they want in store with nearly a third saying this occurs at least once a week.
Retail déjà vu
The problem itself is not new. Balancing availability and margins is challenging: ordering too much leads to waste that eats into margins, while ordering too little can - as found in the survey - have a dire impact on customer satisfaction as they are unable to get the product they want. Increasingly volatile customer behavior combined with the higher expectations, set by the convenience of omnichannel shopping, has significantly impacted grocery stores’ abilities to manage the replenishment problem.
Retailers must respond. Lack of produce availability has caused 20% of shoppers to stop shopping with a retailer permanently or for a period of time, with this figure rising to 31% for online retailers. Moreover, attempts to mitigate poor customer experience with sub-optimal pricing models can only accentuate the crisis of low-profitability, as margins are further reduced on each sale. Even those that leverage historical customer data are failing to adjust to consumer behavior fast enough to derive value. As Professor Michael Feindt our Founder and Chief Scientific Advisor says, “Replenishment is incredibly difficult to get right. Disruptive shopping behaviors have made increases in demand more variable, while shopping missions based on trust, choice and – of course - value, all add to the complexity of replenishment decisions.”
Analytics for Logistics
Retailers looking for long-term resolutions must turn to technology innovation, moving away from manually determined replenishment decision making and take advantage of the vast well of data available to them. Replenishment solutions based on artificial intelligence learn from customer data, predicting their buying patterns by analyzing hundreds of variables, including factors such as weather and promotions. This technology can make optimal replenishment on a second by second basis, reducing waste but not sacrificing margins. In fact, retailers employing such solutions have seen up to an 80% reduction in out-of-stock rates without increasing waste. The added benefit is the ability to stand apart from retailers’ trend of slashing prices across multiple product areas. With customer experience safely in hand, retailers can price their products appropriately and focus on their long-term strategy to stay ahead of the competition.
The industry’s ‘race to the bottom’ trend in January can only be understood as a knee-jerk reaction to poor customer experience. Moreover, it is a short-term fix for a problem that isn’t going to go away. Grocer stores looking to remain profitable in an increasingly volatile market must start making the best decisions with artificial intelligence technology if they wish to survive. The longer they take to respond, the harder it will be to climb back up again.
For more information on, download the full findings and whitepaper here.