f .- L s II 3II III II HII II III IH II 31293 01025 6521 LIBRARY MICHIGAN STATE UNIVERSITY PLACE IN RETURN BOX to remove this checkout from your record. TO AVOID FINES return on or before date due. DATE DUE DATE DUE DATE DUE MSU Is An Affirmative Action/Equal Opportunity Institution c:\circ\dmduo. pma-p. 1 FOOD STORE OUT-OF-STOCK: ARE MANAGERS SENSITIVE TO THE PROBLEM By Terry D. Mills A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of MASTER OF BUSINESS ADMINISTRATION Department of Marketing and Transportation Administration Curriculum in Mass Marketing Management 1962 Hr. PREFACE A phrase frequently used in the grocery industry is "out-of-stock." The usage of the phrase is not confined to trade publications and trade personnel's vocabulary, but is often used tw'specific food store managers in conversations with ultimate consumers. In the latter case, the food store shopper is told that a certain item is "out-of—stock." The frequent use of the term, both in trade circles and with consumers, has interested the author for the past six years. An assumption that certain items may not always be available to all food store customers is certainly well founded. Observations can indicate such a state of affairs. In the broadest sense, such an assumption indicates a possible view of out-of-stock. The recOgnition of out-of- stock as reality, however, does not indicate the degree, absolute amount, cost or many other important factors. The cgnditions of out-of-stock, therefore, are the items of importance in any discussion of out-of-stock. The author views these conditions as important contributing factors to the overall success or failure of an individual food store. Both as a consumer and as a sales representative the author has seen potentially successful.retail promotions fail because the merchandise was not available for sale at 11 the prOper time. Observation has also shown situations where a store manager has been reprimanded by a superior because of an out-of-stock situation. These personal observations have tended to strengthen the author's view of the importance of out-of-stock in the retail operation. In the following pages, out-ofostock is inspected and disected from various points of view. The final result should be a clearer understanding of out-of-stock on the part of the reader. 111 ACKNOWLEDGMENTS The author would like to thank Mr. Jerry Procknow of the Lansing State Journal for his cooperation. Mr. Procknow furnished the basic data concerning food store volume in the Lansing- East Lansing, Michigan, trading area. iv __‘_._ TABLE OF CONTENTS PREFACE O O O O O O O O O 0 O O O ACICPJOYDVLEWI‘IENTS e e e e 0 O O O 0 INTRODUCTION . . . . . . . . . . . Views on Out-of—Stock The Problem and Definition of The Objective of the Paper The Hypothesis of the Paper The Approach and Procedures AMOUNTS AND TYPES OF OUT-OF-STOCK .A. C. Nielsen Study National Canners Association DOLLAR VALUES AND CONSUMER REACTION Eagle Study Progressive Grocer Study Food Topics Study STORE MANAGER SURVE . . . . . . . Procedures Response Tabulation Cross Tabulation Limitations Supervisory Cross Check Conclusions COMPARISON OF FINDINGS TO PREVIOUS Nielsen and Eagle Studies National Canners Association Food Tepics Study‘ nggressive Grocer Study LII'IITATIO:‘HS e a e e e e e e e e e COI‘ICLUSIOI‘HS . g e e e e e e o a 0 Terms Study STUDIES Study Page ii iv 12 21 A1 APPENDICES 0 O O O O O 0 O 0 O 0 Appendix A O O O O O O O 0 Research Design Survey Methods Interview Techniques Pretest Survey Stores Interview Guide Appendix B . . . . . . . . Research Design Interview Guide BIBLIOGRAPHY . . . . . . . . . . vi 0\ C\ INTRODUCTION A basic assumption that shelf out-of—stock in the re- tail food store exists underlies the entire paper. By assuming that "it" exists, the presentation of the problem, term definitions, objectives, and hypotheses are facilitated and a smoother flow of subject matter is attained. The critical reader may object to such an assumption and rightly so. Total verification would be, however, a lengthy and involved process. The author has viewed many written works considering out-of-stock and all evidence points to the soundness of the assumption. The following section presents typical Opinions of the food trade in regard to out-of-stock as well as an overall perspective of out-of-stock. Views on Out-of-Stock On June 19, 1952, Mr. J. O. Peckham, executive vice president of the A. C. Nielsen Company, addressed the Grocery Manufacturers of America in White Sulfur Springs, West Virginia. The opening lines of Mr. Peckham's pre- sentation are as follows: This subject of out-of—stock is one which has plagued grocery manufacturers almost since the very beginning of advertised brands. It was on the agenda for one of Mr. Nielsen's first addresses to you some thirteen years ago, has been thoroughly aired at our regular annual and mid-year meetings ever since that time, and has also been discussed at many of the interim meetings of your merchandis- ing committee.1 The Nielsen organization is highly respected by the food trade and conducts market investigation work for a great number of prominent grocery product manufacturers. Opinions of Nielsen and the G. M. A. are a good indication of the feeling of grocery product manufacturers in regard to out- of-etock. If the manufacturers are concerned, then what about the food retailers themselves? Super ggrket Merchandising considered out-of-stock in the recent "Eagle Study" series: One of the major difficulties in the Super Market business is to overcome the out-of—stock condition that is responsible for so many lost sales. How extensive is this danger? The EAGLE Study does cast some light on this. A special analysis over an 11-week period revealed that out-of—stocks were running at the rate of £28,387 per week in sales equivalent for the entire chain. This certainly poses a challenge to EAGLE, and for that matter the entire food industry. Both the Eagle food chain and Su r M ket Merchandisin typify the concern shown in recent years by food retailing organizations. In both of these quotations, concern about out-of- stockris shown. A common assumption is also made, that all readers understand what out-of-stock is. Definition of the ‘J. o. Peckham, "Seven Keys to Out-of-Stock," a pre- sentation to The Grocery Manufacturers of America,.Inc., White Sulfur Springs, West Virginia, June 19, 1952, p. 1. 2"The Eagle Study. Part Three " d222:.!az§ai_!2:ahsar diging, xxvx (November, 1961), p. 3H. term, since it is commonly used, is quite a difficult task. Primarily the difficulty lies in the many ways out-of-stock has been used in the past. If a person becomes accustomed to using a term in a specific way, difficulty and confusion may arise when the term is used in a different way. To overcome any misunderstanding about the meaning of out-of- stock, let us view this paper's approach to out-of—stock. All dry grocery products are not sold by all food stores. Although the statement seems rather basic, it is an integral part of our out-of-stock discussion. Discretion as to how many and what particular items will be sold by the retail store lies mainly with the warehouse Operation (chain or independent). In today's climate of less direct buying on the part of the retail food store, the total number of items handled by the warehouse has become the primary source of product for resale by the individual retail store. In most retail organizations, chain and independent, the individual store can secure some or all the brands available to it from the warehouse. The store manager or owner, therefore, can sell what items he wants within the limits of the items available from his primary purchasing source. Some chain organizations require every store to sell all items that are stocked by the warehouse. But even in the chains who cling rigidly to such a requirement, 1 One such exceptions are usually made for individual cases. exception might be the exclusion of high priced specialty items in a low income neighborhood. A store manager would have a great deal of difficulty selling chocolate-covered ants at 81.95 per can in the area immediately south of Chicago's Leap. The Opposite would also be true. A very low price, low quality item would be difficult to sell in a high income area. Most store managers recognize the needs of their particular neighborhood and stock those items that will do the best overall selling job for them. The store manager, because of his decision to sell or not to sell individual items, becomes the key figure in our discussion of out-of-stock. From the manager's basic decision to sell only certain items available to him, evolves What can be called a "full stock" condition. A full stock condition is present when all items that the manager desires to sell are available to the consumer during any day of the week.and during any hour of the day. Out-of-stock exists when items normally sold are not available to the consumer. As mentioned before, measurement of the degree of out- of-stock is a very difficult problem because of the various ways the term has been used in the past. Out-of-stock has been expressed as a percentage in terms of the number of IJewel Tea Company, Chicago, Illinois, follows the policy of having all stores sell all items available frmm the warehouse with the exception of a small group of pro- ducts termed "optional" items, the selling of which is at the discretion of each manager. items not available for sale in a store using the total number of normally stocked items as the base. Out-of-stock has again been represented by a percentage figure showing the total amount of time during a week that a particular item was not available on a store's shelf. In addition to these percentage figures, out-of-stock has been considered as an absolute number. In this case one could say that out- of—stock for a given store amounted to ten items on Monday, fifteen on Tuesday, etc. Out-of—stock figures have been used in the past to represent a single store or a whole group of stores. wholesalers and manufacturers have also used the term frequently to express slightly different ideas. All these various meanings of out-of-stock can be useful if the reader clearly understands how the term is being used. Several out-of-stock studies are evaluated in later sections of the paper and the specific definition of out-of-stock will vary slightly in each. To prevent con- fusion, however, a clear definition of out-of-stock is given when it is used in a different manner. In almost all considerations of out-of-stock, however, there is the basic opinion that the ultimate consumer is af- fected and that total purchases are fewer when normally stocked items are missing from a store's shelf. If the most basic concern of most out-of-stock discussions ische effect upon the consumer and the consumer's dollar, then it would appear logical that the food store would be the place where the importance of out-of—stock can be fully studied. If the food store is the correct location to study the relative importance of out-of—stock, then a basic model definition of out-of-stock for all individual stores would be a useful tool. By means of the model definition, valid comparison could be made between stores or groups of stores. Compar- able positions could be analyzed and solutions generated on the basis of the standard definition. Such a model defin- ition is not being used today, but one has been constructed for use in the independent research portion of the paper. The out-of-stock model for the retail food store is con- structed in the following manner. The store manager approxi- mates the total number of items he sells normally in his store. Using a selling week as the basic time period, he physically counts the items that are out-of-stock at some time during the period. The absolute number of out-of—stock items is divided by the total number of normally stocked items. The result is the out-of—stock percentage for the individual food store. The use of the model is discussed in Appendix A. As stated, the opposite of out-of—stock is full or complete stock. Attainment of a 100 per cent full stock condition for the retail food store is entirely possible, but highly improbable. In order to accomplish this end, inventory may have to be raised to such a height that the additional cost of carrying it far outweighs the benefits to be gained from a full stock condition. 1The term "normally" is defined as an item stocked year around, not a seasonal or a "one shot” item. The cost of carrying inventory at the retail level is recognized by the author. It is also recognized that it is virtually impossible to attain a full stock condition. Viewing these two considerations, the attempt here is not to negate the value of keeping retail stocks down to a "reason- able" level. It is rather to present out-of-stock data in such a way that interested readers may decide for themselves if out-of-stock is a retail food store problem. The Probleg and Definition of Termg Direct control over the operations of the retail store is in the hands of the manager. His duties may en- tail many specific items, not the least of which is the maintenance of stock levels on his store's shelves. There- fore, a full stock condition or something less than a full stock condition is the responsibility of the store manager. The-physical duty of keeping shelves stocked may be passed on to a lesser employee, but the responsibility can not. If the original assumption of the existence of out-of-stock is true and the manager has the responsibility to maintain prOper stock levels, then the individual store manager should be sensitive to the out-of—stock situation in his store. A restatement of the last sentence is the specific problem that this paper will deal with. The problem is to determine the extent or degree of sensitivity to out-of- stock conditions by store managers in selected outlets in the Greater Lansing, Michigan, area. Out-of-stock in general, as well as the model defin- ition, has been considered earlier. Two additional terms still require a specific definition. What is sensitivity? If awareness of a situation is considered to be the broad overview, and sensitivity the refinement of awareness, then the preper perspective can be gained. Certainly most store managers are aware of their general out-of-stock situation. Sensitivity, however, carries general awareness one step further, i.e., to quantitative and more sophisticated qualitative judgments. The issue involved in making the distinction between awareness and sensitivity focuses particularly on the gggggg of perception of a particular manager in regard to the out-of-stock condition prevalent in his store. What is extent or degree? The extent or degree will be relative to certain norms of sensitivity which will be established later in the paper. The Objective of the Paper Essentially, the breakdown of chapters is in two main areas. The first area considers the condition of out-of- stock as viewed by several authoritative studies. 0b- jective number one is, therefore, the establishment of some important conditions of out-of-stock situations. The second major division considers the extent of awareness of out-of—stock by food store managers. Demonstration of the degree of sensitivity is the second objective. Thirdly, a framework for the future analysis of out-of-stock sensitivity is developed. e H 0 es 0 e P e To facilitate the verification process and to insure the proper scientific perspective, the "null" hypothesis form is used. The statement of the hypothesis is as follows: Retail food store managers in Lansing and East Lansing, Michigan, are not sensitive to their shelf out-of- stock conditions in regard to dry grocery products. The word "managers" is used in its collective sense. All re- lationships in data collected will be viewed from the stand- point of the group of managers as opposed to individual managers. The astute reader will recOgnize the limited scope of the hypothesis. Awareness of Lansing area store managers may or may not be typical of all store managers. To assume Lansing area managers are a preper sampling group for the whole country would be less than prudent. A possibility does exist, however, that the framework of investigation used in this paper could be incorporated into a larger scale study. The reader can, if he wishes, view this presentation as a pilot study for further investigation. _ _ ij:QWT-DL-m_. __..- _ .r—— .. 10 The Approagh gag Precedures Two main areas Of investigation are'taken into con- sideration. In the first area five authoritative studies are presented. Each one views out-Of-stock from a slightly different perspective. In the second main area, an inde- pendent study is presented. Included in the study are the results of interviews of food store managers in Lansing and East Lansing. The development in the initial area (Sections II and III) tends to verify the existence of out-Of-stock both in absolute numbers and percentage figures. Conditions of out-Of-stock situations are also considered. There are many possible conditions of out-Of-stock and, Of course, the relative importance of each is open to discussion. An arbitrary decision to include or not to include specific Out-Of-stock conditions was made by the author. In the author's Opinion the following out-of—stock conditions are the most important: (1) Frequency Of out- Of-stock on certain types and kinds of items; (2) consumer reaction to an out-Of-stock situation; and (3) dollar volume increases available when out-Of~stock is brought down to a reasonable level. The develOpment Of these condi- tions is approached in the first major area. The develOpment Of the second major area (Section IV) consists Of a series Of interviews Of selected retail food store managers. A complete design of the research project 11 appears in Appendix A. Here, as in area one, the out-Of- stock conditions are the important factors. Sensitivity levels of the managers in regard to out-Of-stock conditions in their stores are investigated fully. The conditions investigated here are similar to those investigated in area one. An analysis Of the managers' degree of sensitivity in comparison to the criteria established in area one is found in Section V. Limitations of the paper are presented in Section VI and certain conclusions are drawn in Section VIII. AMOUNTS AND TYPES OF OUT-OF-STOCK The quantity of written material concerning out-Of- stock is quite limited. References to out-of-stock, how- ever, are frequent and in most cases the tone indicates that out-of-stock is something to be avoided. Logic would tell us that if "something" is to be avoided, we should have an idea what the "something" is. In the introduction to the paper, various common usages Of the term "out-Of-stock" were given. Each Of these usages may be meaningful for the purpose for which it was intended. There seems to be, however, a void of common understanding, a failure to comprehend the need tO standardize the term. The value of a standardized concept of out-of-stock could possibly be to give the store manager a new conceptual tool with which to act upon his own problem. This section presents two authoritative studies deal- ing with out-of-stock. Each defines out-of-stock in a different way. The value Of the first study (A. C. Nielsen) is chiefly its presentation of possible reasons for an out- of-stock situation. Study number two (National Canners Association) presents, in the author's Opinion, a useful definition Of out-Of-stock; useful, primarily, to management Of retail Operations. 12 13 A C Ni en 8 u The A. C. Nielsen Company has, for many years, been concerned with retail out-Of-stock. Since Nielsen gathers marketing information and statistics for a great number Of grocery product manufacturers, their view Of out-Of-stock takes into consideration a large group of stores rather than individual units. Considering this, the "Nielsen definition of out-Of-stock" varies somewhat from our definition. The construction of the "Nielsen definition" is as follows:1 I H The Census Of Distribution in 1948 indicated approxi- mately 407,000 grocery, combination grocery, meat, delicates- sen, and country general stores handling food in the United States. If each of these outlets handled a given grocery product brand, the distribution would be 100 per cent. The average product, however, is able to attain a distribution Of only 47 per cent, somewhat less than half of the AO7,000 outlets. The Nielsen Company audits its group Of stores once during a 60~day period. It was found that an average Of 47 per cent Of the stores checked had a given item in stock at the time of the audit, or had ordered it during the past 60-day period. Nielsen refers to this 47 per cent figure as maximum distribution and, Of course, relates to a two-month period. After securing these base figures, a later HPeckham, "Seven Keys to Out-Of-Stock," pp. 1-8. 14 audit was made. During this investigation it was discovered that 6 per cent of these 407,000 stores failed to have specific brands on the shelf or in the back room, although it was determined that the store had purchased the products at some time during the preceding 60 days. This means that 6 per cent of the stores checked were out-of-stock on particular items at the end of the audit period. If 47 per cent is the maximum distribution attainable and this were considered 100 per cent, then "relative out-Of-stock" would be 6 e 47 or 13 per cent. ‘ It is obvious that this analysis gives the same weight to all stores, regardless of volume. The store doing $200,000 annually counts just as heavily as the one that has a volume of 32,000,000. Nielsen contends that it is the smaller stores that are more frequently out-of-stock. For this reason, out-Of-stock was reviewed again on a volume or traffic basis. Nielsen's figures indicated that 47 per cent of the stores do 68 per cent Of the food store sales. Weighing these figures, the original out-Of-stock figure of 6 per cent is reduced to 3 per cent. Relative out-Of-stock is reduced from 13 per cent to 4 per cent. The analysis for this study represented average distri- bution of 154 important brands in 25 major food store com- modity groups. The relative out-Of-stock figure of 4 per cent is the median value of out-Of-stock on these same 154 brands. Nielsen also indicated that these figures are 15 representative Of a cross section of all the items covered by the Nielsen Food Index. Although the Nielsen definition of out-Of-stock is quite interesting, its value for the individual food store is limited. In fact, all that is indicated is that on the day the store was checked certain brands were not available, although it was proved that these brands had been sold during the past 60-day period. It must be added, however, that the intended use of this material was for grocery manu- facturers, not retail stores. Manufacturers could use the data as an out—Of-stock overview of the entire industry since their overall interest is not directed at specific stores. TO be of value to a specific retail outlet, out- Of-stock must be presented in the form of a more Operational model. The value of Nielsen's work, for our purposes, is found in the conditions related to out-Of-stock that were presented in the study. Nielsen found a definite correlation between low distribution and out-Of-stock On specific items. Brands having distribution Of from 10 per cent to 40 per cent had a relative Out-Of-stock Of 8.2 per cent (compared with the overall figure Of 4 per cent). Brands having 90 to 100 per cent distribution, however, had relative out-Of-stock of only 2.1 per cent. In five product categories, all the major brands had excessive relative out-Of-stock (over 7 per cent). It was ascertained that in four Of the five categories there has 16 rarely been any type of consumer promotion, such as combi- nation factory pack, cOupOning premiums, etc. These same five categories do not contain any brands where consumer advertising has been Of major dimensions. All five of these groups are considered more commodities than special- ties and are very difficult for the consumer to distinguish value, either by taste or use. Many of these brands do not seem to have tOO strong a consumer preference despite the fact that they have a relatively high competitive position. Finally, median out-Of-stock on brands having multi- package sizes is 2.9 per cent. Single package sized brands, however, have a median out-Of-stock of 7.5 per cent. A brand with a strong consumer preference is more likely to have several package sizes and the presence Of two package sizes means larger stocks and fewer meghanicgl reasons for running out. The Nielsen analysis of out-of-stock, although using a rather non-operational definition, does shed some valu- able light On why specific items are frequently out Of stock. Possible reasons for out-of-stock are summarized in Nielsen's "Seven Keys to Out-Of-Stock": 1. Increasing cgngumeg sales mgvement: Any number Of factors can contribute to this situation, e.g., unanticipated seasonal demands, consumer promotions by manufacturers or retailers, in store promotions, scare buying, unanticipated rapid growth Of a new product and advertising. Here we find the important factor of adequate communication between manufacturer and retailer. The manufacturer must make his best effort to present agcurate knowledge and the retailer must 17 do his best in gcceptipg logical estimates of future activity. Cooperation and communication in the anticipation Of future activity can go a long way in preventing out-of-stock. EQWEE consumer sales movemept: This factor cou 6 caused by wO entirely different rea- sons. Lower consumer sales demand could very naturally follow as an after effect of a con- sumer promotion. On the other hand, it could be caused by a decline in the consumer franchise on a particular product. The retailer must be able to differentiate between these two factors by diligent Observation Of past Operating data. Shortage at the wholesale level: Some amount of warehouse shortage is a natural phenomenon and, also, quite difficult for the retailer to anticipate. The retailer must not, however, assume all his Out-Of-stock problems are caused by warehouse outs. It is frequently much easier to blame everything on the warehouse while not taking proper internal action to pre- vent that amount Of out-Of-stock that can be controlled at the retail level. Retailer carelessness: In the carelessness cate- gory we find poor ordering, poor shelf stocking procedures, and poor supervision on the part of the manager. Because of the time limitations, most managers will delegate some of the stock control duties. He must, however, be constantly H checking to see that adequate employee per- {Ormance keeps out-Of-stock down to a minimum evel. Case size too gmpll: Some manufacturers are slow to respond to market information regarding case sizes. An example might be two brands Of wax paper, one case packed with 24 units, the other packed with 48 units. If the 24 unit brand were frequently found out-Of-stock, the manufacturer should certainly consider increas- ing the pack. At the retail level, stock ordering personnel must be aware Of the number Of units per case and order by unit rather than by the "case." Competitive loadipg: TOO much product remaining at the end Of a particular promotion may cause the retailer to eliminate a competing product "temporarily" while the promotional stock is 18 being reduced. The retailer assumes, in this case, that these products are directly sub- stitutable and that no adverse consumer re- action will follow the "temporary" out-of-stock. Such an assumption may not be a wise one in view Of the unpredictability of consumers. If poor judgment in promotional ordering happens, the retailer should learn to live with his mistake and not compound the injury by elimi- nating another brand. 7. Inherent weaknesp in consumer franchise: The manufacturer has the responsibility Of building his brand's position or he will find the product being drOpped by the retail organizations. The retailer has the very difficult task of building a set of criteria with which to judge the relative advantages and disadvantages Of drOpping a product. Slow movement alone is not always the prime consideration.1 The manager must weigh as many factors as possible before deciding to eliminate a product. National Canners Association Study In May 1957. the National Canners Association con- ducted an interesting out-Of-stock study. The study was made during a 12-week period in 12 retail supermarkets of the American Stores Company located in the Philadelphia-New Jersey area.2 The data were Obtained from each store for each day Of the week. By the end Of the 12-week test period, Store A, for example, had been checked on a Monday, a Tuesday, a Wednesday, etc. These days, however, were not during the same week. Each store carried more than 700 1Consider "Tobasco Sauce," a brand which enjoys excel- lent distribution, yet it has very low turnover in most areas. 2National Canners Association, QQpped Foods Repai; Out-Of-Stock Study, Marketing Research Report NO. Of the Philadelphia Project (washington: National Canners Associ- ation. 1959). pp. 1-3. 19 canned items. The number Of outs, as well as instances where fewer than six items remained on the shelf, was re- corded each day. The NCA study presents an out-of-stock model that is more retail store oriented than Nielsen's model. While the latter model is broad, NCA's is more operationally narrow. The average NCA store carried 708 canned items. If, during the selling day under consideration, a store had 20 canned items out-Of-stock on the shelf, then the out-Of-stock per- centage for that day would have been 2.8 per cent (20 e 708). By accumulating the items that are out-Of-stock daily, a weekly out-of-stock percentage could be secured. As can be seen, the NCA model could easily be applied to other stores or groups Of stores. The summary of the National Canners Association study is as follows: 1. An aver e of 3.2 per cent Of all canned foods stocked 708 items) were out-Of-stock on the shelf each day in each supermarket. This per- centage amounted to about 23 different canned items out-of—stock. 2. The largest prOportion of items out-of-stock Occurred in canned meat and poultry groups (daily average slightly over 5 per cent). 3. Of the groups Of items studied, canned milk was lowest in out-Of-stock (.8 per cent). 4. For canned foods as a whole, Friday had the lowest percentage of out-Of-stock (2.4 per cent) followed by Thursday (3.0 per cent). Monday, Tuesday, Wednesday, and Saturday all showed an average Of 3.3 per cent out-Of- stock. 20 5. The day Of week when the greatest degree Of out- Of-stock occurred varied between groups Of canned goods. It was Wednesday for specialties, meat, and fish; Tuesday for fruits; Monday for vegetables; and Thursday for juices. With the NCA study we have added another dimension to our out-of—stock approach. NCA has answered the question, what gg out-of-stock from the standpoint of the retail store? Previously, Nielsen had answered the question, what are some Of the major causes of out-Of-stock? Taken together, the beginning of the composite story Of out-of-stock starts to take shape. In the business world of basic realities, sooner or later almost everything has to be translated into dollar values. The next dimension of our picture to be discussed will be the costs that can be attributed to out-Of-stock. Again, the perspective is from the retail trade's point Of view. DOLLAR VALUES AND CONSUMER REACTION Eagle Study During 1961, Super Market Merchandising conducted the Eagle Study. Among the phases Of the study was a section concerning Out-Of-stock. Although the presentation is pri- marily a warehouse study, an idea Of the total gross loss due to out-Of-stock can be gained. The Eagle organization is considered, by most authorities, to be a very aggressive and excellently managed company. This being the case, one could assume their warehouse out-Of-stock conditions to be better than the average food retailing organization. Basic findings Of the study are as follows:1 During an 11-week period, warehouse out-Of-stocks averaged 828,387 per week (retail prices). Using a little arithmetic, we see that, at this rate, total lost sales per year would amount to 81,476,124. Assuming a net profit per- centage of 1.5 per cent, lost profit would be 822,141.86. This value is approximately equal to the profit Obtained by the addition Of one high volume supermarket. The Eagle Study also considered the percentage value Of out-Of-stock (percentage of items ordered) by the day Of 1Super Market Mepphandising, pp. 34-36. 21 22 the week. Friday showed the largest percentage Of outs (8.7 per cent), Wednesday the lowest (5.1 per cent), with. Monday having 5.7 per cent, Tuesday 6.6 per cent, and Thurs- day 6.7 per cent. The average, on a weekly basis, was 6.2 per cent, representing a grand total Of 4,631 cases of merchandise. The Eagle Study certainly lends weight to the argument that out-Of-stock is important. What sales are lost at retail when shelves are out-Of- stock? Ascertaining lost retail sales is a more difficult problem. When a retailer orders merchandise from a whole- saler and the wholesaler is out-Of-stock, substitutions are not usually made. The retail shopper, however, may substi- tute brands making measurement Of lost sales very compli- cated. If our original question is slightly changed, a quantitative study is made more feasible. How much more will consumers buy when shelves are well stocked? Progressive GrpgergSpudy In 1953, Progressive Gpocer attempted to answer this 1 Seven stores were involved in the test and all question. were located close to the New YOrk metropolitan area. A four-week period was invOlved in the test. During the first two weeks normal shelf stocking procedures were used. 1R. W. Mueller, G. E. Kline, and J. J. Trout, "Customers Buy 22% More When Shelves Are Well Stocked," Progressive Grocer, XXXII (June, 1953). 40-48. .—__§.r ‘1 —|...' . , __ H 23 During the second two-week period special care was taken to see that shelves were kept full. "Normal" two-week sales were ascertained by taking a beginning shelf inventory, add- ing the number Of units restocked, and subtracting from the total the shelf inventory at the end Of the two weeks. Ten commodity groups were used in the test. NO com- modity group was tested in more than one store; however, three stores tested two different commodities. Prices during the four weeks remained the same. No special displays or display material was used and shelf space remained constant. Progressive Grocep lists the results Of this test for seven commodity groups. They are cigarettes, packaged soap, candles, canned beans, paper products and aluminum foil, coffee, and frozen foods. During the first two weeks a total of 8,404 units Of these items were sold. The second period produced sales Of 10,287 units--an increase of 22.4 per cent. The following increases were registered by the vari- ous commodity classifications: 2-Week 2-Week NO. Sales Sales Of "Normal Fully % Commodgty Items QOpditipns" S§Opkeg Chgpge Cigarettes 21 1.398 1,602 +14.5 Packaged soap 25 720 836 +16.1 Candles 2 112 268 +139.3 Canned beans 16 907 1,035 +14.1 Paper and aluminum foil 24 2,953 3,383 +14.6 Coffee 9 978 1,142 +16.8 Frozen foods :1 1,336 2 021 +51.2 Total 12 ,40 10,287 +22. "I" 24 Progrespive GrOper adds that the stores tested were among the most efficient, best organized, and most success- ful in the nation. Their normal shelf stocking methods were considered to be better than average. Another Observation by Ppogpessive Grocer was that most items tested were staple, demand-type categories. The test store Operators felt that the increases would have been even greater if high impulse items were used. The main implication Of the study was that many grocers have lost sight of the importance of fundamental grocery item merchandising. A large store is quite demand- ing of a manager's time. He has personnel problems, merchandising problems, and a great number Of details to attend to. It could be entirely possible that with more and more management difficulties he has lost sight Of his primary responsibility; this responsibility being to have merchandise on the shelf available to the consumer. Progressive Grocer suggests that food men talk more about returning to fundamentals and developing ways and means of achieving the full grocery department. The Progressive Gpocep Study certainly develops an additional important factor Of out-Of-stock. It develops a basic idea Of the cost tO the individual retail store. Whether or not food store managers have strayed away from fundamental item merchandising is difficult to say for certain. Reorientation along these lines from time to time and. I ..I _ I. 25 would be a good hedge against possible losses due to out-of- stock. One factor not considered in the study was the addi- tional cost Of keeping the shelf completely full. Two cost items are involved here--cost of carrying additional inven- tory and cost of labor. There is no way to tell whether the additional sales gained made up for the additional costs incurred. Before condemning a manager for being out- Of-stock, one would have to take a long, hard lOOk at the additional costs involved. The Eagle Study and the Ppggpessive Grocer Study have added another dimension tO our out-Of-stock presentation. After viewing these articles, one can at least say that out-Of-stock does cost money in the form Of lost sales. These lost dollars are not negligible, and could be quite important in the long run. Another side of out-of—stock can be viewed from the consumer's standpoint. How is out-Of-stock regarded by the customer? What action will she take when confronted by an out-Of-stock situation? The following section attempts to shed light on these problems. Food TOpics Study ‘ In the March 1961 issue Of FOOQ Topics, Howard A. Trumbull, president Of National Family Opinion, Inc., 26 presented a very interesting study.1 A national survey was conducted among 10,000 representative homemakers. The actual survey involved ten statistically balanced panels of families, representative within 1 per cent, Of every geographical area, size of community, age, and family income in the United States. Questionnaires were sent by mail and the following question was asked: On your last shopping trip to the store where you buy most Of your groceries, did you happen to find that your favorite brand Of a certain item was not available? If yes, did you buy a substitute brand, go to another store, or not buy the item that day? A total of 8,785 women responded and of this total 59 per cent said the brand they sought was available, 40 per cent said it was not. Of the 40 per cent who said the de- sired brand was not available, the following action was taken: Didn't purchase item that day .. 47% (1,641 responses) Went to another store .......... 27% ( 939 responses) Bought substitute brand ........ 23% ( 808 responses) A cross tabulation of the original question, "Did you find your favorite brand available?" revealed more com- plaints from homemakers in New York, New Jersey, and Pennsylvania (47 per cent) against the national average of 40 per cent. The fewest registered complaints came from homemakers in Kentucky, Tennessee, Alabama, and Mississippi. Additional findings indicated that women living in cities Of 2,000,000 and over found their favorite brand 1H. Trumbull, "How ShOppers Make Their Buying De- cisions," Food Topics, XVI (March, 1961), p. 49. 27 missing more Often than those living in less pOpulous areas. The findings tended to show less incidence Of disappointment among low income shoppers, while those with higher incomes were more frequently disappointed. It was found that the homemakers in New York, New Jersey, and Pennsylvania would more frequently postpone purchase of an item and would wait until the next trip to purchase. The same was true for those in cities 2,000,000 and over, those between the ages of 35 and 44, and those having incomes of $6,000 and up. A very significant finding was that those women 55 and over indicated they were less likely to accept a substitute brand. Those under 25 years indicated they would accept substitutes more frequently than their Older counterparts. The Food TOpics Study seems to have a very Obvious fault if it is carefully analyzed. There is no way Of know- ing if the brands the women wanted were, in fact, stocked by the store in the first place. The distinction Of whether or not the grocer wanted to sell the brand is the important criteria. If he chose to sell the brand and it was not avail- able On the shelf, then a true out-Of-stock would be present. If, however, he chose not to sell the brand, then the out- Of-stock would be only in the eyes Of the consumer. From the consumer's standpoint this distinction is not important. She does not care about technicalities Of definition, only about satisfaction Of her wants. 28 If the grocers' views of out-Of-stock were taken into consideration, the original question would have been worded something like this: On your last trip to the store where you buy most Of your groceries, did you happen to find a favorite item that your grocer normally sells, not on his shelf? If this question were asked, the reply of those saying ”yes" would probably have been much lower than the study figure of 40 per cent. Assume for the time being that the newly worded question elicited a response Of only 10 per cent saying an out-Of-stock existed. Out of this 10 per cent, then, does it seem logical that the percentage response to the three questions would change at all? It certainly seems doubtful that there is any reason to be- lieve the makeup Of customer action to an out-Of-stock situation would vary, even though the percentage Of dis- appointed customers varies greatly. Whether the percentage Of disappointed customers is 40 per cent, 10 per cent, or J 2 per cent, the action taken by those customers should re- I main about the same. An estimate of consumer action, when confronted by an out-of-stock, adds a very valuable dimension to the growing list of out-Of-stock conditions. After all, it is the con- sumer that must ultimately be the judge Of the importance Of out-Of-stock. NO appraisal Of this subject can be com- plete without the consumers' point Of view being considered. Thus far we have viewed definitions of out-Of-stock, possible reasons for out-Of-stock, possible costs to - -‘ . . . - L.“-__ —_.n m, "g. - - AL—A _ 29 individual stores, and the probable consumers' reaction. One remaining question needs to be considered. Are food store managers sensitive to these out-Of-stock conditions? STORE MANAGER SURVEY Propedures During the last week in December 1961, and throughout January 1962, the author conducted a series of interviews Of fOOd store managers in Lansing and East Lansing. The complete design of the survey is listed in the Appendix to this paper. The group of 31 stores represents approximately 88 per cent Of the total food store volume in Lansing and East Lansing. Total weekly volume of the group varies from $8,000 to $56,000. These are, Obviously, the leading food stores in the area and those in which the consumer spends the largest part of her grocery dollar. Since these stores are such an important local force, the author considered the managers' Opinions regarding out-of-stock to be, col- lectively, quite valuable. In the introduction, the managers' role in the prevention Of out-Of-stock was shown to be quite important. The manager, because of his decision to sell or not to sell any given item, controls the number Of items sold in his store. Additionally, he controls ordering of items as well as shelf stocking procedures. Thus, one Of the key roles in any discussion Of out-Of-stock must be the store manager. Does he consider out-Of-stock to 30 _,__.—_.— 31 be a problem or not? How much actual out-of-stock does he experience during an average selling week? How much does he figure out-of—stocks cost him in sales? What does he feel his customers would do when confronted by an out-of—stock situation? What does he think the major causes of out-of- stock are? These are some of the questions asked of Lansing and East Lansing store managers. Their answers, although somewhat limited in value, are nonetheless quite interesting. Of the original 31 stores in which interview attempts were made, interviews were actually secured in 28 stores. or this group, 19 were corporate chain stores (including one local chain), and 9 were independent stores. A total of 10 questions were asked;1 the first three essentially give background information, i.e., age, years of experience as a store manager, and number of grocery deliveries received per week; the final six questions were designed to get the manager's opinion of his store's particular out-of—stock situation. It was hoped that responses to the latter group of questions could be tabulated by age and/or experience level, thus giving a useful cross tabulation of data. Reaponse Tabulation Question number four asked, "How many items do you think would be out-of-stock at some time during the average 1Certain "ground rules" were laid before questions were asked. Primarily, these rules were definitions of terms which are listed in the Appendix, page 59, "Jung-‘7’ ' l _ 32 selling week?" The managers were assisted in their answers by establishing six brackets, i.e., O to 25 items, 25 to 50 items, 50 to 75 items, 75 to 100 items, over 100 items, and no idea. The interviewees indicated in 75 per cent of the cases (21 interviews) the number of items out-of—stock was from O to 25. Five managers said the number was from 25 to - 50 and two said out-of-stocks were from 75 to 100. In question number five, the managers were asked if they felt they could increase their present weekly dollar volume by not having the indicated out-of-stock present. Furthermore, they were asked by what percentage their weekly volume would be increased. Again, they were assisted by the following brackets: Less than a per cent, % to 1 per cent, 2 per cent to 3 per cent, 4 per cent to 5 per cent, over 5 per cent, and no idea. A total of 22 managers (78 per cent) indicated volume increases of less than % per cent could be attained if out-of—stocks were eliminated. Three managers chose the s to 1 per cent bracket, one selected the 2 per cent to 3 per cent range, one the 4 per cent to 5 per cent, and one manager had no idea at all. In question six, the attempt was to discover whether any particular items were found to be more predominantly out-of—stock. Specifically, the question was, "Do you feel that out-of—stock is more prevalent in certain product groupings?" The overwhelming response to this question was "no"--that out-of-stock is fairly well scattered over all items. A total of 20 managers (71 per cent) gave this 33 response. The other eight managers mentioned problem out- of-stock items as seasonal items (four responses), paper products (three responses), cereals, soaps, and bulky items each received two mentions. Other items mentioned once were canned fruits and vegetables, orange juice, slow movers, and pet foods. Question seven asked if more out-of-stock was to be found on advertised brands (weekly specials). The managers indicated that advertised specials presented no particularly difficult out-of—stock problem (24 responded "no"). Eleven managers added that they found less out-of-stock on these items. A total of five managers indicated they had no prob- lem on advertised specials because of extra careful ordering. Another four managers said out-of—stock on weekly specials was just about the same as other items. The response to question eight, "Do you feel that out- of-stock is more prevalent during certain days and certain hours of the day?" was answered "yes" by 24 managers. In the vast majority of the cases (22) the answers indicated peak business periods and periods immediately prior to re- ceiving orders were the times when they were most fre- quently out-of—stock. As one might expect, Friday and Saturday were frequently mentioned, as well as Wednesday for those stores giving double stamps on that day. When asked what action the majority of their customers would take when confronted by an out-of-stock, 18 of the managers (64 per cent) said their customers would buy a 34 substitute item in most cases; four said their customers would not buy that day; three had no idea what they would do; two indicated their customers would go to another store; and one said he could not decide whether they would buy a sub- stitute item or go to another store. Since many managers ' felt that one customer's action would not cover the majority of their customers, a second response was given. In all cases the managers indicated that two actions would cover the vast majority of their customers. A total of eight managers indicated their customers would not buy that day as a second choice of customer action. Frequently indicated was the managers' Opinion that the customer action taken depended greatly upon the item. However, there seemed to be a wide divergence of opinion as to which items were demand items and which items were not. The final question asked the manager was what the major causes of out-of—stock were in his store. Warehouse "outs" were considered the major cause by 18 managers (64 per cent). Poor ordering was the major cause in the opinion of six managers. Other causes indicated were sea- sonal scarcities, unanticipated demand, and the manufacturer not getting the merchandise to the warehouse. Cages Tabulation Certain cross tabulations were used to see if any differences could be noted from the original tabulations. The managers were divided into those over 35 Years and those 35 under 35 years. These two groups were checked against question four (amount of out-of—stock) and question nine (customer reaction to out-of—stock). No significant re- lationships between age group and the responses to these questions were found. The percentage relationship was practically the same as it was in the original tabulation. Responses to questions four and nine were also checked against experience levels of the managers. The managers were divided into two groups, those with over five years of experience as a manager and those with under five years experience. The result here was much the same as the cross tabulation using age, very little difference was noted from the original tabulation. One additional comparison did appear to be meaningful. The 28 interviews were broken down into those receiving two or more orders per week and those receiving only one delivery per week. These two groups were checked against question four (number of items out-of—stock). Ofthose managers whose stores received more than one delivery per week, 33 per cent (6 out of 18) indicated out-of-stock in excess of 25 items per week. On the other hand, only 10 per cent (1 out of 10) of the store managers who received one delivery per week indicated out-of-stock exceeding 25 items per week. From these figures, it appears that a larger percentage of the multi-delivery store managers experienced a greater out- of-stock level than their counterparts receiving only one delivery weekly. In view of these findings it would appear 36 that those managers receiving many orders per week may come to rely quite heavily On these orders and not on careful ordering procedures. Limitations These Opinions are interesting to view and review, but have definite limitations. First of all, they are not necessarily representative Of any larger group. This sur- vey was not intended to be a sample of any larger group. Secondly, there is definite doubt if the arbitrary brackets Of questions four and five were, in fact, the best ones that could have been used. Because Of the high predominance of answers in certain Of these brackets, it appears they could have been broken down further. Thirdly, certain biases may have been built into the interview guide. For example, question four may have put the manager on the defensive so that he felt he should answer the question differently from his real feeling. Finally, the possibility Of the manager's unwillingness to express true feelings to a stranger is distinct, although the attempt was made to put the manager at ease during the interview. In most cases, however, the author had the distinct feeling that the manager was doing his best to express his true feelings. Supervisory Cross Check It must be recognized that in some stores (primarily chain stores) managers' decisions are subject to the approval 37 1 The supervisor works with Of their immediate supervisor. many managers in an effort to attain the objectives of the company as a whole. Some supervisors rule the store manager with an iron hand and, in fact, practically run the store by "remote control." Other supervisors use a more participative form Of supervision, letting the manager make and carry out all day to day Operating decisions. Because Of this wide scope of supervisory practice, the supervisors' Opinions about out-Of-stock vary widely in importance. Realizing that the supervisors' Opinions could be at least as important as the store managers’ Opinions, an at- tempt was made to cross check the managers' survey answers with a survey of supervisors. Out Of four chain supervisors with stores in Lansing and East Lansing, only two could be contacted. These men were asked a set Of questions quite similar to the set asked the store managers.2 The same limitations that were found in the store manager survey hold true in the supervisor survey. The answers, er se, were quite similar to those given by the majority of the store managers. VThe important differ- ence seemed to be in the Egy,the answers were given. Both supervisors were quite hesitant to answer some questions and ————.h h— .— 1The term "supervisor" will be used to represent the person immediately superior to the store manager. Many titles are used for this position, including district manager, zone manager, and supervisor. In the interest Of simplicity, however, the title of supervisor will cover all these vari- Ous titles. 23cc Appendix B. 38 generally displayed a more cautious approach than the man- agers. It appears that at least two interpretations Of this cautious approach are possible. Hesitancy in answering could be interpreted to mean that the supervisors were more removed from store Operations than the managers and, conse- quently, unsure of themselves in regard to the specifics of out-of-stock problems in the stores. On the other hand, the cautious approach could be appraised as sensitivity to the implications of out-Of-stock and an unwillingness to make rash statements about them. The Opinions of two supervisors certainly are not sufficient to draw any firm conclusions. The supervisory cross check is, however, a vital dimension in the out-Of- stock approach used in this paper. Conclusions What then can be ascertained from these results? It is felt that the importance is not primarily found in the responses er se, but in the approach used. Here, the manager has been asked about out-of-stock in pig'store. His responses tend to focus on what pg personally feels to be of importance. He has had the Opportunity to express pg; feelings concerning out-Of-stock costs and hi; views regarding his own customers' reaction to out-Of-stock. It seems obvious that most manufacturers and retail organiz- ations consider out-of-stock to be an important factor in retail sales. However, the main criteria of importance or 39 lack Of importance must be, in the final analysis, placed in the hands of the retail store manager. If hg_and his supervisor (in some cases) feel that out-Of-stock is import- ant, then action will be taken to alleviate the problem. If, on the other hand, out-Of-stock is considered to be of little consequence, chances are that no action will be taken. It was the author's impression that 20 Of the 28 store managers didlngt_consider out-Of-stock to be a problem. Such a response may be entirely accurate, since the store manager should know his store better than anyone else. How- ever, it is also possible that some Of these managers were not actually sensitive to their own individual out-Of-stock situation. Is it possible to see if they are actually sensitive to their own out-of-stock situation? In theory, the shelves could have been physically checked in each of these stores over a week's period to see how many outs actually turned up. From a practical standpoint, however, such a procedure would be impossible. The Obvious problems of physical checking are beyond the physical limit and scOpe of this paper. Can validity be checked in any other way? Yes, but under a very complete set of limitations. In the past three sections several studies were presented and certain conclusions were drawn. If these studies are valid and representative of more than the area in which they were taken, then they may serve as adequate standards of measure of performance in similar instances. If the findings Of our 40 survey were to be compared with these studies, could not the. result be viewed as indicative Of the true sensitivity to out-of-stock on the part Of the local store managers? Direct correlation between these two areas of findings may not be complete but similarities are many. The comparison Of these similarities in an effort to determine if or if not managers are sensitive to out-Of-stock is the task Of the next section.1 1The author is fully aware of the limitations of such a comparison. Limitations will be presented in Section VI. COMPARISON OF FINDINGS TO PREVIOUS STUDIES Nielsen and Eagle Studies Very little direct relationship can be found in com- paring the store manager survey with the Nielsen study. Nielsen's definition of out-Of-stock is vastly different from the one used in our study, so no relationship exists here. Nielsen did draw a distinction between out-Of-stock caused by carelessness or poor procedure and that caused by excessive consumer demand. In the latter case consumers were buying so fast that current channels of distribution could not keep up. Many of the store managers interviewed mentioned this category as one of the broad causes Of out- of-stock. Nielsen also felt that many manufacturers produced too small a case size, had limited brand package sizes or had a poor consumer franchise, all of which contributed tO out-of-stock.1 The first two causes were not mentioned by any of the store managers and poor consumer franchise was only men- tioned indirectly. It is felt, however, that all Of these causes are directly associated in the grocers' mind with 1Peckham, "Seven Keys to Out-of—Stock," p. 8. 41 42 poor ordering on his part. He does not stop to consider whether the manufacturer is packing the prOper number of items per case for his store or if an additional size of an item could be useful to his operation. Rather, when these items appear as out, he blames himself for poor ordering. By far the biggest cause of out-Of-stock expressed by the group interviewed was warehouse outs. Nielsen sheds little light on this subject, but the Eagle Study does. According to the Eagle Study, an average of 6.2 per cent of all cases ordered by the stores were not delivered during the week.1 'There is no basis Of comparison here, but it is easy to see that the percentage of warehouse outs is quite extensive. It would appear that warehouse outs could be, in fact, the major single cause Of out-Of-stock. The question still remains unanswered, however, if the store managers are overly concerned with warehouse outs and are using them as an excuse for being out-Of-stock. NO doubt this situation does exist, but the extent cannot be estimated. Only two of the managers interviewed mentioned as a secondary cause Of out-Of-stock, the inability to get the merchandise out Of the back room and on tO the shelves. From our observation, this cause is more extensive than indicated by the managers. One interviewee indicated that out-of-stock could be distinguished in two ways: those items 1Super Market Merchandising, p. 35. -—5 ?—_—.=- _ 4> k)! shorted from the warehouse and, consequently, not available at all, and those out on the shelf, but available in the back room. The latter, in this manager's Opinion, was a much better state of affairs since the consumer could ask for the product and it was, in fact, available upon request. The question could be asked, "Will most customers ask for a product not seen on the shelf?" In some cases she probably will ask, but the important criteria is how Often will she pass on and forget about that particular purchase. It appears, upon comparison, that Lansing and East Lansing store managers are quite sensitive to the probable major cause Of out-Of-stock--warehouse outs. Their col- lective sensitivity to other important causes, however, appears to be somewhat less. It would certainly be inter- esting to find out the actual percentage of out-Of-stocks at the store level which were directly caused by warehouse shortages. The managers‘ Opnions about the percentage of shelf outs caused by warehouse outs could be compared to the factual information, thus giving an actual level Of sensitivity on the part Of the manager. National Canners Association Study The National Canners Association Study gave us the first indication Of the percentage Of out-Of-stock for a single store as well as absolute numbers of items out-Of- stock. NCA found a daily average Out-Of-stock of 3.2 per 4 4 cent out of a total of 703 different canned items.1 This percentage amounted to 23 different canned items out-Of- stock. Assuming a six-day selling week, the total cumulative out-Of-stock for the week would be 138 items. Question number four in the manager survey was designed to be compar- able to the NCA findings. It asked the question, "How many items do you think would be out-of—stock at some time during the average selling week?” The managers were further in- structed to estimate these outs by accumulating totals from Monday, Tuesday, Wednesday, etc., the result being One figure for the entire week. As indicated earlier, 21 out of 28 interviewed said that out-Of-stock amounted to from O to 25 items weekly. These out-of-stocks were to take into consideration all dry grocery items, not just 708 canned items. Such a wide disparity of findings makes one wonder if there is that much difference between the Operation of stores in Philadelphia and Lansing-East Lansing. Insofar as the NCA study is a sample Of the whole country (this fact is not known) and insofar as the Lansing-East Lansing managers gave their true Opinions, the interviews would tend to indicate a lack of sensitivity to the amount of out-Of-stock on the part of Lansing-East Lansing managers. The author, while interviewing, observed many stores that appeared to be excellently stocked. The majority of 1National Canners Association, Canned Food Retail Out-of:§tock Study, p. 2. 45 the stores contacted, in fact, fell into this category. However, several times during various interviews the manager said he had only 10 or 15 out-Of-stocks per week, while five or more outs were being observed at that particular time.' Such Observation certainly does not verify sensitivity or lack Of sensitivity, but does point up the possibility that there may be lack of sensitivity in the area of knowledge of absolute amounts of out-of—stock. Further study in this area could prove quite interesting and useful. Food TOpics Study In the Food Topics study the consumers' view of out- Of-stock was discussed. According to these findings, 47 per cent of those surveyed who had Observed an out-Of-stock on their last shopping trip, did not purchase the item that day. Furthermore, 27 per cent went to another store to purchase the wanted item, and only 23 per cent bought a substitute brand.1 How do these findings compare with the manager interviews? As a first Opinion Of consumer action, 18 managers (64 per cent) said their customers would sub- stitute, 4 (14 per cent) said their customers would not buy that day, and only 2 (7 per cent) said their customers would go to another store. Many store managers pride themselves with the thought that they know their customers and how their customers will 1Food Togics, p. 49. 46 react to various influences. It appears to be true that the manager of a given store knows his customers collectively better than anyone else. Furthermore, he should be able to judge his customers' reaction to a new item better than a manufacturer's representative. He has had a vast array Of past experience with which to compare current happenings and draw conclusions. If the store manager does, in fact, know his customers' reactions better than anyone else, this is not to say that he knows their reactions completely. He may have better knowledge, but he certainly does not have complete knowledge. Many of the interviewees felt that question nine was a very difficult question to answer. Only three managers, however, failed to give an answer and admit they had no idea at all. As has been stated, the vast majority of those giving an answer felt that their customers would substitute when confronted by an out-Of-stock. TO the extent that the Food TOpics study is accurate and a true sample Of the country as a whole, it appears that managers in Lansing- East Lansing are not sensitive to the consumer reaction to out-Of-stock. These managers seem to feel that Mrs. Consumer will substitute items more frequently than the Food TOpics study indicates. It should be added that it would be entirely possible to actually verify our survey's findings. A sample could be designed whereby randomly selected consumers would be asked questions regarding out-Of-stock as they left the 47 store. The manager's Opinion about customer reaction could then be compared to the collected data, thus giving an accu- rate level Of manager sensitivity to this problem. Progressive Grocer Study The final comparison to be made is concerned with the Progressive Grocer study. Here, it was shown that 128 items in seven commodity groups had a total increase of 22 per cent in unit sales when a definite attempt was made to keep shelves full at all times.1 In the local study, 22 man- agers (78 per cent) indicated a total increase Of g per cent or less in total dollar volume could be realized if out-of-stock was eliminated. The relationship between these two studies is somewhat negated by a wide range of limit- ations. Some Of the most obvious are the costs involved in keeping shelves completely full, the degree of represent— ativeness of the Progressive Grocer Study's test items, the unknown quantity Of volume variation between the two two- week periods of Progressive GrocerLg Study and to what de- gree the Progresglve Grocer study is representative Of the country as a whole. Still in all, there seems to be an extremely wide valley between Progressive Grocerig findings and Lansing-East Lansing managers' Opinions. One problem not explored in the local study was the incidence of low stock on the shelf. When the managers were 1PrOgressive Grocer, p. 40. — d‘U"« {r U.) interviewed, they were asked to be concerned only with com- plete out-of—stocks. Thus, if one can or box were left on the shelf, a true out-of-stock did not exist. To the author's knowledge, no one has conducted a study that might indicate the consumer's reaction to a low stock instance. Although it is generally recognized that consumers tend to buy more when shelves are full, we do not know how much less they will buy when shelves are nearly empty. A few years ago a friend of ours made a very inter- esting observation. A Chicago food store was in the process of having a grand Opening sale. A certain brand of four- pack toilet tissue had been selling at the rate of one case per day for the first three days of the week. Late Wednes- day afternoon it was discovered that no one had reordered on this brand and that only nine four-packs remained on the shelf. Thursday morning the store opened with these nine units on the shelf. At closing time on Thursday, two units still remained. When additional stock came in (Saturday), the same two units were still on the shelf. Is this Obser- vation of customers typical or not? Does Mrs. Consumer dislike buying the last one or two items? Is there a possibility that some of the differences noted between the Erpgressive Grocer study and the local survey could be ac- counted for by a high incidence of low shelf stock? Answer- ing these questions would solve many problems, but are somewhat beyond the capacity Of this paper. It can only be stated that there is a wide range of variation between 49 the Pyogressive Grocer study and the local survey. Further- more, the variation could possibly be accounted for by a high incidence of low stock, lack of sensitivity on the part of store managers, or lack of validity and representativeness in the Progressive Grocer study. LIMITATIONS The various limitations of the approach used in this paper are numerous. In each section the attempt was made to list the most important limitations. Additional ones that have been overlooked could be added by the readers. Essentially there are three major areas Of limitations, if the paper is viewed as a whole. First of all, there are limitations in the studies themselves. NCA did its work in Philadelphia; Eagle Study data was gathered in Davenport, Iowa; Progressive Grocer conducted its study in New York; Nielsen and Food Topics data were collected from all sections of the country. In none of these studies was an attempt made to indicate an accurate sample of any larger universe. Each one was probably valid at the time it was made, and for the area with which it was concerned. Anything beyond this is strictly conjecture. In the future it may be found that these studies are, in fact, quite representative, but, as Of now, no such valicity can be placed in them. The second major area of limitations centers around the local survey itself. The interview guide has definite weaknesses. First of all, the bracketed answer selection groups may have covered too much area. Smaller brackets, 50 U1 -—-5 especially on questions four and five may have elicited more divergent responses than those attained. Secondly, certain biases may have been built into the questions, especially number four. Merely asking a manager to tell the number of items he thought to be out-of-stock may have put him on the defensive. By being on the defensive, he may have made his answer lower than he actually thought it to be. Thirdly, there are the author's personal limitations as an inter- viewer. In connection with this are certain Of his own unrecognized biases. It may have been better to have had some disinterested party do the actual interviewing to eliminate this possibility. Finally, there is no way to tell for certain whether the managers were telling the truth. The assumption here must be that they were telling the truth since they had nothing to gain by not doing so. The final major limitation area is the comparison of the two groups of findings. The major assumption here was that some degree Of correlation exists between them. Such correlation itself may, in fact, be quite limited. Any com- parison, therefore, must be prefaced by, "to the degree that the study is a true sample Of all food stores," or "to the degree that this study is representative of Lansing- East Lansing food stores." Will these studies serve as adequate norms of acceptance with which to judge the Opinions secured in the local survey? Only in a very broad sense will this be true and only within the very strict limitations which were given earlier. In view Of all these limitations, can any judgment be made about the sensitivity or lack of sensitivity to out- of-stock by Lansing-East Lansing store managers? In the final section the attempt is made to analyze this problem. CONCLUSIONS The objectives of the paper, as originally stated, were: (1) the establishment of some important conditions of out-Of-stock, (2) demonstration Of the degree of sensi- tivity of store managers in Lansing-East Lansing to out-Of- stock conditions, and (3) the develOpment of a framework for the future analysis of out-of—stock sensitivity. The studies presented seemed to give a fair appraisal of some of the major out-of-stock conditions. These were: (1) probable consumer reaction to out-of-stock situations, (2) possible cost implication Of having out-of-stook, (3) some important causes of out-Of-stock, and (4) basic amounts Of out-Of-stock. In all analyses studied, these considerations loom as the most important conditions of out-of-stock. In the second major objective, somewhat less success has been attained. A great many limitations Of this analysis have been listed in the preceding section. With these limitations in mind, however, certain conclusions can be drawn. The NCA study showed far more out-Of-stock pre- sent than indicated in the local study. There was a wide variation here, indicating a possible lack of sensivity. Food Topics said that consumers confronted by an out-of- 54 stock would be more likely to defer purchase while local managers indicated substitution would be their customers' first choice. It appears that the managers may be highly insensitive to possible consumer reaction to out-Of-stock. Progressive Grocer said that sales could be increased by about 20 per cent if out-of-stocks were eliminated. Local managers, however, seem to feel a gain of less than a per cent can be attained. The wide variation here may be caused by the unknown quantity of consumer reaction to low stock situations as Opposed to complete out-of—stock. Manager sensitivity in this area seems to be somewhat limited. Managers overwhelmingly selected warehouse outs as the major cause Of out-Of-stock and this appears to be a well- founded assumption. However, it appears that awareness of the major cause may have caused managers to Overlook other possible causes. After prOpOsing these thoughts, it is still impossible to give a clear, concise statement Of whether the manager is sensitive to the overall problem or not. The only way to ac- complish this objective would be to check each store against the Opinions expressed by the manager. The local study did, however, establish certain areas of consideration that cast some doubt upon the managers' sensitivity to the situation. In the final analysis, it is felt the paper fairly develops a framework for the future analysis of out-of—stock. The need of common vocabulary has been stressed. If all food retailers had a common definition, comparison m. -*------ _- r- U1 U1 between stores would be facilitated and common remedies found. Furthermore, the paper has established the important conditions relative to out-of-stock to the retailer. Finally, the need for further study in the areas of amounts Of out- of-stock, customer reaction, and causes Of out-of—stock have been emphasized. Out-of-stock is a management problem in the final analysis. Action taken to prevent or to lessen it depends upon food retailers in general. If the industry, as a whole, feels that a problem exists, why then did so many retailers say that it is no problem in their store? The reason could be that out-Of-stock is no problem in Lansing and East Lansing, but on the other hand, it could be that food retailers in the area are not sensitive to their own out-Of-stock situation. APPENDICES _ _._.. —_-.—. ._- +..... __ APPENDIX A Research Desigp 1 the Because Of the limited scepe of the hypothesis, survey technique method proved to be the only logical tool to secure the required information. The two possible survey techniques Of the questionnaire and the interview were both considered. It seemed quite doubtful that busy managers would take the time to fill out a questionnaire. Proper design of a mailed questionnaire presented another difficult problem. For these reasons, it was decided to use the interview technique. Survey Methods According to the files Of the Lansing State Journal, a group Of 31 food stores do a total Of $749,000 per week in Lansing and East Lansing.2 This is an estimate arrived at through the summation of various estimates of manufacturer representatives and food broker representatives who call on these stores. The weekly volume of $749,000 was considered 1See page 2. 2The Lansing State Jourpg; provided market information as a service to advertisers. The latest revised information regarding food store volume was dated March, 1961. Obviously, food store volumes change frequently, but in the absence of more current data, the March figures were used. 57 58 by the Lansing State Journal to be approximately 88 per cent of the total food store expenditures in Lansing and East Lansing. The 88 per cent figure was arrived at by the State Journal by taking the total estimates of food store sales furnished by Standard Rate and Data Servigg and the Sales Management Survey_0f Buying Power and assuming a total food store volume figure between these two estimates. Using the group of 31 stores as the survey population eliminated the unimportant (in total business) group of small stores. The range in weekly dollar volume of the 31 stores was from 356,000 to $8,000. The group included 21 corporate chain stores and 10 independents. interview Techniques At the outset certain assumptions about out-of-stock were made.1 Responses from the store managers were based upon these ”ground rules.” The questions to be asked were developed on a rather structured2 basis. It was felt that tabulation would be facilitated by the use of structured questions. All possible questions that might indicate the managers' sensitivity to out-of-stock were included. The 1Assumptions regarding out-of—stock were developed from the model definition which was presented on page 6. 2Structured questions refer to an interview where the interviewer asks only specific, set questions with little leeway for interpretation on the part of the interviewer or additional responses on the part of the interviewee. An interview schedule has a greater proportion of structured questions, while the interview guide contains more un- structured items. \ )1 \L) original interview schedule is as follows: Assumptions 1. That you (the store manager) normally sell the item (an item stocked year around, not a seasonal or a "one shot" item). 2. That every size of a given brand will be considered as a separate item. 5. That if full distribution of these items was in effect, each one could be purchased any day of the week and at any time of the day. 4. That if any one of these items were to be absent from your shelves for any period of time during the selling week it would be considered out-of-stock. 5. That we will consider one week as our selling period in question. Questions 1. How old are you? 2. Approximately how many years have you been a store manager? 3. How many items do you think would be out-of—stock at some time during the average selling week? Would the figure be between: (1) 0 and 25 items, (2) 25 and 50 items, (3) 50 and 75 items, (4) 75 to 100 items, (5) over 100 items, (6) don't have any idea. 4. How many grocery deliveries do you receive per week? 5. Do you feel that you could increase your present weekly dollar volume by not having this out-of—stock present? If so, by what percentage would your volume increase? 6. Do you feel that out-of—stock is more prevalent in certain product groupings? (Examples: detergents, soft drinks, paper products.) If so, what are they? 7. Do you feel that you have more out-of—stock on advertised brands (weekly specials)? 8. Do you feel that out-of—stock is more prevalent during certain days or certain hours of the day? If so, which days and which hours? 9. What action would the majority of your customers take if an item that is normally sold by you is out-of—stock? Would your customers: (1) buy another item (a substitute item), (2) not buy that day, (3) go to another store, (4) don't have any idea. 10. If some out-of—stock is present in your store, what do you feel are the major causes? 11. Using our definition of "items," how many items do you have in your store? Pretest A pretest of the interview schedule was conducted on December 5, 1961. Two former chain store managers were interviewed.1 Each man was interviewed individually and responses were written down on separate sheets of paper. The pretest interviewees were told that the interview was a series of opinion questions regarding out-of-stock situations in their former stores. It was stressed that there were no right or wrong answers. Each man was also told to answer as accurately as possible and that all information would be kept confidential. The pretest responses to the original inter- view schedule are as follows: Questions Responses 1. A. I'm thirty-two. B. I'm thirty. 2. A. I was a manager for about three years. B. Approximately six months. 1Both pretest subjects were graduate students in the Food Marketing Management Program, Michigan State University. Both worked as managers for the Kroger Company in different sections of the country, however. Questions 3. 10. 11. 61 Responses My out-of—stock would probably fall into the 0 to 25 group. As an average I suppose it would have been 25 to 50. Four deliveries a week. One delivery per week. No, I don't think so. Yes, by a small percentage, perhaps 1%. It depends more upon the season than the kind of product. I suppose that space available is important too. By that I mean bulky- products are more frequently out-of—stock. I don't think any items are more prevalent-- it varies from week to week. For example, canned fruits at Christmas time. What do you mean, shelf or display? No, in fact, we had less out-of—stock on advertised specials. We had more during the first part of the week. Out-of-stock seemed to be more prevalent Saturday afternoon and on Konday. Our truck came in on Tuesday. That depends on the item rather than the person. Some items are on a highly de- mand basis. That depends on the regularity of the occurrence. The first time she may pick up a substitute, but on the second time I may have lost her for good. Probably two--the lack of space to adequately display the merchandise and not being able to anticipate the order. I feel there are three major causes. Care- lessness in ordering is the first one, then warehouse scratches and finally the in- ability to anticipate buying habits. I have no idea at all. If I had my order guide here I'd let you count them. 62 On the basis of these two interviews it was decided that the questions seemed to be adequate. Several of the questions, however, were not fully understood and required some explanation on the part of the interviewer. The answers to question 11 indicated the difficulty that probably would occur if that question were to be asked the survey group. Question 11 was subsequently eliminated. The general design and sequence seemed to be good,1 but some re- wording was used in the final interview design. It was felt that tabulation of responses could be facilitated by additional structuring of the questions; consequently, choice brackets were added to several questions. All the (1) original isxuzptiors seemed to be und'rstood, 5- they remained intact. The revised interview guide appears at the end of Appendix A. Completed interviews are confidential, but interested readers may contact the author for specific clarification. Survey Stores The following list of stores, listed by buying affili- ation, are those included in the survey. 1The interview sequence was designed to progress from simple questions to those that required more thought. Schmidt‘s 1. 2. West St. Joseph 3. West Saginaw . Okemos 5. Colonial Village National 1. Frandor 2. North Larch 3. East Mt. Hope 4. Jolly Road 5. West Saginaw Kroger 1. North Grand River 2. Frandor 3. West Saginaw 4. South Cedar South Cedar O\ U Shop-Rite 1. 2. OkOmN O\U1«P'\)J A & P U‘I-P-‘UJIU... L & L Denstaedt's Willard's South Cedar North East Hauer's Prince Mike's Goodrich Townsend East Mt. Hepe East Michigan Jolly and Cedar East Lansing North Washington Wrigley's 1. 2. Frandor South Cedar F— -“w—w‘rgfir-a-r - -'--:." '_--I'_'"” - Tfiw’rn- - '- -.-- - FOOD STORE OUT-OF-STOCK Interview Guide 1. G\ What is your age? (a) under 21 ____ (d) 31 to 35 ___, (g) 46 to 50.___ (b) 21 to 25 ___ (e) 36 to 40 ___ (h) 51 to 60 ___ (c) 25 to 30 ___ (f) 41 to 45 ___ (1) over 60 Approximately how many years have you been a store manager? (a) under 1 ___ (d; 11 to 15.___ (b) 1 to 5 .___ (e 16 to 20 ___ (c) 6 to 10 (f) over 20 ,___ How many grocery deliveries do you receive per week? Number: __ How many items do you think would be out-of-stock at some time during the average selling week? Would the figure be between: . (a) o and 25 items (d) 75 to 100 items (b) 25 to 50 items (e) over 100 items (c) 50 to 75 items (f) no idea Do you feel that you could increase your present weekly dollar volume by not having this out-of—stock present? Response: If so, by what percentage would your volume increase? (a; less than %% (d) 4% to 5% (b %% to 1% (e) over 5? (c) 2% to 3%’ (r) no idea Do you feel that out-of—stock is more prevalent in cer- tain product groupings? (Examples - detergents, soft drinks, paper products.) If so, what are they? Response: Do you feel that you have more out-of-stock on advertised brands (weekly specials)? Please explain. Response: 10. Do you feel that out-of—stock is more prevalent during certain days or certain hours of the day? If so, which days and which hours? Response: _— What action do you feel the majority of your customers would take if a desired item, normally stocked in your store, was out-of-stock? Would the majority of your customers: (a) buy another item (a substitute item) (b; not buy that day go to another store (d; don't have any idea other (please explain) Response: If some out-of—stock is present in your store, what do you feel are the major causes? Response: APPENDIX B Research Design The research design, survey methods, and interview techniques were the same for the supervisor survey as for the manager survey. The only difference between the two surveys was the wording of the interview guide. In “Z— 1. Food Store Out-of-Stock erview Guide What is your age? (a) Under 21 __ (d) 31 to 35__. (a) 46 to so __ (b) 21 to 25 ____ (e) 36 to 40: (h) 51 to 60 ____ (c) 25 to 30 ___. (f) 41 to 45: (1) over 60 Approximately how many years have you been a district manager or supervisor? (a) under 1 (d) 11 to 15 ___ (b) 1 to 5 ____ (e) 16 to 20 ____ (c) 6 to 10 ___, (f) Over 20 How many stores do you supervise? During an average selling week, how many out-of-stocks would each store average? (a) O to 25 items ___. (d) 75 to 100 items ___ (b) 25 to 50 items ____ (e) over 100 items (c) 50 to 75 items ___ (f) no idea ___ Do you feel that the present weekly dollar volume of these stores could be increased by not having this out- of stock present? Response: . If so, by what percentage would the volume increase (average increase per store)? 66 10. (a) less than $7~ (d) 47 to 57— (b) %7 to 17 ___ (e) over 57 (C) 27 to 37 (f) no idea Do you feel that out-of-stock is more prevalent in cer- tain product groupings? (Examples - detergents, soft drinks, paper products). If so, what are they? Response: Do you feel that your stores have more out-of—stock on advertised brands (weekly specials)? Please explain. Response: ¥ Do you feel that out- of-stock is more prevalent during certain days or certain hours of the day? If so, which days and which hours? Response: What action do you feel the majority of your stores' customers would take if a desired item, normally stocked in these stores, was out-of—stock? Would the majority of your customers: buy another item (a substitute item) not buy that day go to another store don't have any idea other (please explain) Response: Ara AA A (Dahocrm VWVV If some out-of—stock is present in your stores, what do you feel are the major causes? Response: BIBLIOGRAPHY BIBLIOGRAPHY Books Doby, J. T., Suchman, E. A., et al. An Introduction Into Social Research. Harrisburg: Stackpole Company, 1954. Good, C. V. and Scates, D. E. Methods of Research: Edu- cational, Psychologies; Sociological. New York: Appleton-Century-Crofts, 195 . Goode, W. and Matt, P. Methods in Social Research. New York: McGraw-Hill, 1952. Jahoda, M., Deutsch, M., and Cook, S. W. Research Methods in Social Researgh. Vol. I. New York: Dryden Press, 1951. . Research Methods in Social Research. Vol. II. New York: Dryden Press, 1951. Articles ang_Per;gdica;g "American Weekly Grocery Study Locates Sales," Editor and Publisher, LXXXVII, No. 51 (December 11, 1954), p. 18. ”Better Space Management and Color Strips Boost Canned Vegetable Sales 197," Progressive Grocer, XXXVIII, No. 3 (March, 1959), 52-60. ”Bigger Stock Means Bigger Sales: Marketing Pictograph," Sales Management, LXXXI, No. 11 (November 21, 1953), p. 45. "Customer Preference Index," Food Merch ndisin . XXXVI: N0- 12 (December, 1960), 26-29. "The Eagle Study -- Part III," Su er Market Merchandising, ,XVI, Ho. 11 (November, 19 1), 34-36: "Row Champagne Avoids Out-of—Stock" Pro ressive Grocer, XXV, No. 2 (February, 1956), p. 33. Ch \C) H 7.? keeping Shelves Stocked, " Chain Store Age, XXIX, No. 9 (September, 1953), p. 163—7 Lewis, J. E. "How Better Space Management Increased Canned Meat and Fish Sales 507," Pro ressive ocer, XXXJII I10. 12 (December, 1958), Sg-fi" '- Mueller, R. W., Kline, G. 3., and Trout, J. J. "Customers Buy 227 More When Shelves are Wéfr" " Progressive Grocer, XXXII, No. a , €33. "NCA Study Spotlights Out-of-Stock for Corrective Steps," Supermarket News, August 24, 1959. "Out-of-Stock and Sales," Super Market Merchandising, XXIV, No. 11 (November, 1959), p. 79. ”Out-of-Stoc:_ - Out~of~Sales," Super 1arket Merchandising, XVIII, No. 7 (July, 1953). 43-49. Peters, W. S. "Control of Stocks in Grocery Retailing," Journal of Marketing, XXII, No. 2 (October, 1957), ‘15}- Randall, A. "Space Management Ke to Store's Success," Food Topics (February, 1960 , p. 74. "Take Care of Those Customers," Progressive Grocer, XXXVII, No. 7 (July, 1958), p. 76. Trumbull, R. "How Shoppers Make Their Buying Decisions," Food Tgpics, XVI, No. 3 (March, 1961), p. 49. Weiss, E. R. "By-Guess and By-Gosh Chain Ordering Pro- cedures,” Advertisipg Age (November 23, 1959), p. 116. Wilbert, C. O. "Core5 Ins Than Outs,” Chain Store Age, XXIX Reports National Canners Association. Canned Fogds Retail Gut-of- Stock Study. Narketing Research Report No. of the Philadelphia Project. National Canners Association, Division of Statistics, 1959. Peckham, J. O. ”A Presentation to the Grocery Manufacturers of America, Inc., The Greenbriar, White Sulphur springs, W. Va.,” A. C. Nielsen Company, Chicago, 1952. 1 a, In 08 Ill '0‘ .- PSI I I... or ) l t: 1.0. l o 1‘- 900 OADIIIOJ'b-.a.1 II. ‘0. 1:00! ll 1: Ilol' 0'10 3 p TORIIII 0 li‘ I _I 'I «1 I?” ’tqv1JX1a I... I a). (701(13 50‘)... It I .'.1. 3 Intro [Cir of)! J.rr:A . v. I: nuptial: l1. . firidl"l l I. . ’ ’Illlofiollao I’vol. . (0!? l l-‘.".1‘l" .li' . ..\l.‘r v.1: ‘1"... 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