6 Challenges for Convenience Stores’ Inventory Management and their Solutions

Convenience store chains continue to overgrow and increase the concentration of points of sale. According to the National Association of Convenience Stores (NACS), in 2023, there will be 154,535 stores of this type in the United States alone, serving more than 160 million customers a day.

NACS statistics also show that the COVID-19 pandemic has positively impacted the convenience store market: total sales increased by 1.5%, and total basket size grew by 18.5%. This is attributed to, among other things, the decision of customers to avoid large crowds and the long shopping process in supermarkets and hypermarkets.

However, the rapid growth of the industry is causing complications in inventory management. Most of the processes can no longer be carried out manually due to the variability of factors affecting demand and the growth in the number of stores, and therefore require automation and systematization. For each problem faced by retailers and the inventory management team in such chains, LEAFIO software has provided a convenient solution. 

1. Absence or small size of inventory storage facilities

The distinguishing feature of convenience stores is their small size and limited storage space. This factor inevitably leads to losses if there is an unbalanced replenishment of stock.

Often, the need to ensure 100% availability of goods causes managers to increase purchases, which leads to write-offs or markdowns. Conversely, if stocks are not replenished in time and demand is higher than expected, potential sales are lost due to empty shelves.

Solution:

In convenience stores, it is crucial to set up an inventory management system in the "empty warehouse" format. This model provides for maximum accuracy in ordering goods and forming logistics, which allows you to maintain an optimal stock level without constantly storing balances.

The tools of the LEAFIO Inventory Optimization software allow you to configure the chain's system in the "empty warehouse" mode and ensure optimal availability for each SKU according to the most accurate forecasts.

Previously, the European retail chain BeeMarket managed its inventory manually, which led to disorderly procurement, excessive stocks, or, conversely, a shortage of goods. Implementing LEAFIO Inventory Optimization tools significantly improved the chain's performance:
7% - sales growth,
8% - increase in turnover,
98% - increase in SKU service level,
80% - in order automation. 

2. Limited assortment due to small sales floor space

With limited space, every inch/centimeter counts. Inefficient use of shelves leads to lost sales and overstocking. That is why retailers should not present goods   that do not meet customers' needs and only take up valuable space. To accomplish this, optimizing the product range becomes very important. 

Solution:

The LEAFIO Inventory Optimization analytical block lets you transparently evaluate shelf utilization and develop an assortment structure that will bring the most profit to your store.

LEAFIO tools will help you:

• Analyze assortment efficiency regarding suppliers, categories, SKUs, and demand at each point.
• Identify sales drivers that need to be emphasized.
• Quickly identify and eliminate unnecessary products from the assortment.
• Forecast demand for new products to minimize risks when changing the assortment.

3. The need to open new stores frequently

The specifics of convenience stores require constant expansion of the chain and the opening of new outlets. Only with a sufficient number of stores is it possible to achieve optimal profitability, as it is an integral part of the growth of this industry. But each new opening is accompanied by complex challenges for retailers and also requires the involvement of new staff.

Solution:

To facilitate the work of managers, the system provides functionality to automate most processes while scaling the business. The LEAFIO Inventory Optimization software copies the necessary parameters and accompanies the opening of a point of sale. Opening a new POS does not require the involvement of new purchasing managers, which reduces labor costs.

The platform allows chain retailers to:

• Standardize the processes of demand forecasting, procurement and replenishment planning, as well as managing sales, assortment, and space.
• Forecast demand at the beginning of a new outlet, considering data on similar locations in the chain.
• Create format plans that can be used in new stores and, if necessary, make changes in a few clicks.

4. Sales losses and write-offs of fresh and ultra-fresh products

Fresh products with a short shelf life and frequent deliveries are the most challenging category of goods to manage in inventory management. This is especially true for the ultra-fresh category, goods that must be sold on the same day. Maintaining 100% availability of such products on the shelves inevitably leads to surpluses and write-offs, and in the case of shortages and high demand (which varies significantly throughout the day and week), to sales losses.

Higher write-off costs, the dependence of demand on the appearance of fresh products (especially  if they are not packaged), and high weekly demand fluctuations – all these factors place high requirements on procurement managers. Even minor changes in consumer behavior need to be considered, and the supply chain needs to be as flexible as possible to synchronize it with demand quickly.

In addition, when creating an inventory management system, you must consider the minimum acceptable delivery and sales periods for fresh products. As a rule, they are specified in all contracts with suppliers. You should be especially careful about this factor if delivery times can vary from delivery to delivery and differ depending on goods in the same category.

Solution:

LEAFIO Inventory Optimization has a functional block for managing fresh produce supply. It allows you to balance deliveries, preventing overstocks or empty shelves. 

When forming an inventory management system in the fresh and ultra-fresh categories, the program takes into account the following:

• Restrictions from the supplier, type of product packaging, and safety stocks.
• The remaining shelf life of the product after it hits the shelf to avoid expiration and customer dissatisfaction.
• Demand fluctuations during the week. To find the right balance between the risk of loss and the risk of shortage, inventory should be adjusted following expected sales volumes.
• Delivery slots (the range of delivery times during the day), which allow you to make the most accurate forecast.

LEAFIO Inventory Optimization performs accurate order calculation thanks to the implemented simplified analogue of LIFO batch accounting. The system also automatically sets an acceptable level of availability to minimize product write-offs.

According to the results of LEAFIO projects, in fresh categories, on average, there is a 10% reduction in excess inventory, a 10% improvement in product availability, and a 15% reduction in write-offs.

Thus, the software helps optimize inventory by balancing availability and no write-offs in specific categories such as fresh and ultra-fresh.

5. Constant markdowns due to limited shelf life or poor promotional sales forecast. 

Sales planning and management come with many challenges for retailers. Firstly, it is the selection of separate locations for promotional products in a limited store space. Secondly, collecting and analyzing data on the sales process in real time.

Forced markdowns due to the need to sell goods require time for planning and implementation, as well as additional resources. That is why it is worth analyzing the reasons for the products staying on the shelves, minimizing the number of unplanned promotions and getting rid of a number of problems.

Solution:

A systematic and automated approach to inventory management allows you to place orders with maximum accuracy – this contributes to optimal product turnover and reduces the need for sales. One of the features of the LEAFIO Inventory Optimization platform that increases the accuracy of orders is the exclusion of atypical sales from the calculation so that they do not affect the accuracy of future replenishment. 

If you still need to conduct promotional campaigns, the Promotion Intelligence module will help you prepare for the sale in time: create a forecast in automatic mode and adapt the inventory to actual promotional sales.

6. Strong demand fluctuations during the week

The distinguishing feature of convenience stores lies in the variety of factors that affect fluctuations in demand. Consumer activity is constantly changing throughout the week. 

The nature of these fluctuations depends on many factors, including:

• Location of the store.
• Changes in weather conditions.
• Seasonality.
• Opening of new public facilities, competitors' stores, etc.

If you make calculations manually or forecast changes in demand insufficiently systematically, critical errors will appear over time, resulting in write-offs and lost sales.

Solution:

LEAFIO Inventory Optimization uses a demand variability index to automatically calculate demand indicators for each day of the week. This allows you to make the most accurate orders, especially for product groups that are delivered every day or several times a week.

The platform has ready-made solutions based on artificial intelligence that make it possible to:

• Take into account the current stock of goods, the size of the supplier's packaging, and the goods currently in transit.
• Exclude atypical fluctuations in demand that are not systematic and may be unnecessary in calculations for the next order.
• Create an optimal safety stock of goods.

Increase your business profits by automating inventory management

LEAFIO Inventory Optimization will allow you to significantly save managers' time by making most inventory management processes automatic.   Accurate analytics and forecasting based on artificial intelligence guarantee a reduction in lost sales and the formation of surpluses. The system takes into account the specifics of convenience stores, allowing you to optimize the structure of a limited assortment and work according to the "empty warehouse" model. 

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