How to series
Fresh Category Effective Management
How to series

Fresh Category Effective Management

8 min read
Irina Shypulia
Irina ShypuliaProject Manager
Fresh Category

For any retailer, the business success criterion is the availability of products on the shelf at the right time in the right quantity. When it comes to products with a long shelf life and a stable frequency of sales, the objective seems workable and achievable. This is actually the case, especially if the retailer uses a software-based ADR solution. The volatility (variability) of the Fresh category can negatively affect the accuracy of forecasts, so it needs more serious control techniques.

The Main Characteristics of the Products Included in the Fresh Category

Products of the Fresh category differ from others primarily in their short shelf life. Often, it is no more than 30 days. Due to this feature, the Fresh category can be given the title of the riskiest one in grocery retail. This is because, after a short expiration date, write-offs immediately follow, which, in turn, always entails monetary losses for the retailer.

The second association is a large proportion of the company turnover. For some, this figure reaches 60%. Moreover, the number of SKUs is much less compared with other categories. Not having the highest mark-up, such products form a significant sales volume, returning the consumer for purchases to the store with a regular frequency.

Thirdly, the category is distinguished by the features of orders and their delivery. For Fresh products, orders are sent at least 1-2 times a week. Basically, these are direct deliveries from suppliers to the store. And the most important are the features of logistics because during the transportation of goods, it is necessary to observe a special temperature profile.

Features of Fresh product groups

To manage Fresh products well, you have to understand not only the general features inherent in the category but also what distinguishes the Fresh subcategories from one another.

This subcategory is highly competitive. Firstly, dairy products are everyday necessities, so they are traffic generators. Secondly, there are a great number of large producers in the dairy products market, to say nothing of local ones. This diversity brings about growing competition between brands. Producers keep prices at a relatively constant level, thus reducing margins. The inherent effect of cannibalization between leading brands is especially visible when conducting promotional activities. A relatively short shelf should also be noted, which is 3-10 days on average.

An analogy can be drawn between this subcategory and dairy products. Bread is also a traffic generator, but the difference lies in pricing. Conditionally, bakery products can be divided into two categories: own and social production. The maximum mark-up for a social group is 5-7%, while the mark-up for pastry of own production can be 50% or more.

One of the main features of this category is the frequency of orders. Deliveries occur every day or even twice a day. The average shelf life is up to 3 days.

Fruit and veg is a type of product in stores that combines vegetables and fruits. The most complex inventory management sub-category of all that exists in Fresh. Seasonality plays a significant role for different types of goods. As a result, suppliers have different pricing policies. The customers compare prices for the same SKU and form a purchase under more favorable conditions. Along with this, the order of consignments of goods can be made by two different representatives within one week.

Another negative phenomenon that occurs directly in stores is re-sorting. When weighing, instead of one SKU code, the customer chooses another, resulting in irrelevant POS balances. However, the biggest headache in fruit and veg inventory management is the appearance of the product on the shelf and its expiry date. If you take SKUs from the same valid batch, one item may already be subject to write-off, and the other still has a marketable condition.

fruits and vegetables

These are two sub-categories with relatively common characteristics that show pronounced cannibalization during promotional activities. If there is an ordinary cutlet in stock, no one will buy a cutlet with cheese. The same goes for meat or fish. If the dorado is sold at a discount, the demand for sea bass or trout will fall. Besides, sales depend on the display of goods. The harmonious and precise way the products are displayed on the shelves is of great importance.

Of other features, intraweek seasonality can also be distinguished. It depends on the location of the outlet. For example, if the store is located near office buildings, cooking sales will be higher on weekdays there. A prominent event in these sub-categories are small balances at the end of the day and sell-offs at a reduced price after a certain time. Due to the short shelf life, retailers are forced to sell leftover cookery at a reduced price. For example, up to 40 per cent discount 2 hours before closing.

And the main factor that intersects with the previous one is the appearance of the product and its expiration date. If the marketable condition is lost, the SKU will not be sold, even if they has not yet expired.

Having analysed the main features of each of the Fresh sub-categories, we see that the effective management and operational control of goods with a limited shelf life is still a problem for many retail chains.

How Automation Helps

There is no magic wand that could make Fresh orders perfectly accurate, reducing to zero write-offs and lost sales at the same time.

Categories like fruit and veg will never be under ADR systems control. The human factor has too much influence here. Artificial intelligence will not be able to see a box of non-marketed tangerines on the trading floor even before their expiration date.

However, today it is impossible to imagine a procurer's working day without an ADR system. It makes possible to streamline business processes associated with the product mix of stores and promotional activities, to improve the main performance indicators of the company in the following way:

All this becomes possible due to the optimization of the inventory structure at each POS and warehouse. And above all: the system helps to automate the formation and sending of orders to suppliers. After all, it is important not only to calculate the inventory according to a certain algorithm, but also to simplify the entire inventory management process.

Fresh management in LeafioFresh products management in Leafio Inventory Optimization

The success of the correct inventory calculation directly depends on the following input data:

For all data to be as accurate as possible, the retailer must take all actions aimed at maintaining product balances in an up-to-date and marketable condition and:

All inventory management work can be optimized with LEAFIO Inventory Optimization. It has a special algorithm that helps to work with the Fresh category.

The Principle of Fresh Algorithm Operation in the LEAFIO Inventory Optimization

Based on the specifics of the Fresh category, LEAFIO Inventory Optimization has a separate algorithm. It is based on sales forecasting and uses modern methods of mathematical statistics. Below is the logic of algorithm work. 

  1. Calculation of remaining shelf life and average daily sales, intraweek seasonality (elasticity of demand per day of the week), and service level ratio.
  2. Identification of planned consumption from the date of the current order receipt to the date of the next order receipt or until the expiration date.
  3. Determining a target inventory level using the inverse normal distribution function.
  4. Calculation of predicted consumption from the date of today's order to the date of its arrival.
  5. Calculation of the balance on the date of arrival of today's order.
  6. The order is according to the configured schedule.
  7. Calculation of the Fresh buffer – the target inventory level to cover demand and avoid expenses.

LEAFIO Inventory OPTIMIZATION system generates orders in the correct quantity and at the right time, taking into account all the subtle aspects of category management. This reduces surplus and write-offs, which affects the overall profitability of the business.

The system allows for a balance between availability and no write-offs. Considering high variability, uneven demand within the week, shelf life, and slot delivery by the supplier during the day allow very accurate inventory management and margin of different categories of fresh goods. 

Fresh category management is a complicated process. It includes mathematical forecasting of the required quantity of products and taking into account all the subtle aspects of merchandising, seasonality, and demand. Manage your Fresh category with LEAFIO. 

Irina Shypulia
Irina ShypuliaProject Manager



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