An examination of shelf health at US grocers

In early 2023, Retail Insight conducted a Shelf Study into the US grocery retail market. The objective of this project was to gain an understanding of how the US retail market deals with the following operational areas:

• Product Availability / Out-of-Stocks
• Surplus Food Waste Markdown Processes
• Existence of Electronic Shelf-Edge Labels (ESLs)
• Deployment of Shelf-Edge Cameras
• In-Store Clearance Areas

We observed the prevalence of in-store product availability issues and examined variances in markdown processes – making a number of significant discoveries regarding the shelf health of over 50 food retailers across 263 stores in 39 states.

Product Availability Snapshot

On-shelf availability is a universal issue across the US grocery retail landscape, with shelf-level sales disruptions attributed to global supply chain issues, labor shortages, and challenging macro conditions.

Empty shelves were observed in every store we visited, with the problem affecting multiple departments – Produce, Deli, Fresh Meat & Seafood, Dairy & Eggs. Availability (or lack thereof) is highly damaging on a number of levels, impacting the customer experience whilst causing retailer revenues to suffer.

Optics suffer.
Customers suffer.
Retailer margins suffer.

Markdown Process Snapshot

The study also examined product markdown strategies – a follow-up to our 2022 whitepaper on global markdown practices. Product wastage represents a huge drain of profitability for retailers, particularly where fresh food is concerned. Every time a product is thrown away, a sale is lost – and another item hits landfill, impacting both the bottom line and the ESG credentials of the retailer.

We saw that 30% of retailers that were visited had no clear markdown process in place, meaning that a significant percentage of expired fresh items are wasted at these retailers’ stores. Of those retailers at which markdowns were observed, just 42% had applied dynamic markdown principles to their price reduction strategies. The remaining 58% had engaged with static markdown processes – either marking their items down in non-dynamic increments e.g., 25%/30%/50% or using flash labels ($1/$2/$5 off) to encourage their customers to buy near-expired products.

As a refresher, a dynamic model of markdowns is designed to produce a price that optimizes the chance of product sell-through and maximizes the product margin captured to find the product’s pricing ‘sweet spot’. Meanwhile, a static markdown approach means the discounted prices are not optimized for volume or profit maximization. These findings present an immense opportunity for retailers to consider the value that dynamic markdown solutions can provide.

Learn more about this study in our upcoming US Retail Shelf Study Whitepaper.