You’re on your way out of a grocery store, and you’re annoyed and frustrated. Some of the products you wanted were out of stock. It happens all the time, and often leaves us wondering how do grocery stores keep track of inventory?
Here is what I know from more than 2 decades of experience:
Most grocery stores use inventory management software, which manages stock lists in real-time. This software scans products in when received at the backdoor. Then keeps track of what gets sold through the register. Some stores even use automatic purchasing systems that re-order when items get low.
But every store does this a little differently!
Despite the different methods adopted by different grocery stores, you might be curious to explore further the methods they use. Besides, you might also be wondering about how often and why grocery stores actually physically count their Inventory.
So, lets read further to understand the whole process associated with grocery store inventory.
— Venturenomics (@venturenomics) September 1, 2016
How do grocery stores manage Inventory?
Inventory management is primarily about keeping records of products that the store receives and products that go out of the store. They consider the returns as well.
The “outgoings” include sales. But it also includes damaged items, expired items, and theft. Collectively those last ones are called shrink, or sometimes spoilage.
In the old days, and even when I first started with Whole Foods Market in 1988, grocery store inventory had a lot of challenges. Most of it was done by hand and involved a lot of guesswork and human error.
But these days, digital equipment and inventory management software is the essential tool to manage inventory. How? First, these products (known in the industry as stock-keeping units, SKU) are captured by the software system when they are brought into the store (from the warehouse).
All products (except maybe small, local products) have bar codes, and this helps make it easier to keep track of them. So, they’re all captured as “inflows.” Barcoding is an integral part of these software systems, and it’s so common, we often take them for granted.
And yet, they’re vital.
The quantity is reduced from the records when the products are bought and paid for. That’s a reduction in Inventory. As soon as the cash comes in, Inventory leaves. In addition to collecting the payment, the cash register (integrated with the inventory system) also helps to keep track of the stock. The software system can also generate a replenishment list.
Or in some cases order it automatically.
Employees can make adjustments concerning damaged goods, returns, expired items
The net difference should approximate the closing Inventory, which now becomes the first Inventory for the subsequent fiscal period.
Then when the store does a physical count of their inventory, the 2 numbers get compared. Some do a physical count monthly, and some annually. But most do it quarterly.
Essentially the difference in the 2 numbers is a loss of profit, hopefully small. But you can bet they investigate to figure out where the slip-ups are occurring!
Let’s move on to look at the steps in its inventory process.
Our MCM goes to Oscar Ekponimo. He invented the Chowberry App which helps grocery stores manage their food inventory and alerts them when items are close to expiry date. pic.twitter.com/495uByFLn8
— Leadway Capital & Trusts (@Leadway_Capital) January 28, 2019
What is the supermarket inventory process?
Before we check out the inventory process, you might be thinking: what even makes a supermarket different from a grocery store?
Are they the same thing?
I have taken the time in recent articleof mine to highlight the key differences. In it, you’ll discover, for example, the primary purpose of supermarkets, examples of some excellent supermarkets, and other fascinating facts.
Just click that link to read it on my site.
Supermarket Inventory Process
The main steps involved in the supermarket inventory process:
- Goods are ordered/purchased
- As they’re received, the bar codes help in ensuring data about each SKU is captured
- There’s now an accurate record of all the available products
- When goods are sold, the bar codes help in updating Inventory
- Damaged goods, expired goods, pilferage are also deducted
- The software system helps generate a replenishment list
- The system has preset reorder levels
- New Inventory is brought in
- The cycle is repeated as appropriate
This grocery store robot is tracking inventory, checking prices, describing when shelves should be cleaned up pic.twitter.com/jaY14oAfM9
— Vance Crowe (@VanceCrowe) August 13, 2017
How often do grocery stores count their Inventory?
It varies from store to store. Some stores employ a perpetual method. Doing that, they rely on the software systems to track products entering and leaving the store. Then they rely on their employees to manually subtract the shrink.
Easy for sure. But there’s no way to track theft doing this system unless you catch the thief.
Other stores, most probably, do a physical count of their inventory. Often this is done by an inventory service like RGIS. But some stores may just use their own employees. There are pros and cons to both.
No matter which method of counting they use, some stores count it monthly, and some annually. But most probably do it quarterly. And yes, it involves counting every single box, bag, can, and cucumber in the whole store. Although in produce, it’s often done by total weight for each type of item.
Of course, some departments are easier to count than others.
By the way, what are the main sections of a grocery store? It’s good to know as you can easily navigate most stores (that’ll save you time). In a recent article of mine, I went into great detail on how a grocery store is laid out.
Just click the link to read it on my site.
Overall, the more frequent the physical counting, the more accurate the financial reporting. But physical inventory does take its toll on the store, employees, and managers. The counting is typically done in one night. But the preparation and follow up reporting can last a week or more.
And when everyone is focused on that instead of the store’s appearance and customer service, those things tend to suffer.
#Robots are becoming an increasingly common sight in grocery stores and other large shops around the nation. Stores may use robots to help manage inventory, making these stores more #efficient a safer place to shop. #SmartRobotics #ArtificialIntelligence https://t.co/IOPSJ0agJq pic.twitter.com/ZGlL8qFIiw
— Lauren E Holsinger (@l_holsinger) June 15, 2020
Why do grocery stores count Inventory?
You might be thinking why they would do this?
Essentially it comes down to profit. You really have no idea how much profit (or loss) you’ve made unless you count your inventory and see if it matches what the computer says you have.
Any difference between your count and what the computer says should be on the shelves is loss (of product and profit). Now certainly, if the error was in counting, then you’ll get that back the next time you count.
But the reality is that there are always counting errors. So in a way, the cycle of counting and estimating profit and loss is ongoing. And there’s never really a perfect number.
But another important reason for a good system for inventory management is the need to ensure they always have enough products. If they don’t have enough, they lose money. Since a customer can simply go to another store.
Grocery stores deal mostly with perishable, fast-moving goods, making sense that they ought to know what they have at any time. Some products have expiry dates and need removal at a specific time if they’re not bought.
There’s a need to prevent spoilage and ensure that stock remains full all the time.
If stock-outs occur frequently, they may lose a large number of customers, as word spreads that they are not reliable! That’s something no smart business wants.
Another reason is for accounting purposes. They need to prepare financial statements, and inventory count and valuation are vital components. Financial statements are mandated by law if a company is publically held (meaning traded on the stock market). They’re also essential for proper overall management.
I hope I covered all the points about how grocery stores keep track of inventory.
A lot goes into running a first-rate grocery store or supermarket.
As we’ve seen in the preceding paragraphs, the inventory management process is one of the most critical factors. Besides, we’ve looked at how grocery stores track inventory process entails, how often grocery stores count Inventory.
We also explored the reasons. It’s only smart business to keep on top of Inventory. Just as wise people keep records of what they own.
Inventory management demands for accurate financial reporting. Although Inventory management software and digital equipment help in making the process a lot easier, do not negate the need for conducting physical stock counts now and then.