Behind the Data on Out-of-Stocks and Substitutions

Out-of-stocks (OOS) and substitutions can be annoying to shoppers, but can cause real losses for grocers. Data from grocery tech provider Upshop affirms that as retailers are adjusting to the evolving state of e-commerce, they can curb losses by better managing item exceptions. 

In a recent webinar, Steve Paro, SVP of product strategy for the Tampa, Fla.-based Upshop, noted that the company e-commerce division has been collecting data for the past few years related to OOS and substitutions, and recently dug deeper into the information. “The initial use case around the data tracking was to understand at an individual level who was doing what so we could potentially coach store associates differently,” he said. “This past year, as we were doing analysis of our overall store solutions, we came back across that data set and said, ‘We have a bit of a treasure trove here!’ It wound up amounting to 21 million different orders across 91 million different exception transactions and recorded by 68,000 users.”

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The resulting aggregate study revealed key insights into OOS and substitutions. For example, the data showed that the average lost revenue per order due to OOS was $8.44. “On average, four items per every order have some kind of exception,” Paro noted.

There is also a labor cost to these e-commerce gaps. According to the analysis by Upshop, the average employee time spent on an OOS item is 39 seconds, while the added time per substitution is just over five minutes. Training and updated planograms can help reduce that substitution time, Paro pointed out.

Upshop looked into other aspects of time, too. “We saw a higher percentage of exceptions occurring in the fall and winter months, which are largely bookended around major North American holidays. Grocery e-comm tends to quiet down on the summer months,” Paro reported. In addition to seasonality, researchers identified trends for the day of the month and day of the week. They determined that the highest average percentage of OOS exceptions occurred on Sundays, peaking at 8.39%, followed by Saturdays at 6.90%.

When looking at the type of digital orders, Upshop’s analysts found that more than 62% of retailers’ order volume came from pickup, with 37% coming from delivery. The tech company also broke down digital orders by lead time, with data confirming that delivery orders are tied to longer lead times.

As for takeaways from the data, Upshop underscored the value of computer-generated replenishment and perpetual inventory solutions in mitigating issues with item exceptions. “We are clearly seeing that retailers are taking same-day orders for items that are not on shelf at the moment the order is being placed. By investing in computer-generated replenishment and perpetual inventory solutions, you have the means to expose that data to your commerce front end,” Paro explained. Exposing on-hand perpetual inventory data has been shown to mitigate 95% of item exceptions for orders with less than 24 hours of lead time, he added. 

Understanding and acting on such information, retailers can recoup lost e-comm revenues related to products and labor. Upshop concluded that the total daily average ROI of stemming revenue and labor losses is $150.47 per store a day, adding up to $73,568 on a yearly basis. “That is conservatively based on 21 orders a day,” Paro added.