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Grocery Store Inventory Management Basics: 7 Tools and Techniques

Is running out of stock a recurring nightmare?

Grocery store owners face competition from big box retailers, are buried under processes, and lose time to error-prone manual inventory management. From financial losses to customers going elsewhere, the impact of poor inventory management is huge.

Imagine you advertise a beer sale in the summer, but supply chain issues leave you short on a top craft beer right when demand peaks — you could lose out on thousands in sales and wake up to angry reviews online.

Or… You can learn the grocery store inventory management basics that will ensure you never run out of popular products.

This article outlines seven essential tools and techniques for successfully tracking inventory. Follow these best practices to ensure you have just the right amount of stock on hand, to reduce waste and keep your customers happy.

Grocery Store Inventory Management Basics

Grocery store inventory management refers to the processes and systems used by grocery stores to track, control, and optimize inventory. From monitoring and managing the flow of products in and out of a store’s warehouse to optimizing inventory to meet customer demand, inventory management is the heartbeat of a grocery store’s success.

Getting the fundamentals of inventory management right is essential. With already slim profit margins, grocery store owners can’t afford to mismanage their biggest asset. And inefficiencies will quickly eat into profits and impact the customer experience. If customers can’t find what they need, they’ll shop somewhere else.

There are various benefits of excellent inventory management.

  • No more lost sales from out of stock situations
  • Reduction of shrink and spoilage
  • Lower carrying costs due to excess inventory that ties up capital
  • Improved profit margins

Getting inventory management wrong could spell disaster for grocery stores. Excess stock ties up capital, increases carrying costs, and leads to perishable goods expiring before you can sell them. On the flip side, inadequate inventory leads to frequent out of stocks and frustrated customers. Not to mention marks against your reputation.

Related Read: Improve Grocery Store Operations: 10 Tips, Tools, and Tactics

With inventory management the foundation of a successful grocery store, mastering the fundamentals with the following tools and techniques is the best way to gain a competitive advantage and drive growth.

Top Tools for Inventory Management Mastery

Leveraging tools designed to make your life easier is key to optimizing inventory management.

Inventory Management Software

Inventory management software uses technology to give you complete control over your grocery inventory. You can track what’s in stock, its location, and every detail you need — all in one place. With cloud-based software and centralized data, you can manage multiple locations from anywhere.

Grocery Store Inventory Management Software-1

Related Read: The Ultimate Guide to Grocery Store Inventory Management Software

Digging deeper, with 24/7 access to inventory data, you can track inbound shipments, analyze fast versus slow-moving items, and make smart purchasing decisions. Plus, you can detect seasonal patterns and trends, allowing you to align with customer demand.

And what about shrinkage? With up-to-date inventory records and visibility of products to the SKU level, you can track expiry dates and optimize rotation and markdowns on perishable items.

Finally, modern inventory management software integrates with your other systems. You can capture point of sale (POS) data to automatically update inventory, analyze customer preferences and collect relevant details, and integrate your e-commerce store, accounting software, and customer loyalty programs.

Barcode Scanner

Barcode scanners are an essential technology for grocery store inventory management. A key benefit is speed. Scanning a barcode is faster than entering product numbers by hand. You’ll save time at checkout and when receiving inventory.

Scanners also minimize errors. It’s easy to input the wrong product code when you’re rushing or lose concentration. Barcodes contain all necessary information automatically encoded.

Next, barcode scanners facilitate the real-time inventory tracking we mentioned in the previous section. With every item scanned at checkout, your inventory software automatically updates stock levels. Advanced scanners also enable data collection to provide valuable insights, such as top-selling items, slow-moving products, and high-shrink items that need better security.

Shelf Management Systems

Every grocery store owner wants to optimize retail floor space, maintain product availability, and deliver a positive shopping experience. With good shelf management processes and tools, you can do just that.

You can allocate space based on sales data and customer preferences. For example, items you’re trying to promote can go on end caps. Well-organized shelves make it easy for staff to identify when products are running low, and clear signage helps customers find what they need.

Advanced electronic shelf management takes these benefits further. For example, electronic shelf labels can be updated remotely via WiFi to change product information or pricing. With RFID tags on products, you can see inventory levels and product availability in real time.

Top Techniques for Managing Grocery Inventory

To really benefit from great tools, you need a strategy. And every good strategy has key components.

Implement FIFO (First In, First Out): The Golden Rule

FIFO is a best-practice inventory management approach that benefits grocers. It’s a simple concept: Sell your oldest inventory first. Proper date labeling is essential for FIFO to work. You’ll need to clearly mark products with receive and expiry dates, and store older inventory in the front of storage areas, so staff knows to pick older stock first.

Related: How To Reduce Shrink In a Grocery Store: 5 Most Effective Methods

When your employees stack shelves, they’ll also put the older stock at the front. Unfortunately, customers won’t always pick these items first — they might be doing a weekly shop and need their bread to have a longer use-by date — so it’s important for your staff to arrange and rearrange shelves throughout the day.

Following FIFO processes:

  • Maintains product freshness and quality
  • Minimizes waste and write-offs
  • Simplifies stock rotation

Perform Inventory Audits

Inventory audits are a way to keep your finger on the pulse of your operations. You should perform full inventory counts and intermittent cycle counts to get a full picture. A key metric to review is turnover rate. How many times does your store sell through its entire inventory in a year? A high inventory turnover rate indicates strong demand and minimal excess stock.

Cycle counts provide a window into your overall inventory process. You can select a portion of inventory to count and compare to the recorded balances, and identify discrepancies you need to address.

Finally, it’s a good idea to review inventory reports produced by your point of sale system. You’ll notice areas of high shrinkage, dead stock, and other issues to address before they grow.

Related: POS Reports 101: 5 Essential Reports to Manage Your Grocery Store

Performing inventory audits:

  • Ensures inventory records are accurate
  • Reduces inventory shrinkage from theft, spoilage, or other causes
  • Optimizes overall inventory levels based on turnover metrics
  • Strengthens supplier relationships as discrepancies can be addressed quickly

Monitor Stock Levels and Take Action

Careful monitoring of stock levels helps identify potential stockouts and excess inventory in time to take effective action. You want to find a balance that lets you meet demand without overstocking. Look at seasonality, consumer preferences, and lead times before taking action.

Which products sell out quickly? Flag them and set reorder alerts so you never run out of popular items. Conversely, you can eliminate slow-moving SKUs to help simplify inventory management, focusing on top-selling essentials.

Pro tip: The Pareto Principle, or the 80/20 rule, tells us that 80 percent of your sales will come from 20 percent of your products. Using this rule, can you identify the 20 percent driving sales in your store?

Investing in inventory management software will provide you with the tools you need to accurately forecast demand.

Related: How Grocery Store Inventory Leads to Increased Profits: 4 Things To Know

Proactive stock level monitoring:

  • Optimizes storage space because you avoid excess inventory
  • Improves inventory turnover
  • Lowers carrying costs and spoilage
  • Maximizes sales by avoiding out of stocks on top-selling items

Streamline Reordering

Streamlining the reorder process helps maintain optimum stock levels, while reducing the administrative burden of manual grocery store inventory management. For example, you can set reorder alerts. When specific products run low, your POS system can send an alert, telling you to reorder that product.

Consolidating suppliers is also a good idea. Working with fewer suppliers increases order volumes and gives you greater purchasing leverage — meaning you can negotiate better pricing and terms. Building strong relationships with select suppliers leads to better service, tight quality control, and open communication.

Finally, use historical sales data, trends, and seasonal demand signals rather than a gut feeling to make purchasing decisions.

Streamlined reordering:

  • Frees up staff time from manually monitoring inventory and creating orders
  • Keeps inventory levels stable without over-ordering
  • Builds strong supplier relationships
  • Avoids out of stocks, improving customer satisfaction

Grocery Store Inventory Management: Master the Basics

For grocery stores, managing inventory is a tough balancing act. Keeping too much stock ties up cash and risks spoilage. Yet empty shelves and disappointed customers cost you sales. The key to inventory management is using the tools and techniques at your disposal.

A POS system with integrated grocery store inventory management is an all-in-one solution. POS systems track all sales transactions in real time, providing updated inventory counts as items are sold, rather than relying on periodic manual audits. 

POS sales data provides critical insights into demand and inventory turnover to optimize stock levels, and some POS systems also allow linking inventory management directly with suppliers for seamless reordering. 

With customizable reporting, POS systems enable you to closely analyze sales trends and inventory needs storewide or for specific products. 

Markt POS provides a POS solution designed by multi-generational grocers who understand the problems faced by local market owners. We provide a comprehensive solution to help you run every aspect of your business.

Do you want to see it in action? Schedule a demo with our grocery experts today.

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