With the major effects of COVID-19 on the global supply chain finally subsiding, there is speculation that the giant out-of-stock problem in the United States may be no longer.
“Out-of-stocks really moved into mainstream consciousness during the pandemic and quarantine, but our retail partners have been working to correct them for decades,” said Zipline Logistics President, Andrew Lynch, “As long as brands continue to follow the debunked transactional cost-saving tactics of commoditized freight brokers, retailers will continue to give preference to suppliers that are capable of keeping their shelves stocked.”
The Cost of Failing On-Time Delivery
With non-compliant delivery being the primary driver of out-of-stocks, late fees certainly take a hit to brands’ gross margin. But for big CPG brands, those penalties are nowhere near as hefty as lost sales caused by out-of-stocks.
A recent survey of retail buyers revealed just how critical on-time delivery is for a brand to win priority on the shelf. 90% of buyers say a supplier’s ability to deliver on time impacts their purchasing behavior of that brand and 66% have even ended relationships over delivery issues.
“If a supplier is out of product, it will be replaced with a competing brand,” said one buyer.
Consider the direct hit your gross margin takes when your product is out-of-stock and replaced by a competitor.
The table below demonstrates the amount of savings available to companies who understand that who you trust with your freight directly impacts on-time delivery performance. The industry average sits around 77%, whereas a quality partner like Zipline promises 95% of shipments end up on a retail shelf on time and in full.
How On-Time Delivery Impacts Gross Profit*
|Annual Revenue||On-Time Delivery Performance||Gross Profit|
*This example assumes your product has a 45% gross margin.
The difference between hitting retail suppliers’ average performance (77%) and hitting the performance retail buyers expect (95% or better) is $1,080,000 in margin. CPG companies usually budget 7-9% of their gross profit toward transportation spend. For a $10MM company, that’s between $700,000-and $900,000. If they master on-time delivery, that margin savings nearly covers that cost altogether.
Beverage Industry Shelf Opportunity
|Category||2022 Expected Revenue||Weekly Revenue||Out-of-Stock Rate in April 2022||Amount Lost to Out-of-Stocks in One Week|
|Water||$86.4 Billion||$1.66 Billion||15%||$253.38 Million|
|Sport||$100.2 Billion||$1.93 Billion||17%||$332.39 Million|
|Juice||$24.94 Billion ||$479.62 Million||13%||$62.35 Million|
|Coffee & Tea||$104.45 Billion||$2.01 Billion||10%||$195.84 Million|
|Carbonated||$144.5 Billion||$2.78 Billion||12%||$326.51 Million|
Based on IRI data, the chart above tracks in-stock levels at leading US grocery, big box, club stores, and pharmacies versus total domestic annual sales data for the beverage industry.
Using Zipline expert calculations, the revenue opportunity cost left on the shelf in one week for just one category – we’ll use Sport drinks as an example – was $332.39 Million.
That $332 Million represents the opportunity to win over new customers by keeping your committed shelf space stocked and win expanded shelf space when retailers need to fill gaps left by non-performers.
This is a top line revenue opportunity gained simply by meeting your retail and distribution partners’ fulfilment expectations. Remember, 66% of CPG buyers stated they have stopped working with suppliers over delivery issues.
That shelf space can be yours.
Zipline Logistics Helps You Win Shelf Space
Successful CPG shippers are those that lean on a retail-specialized 3PL to consistently meet strict retail compliance requirements and eliminate out-of-stocks. Brands can grow their gross margin substantially just by increasing their on-time delivery performance to Zipline’s 95% average.
Big-box brokers focused on their bottom line won’t offer the same care, communication, or expertise Zipline Logistics promises on every shipment. We’d love the opportunity to prove ourselves to you just like we have with our biggest clients.