The weather? A distaste for heavy stocking of low-margin lines? Or an ‘anorexic’ obsession with an efficient supply chain?
In an age of sophisticated statistical modelling and easy access to detailed sales data, it should be easier than ever to forecast demand accurately. Yet this Easter many last-minute shoppers hunting for Easter eggs found shelves bare.
Consumers reported searching in vain for Easter eggs, in one case in as many as half a dozen major retailers within one local area. An Easter egg hunt in Lincolnshire even had to be cut short after local shops ran dry.
So what went wrong and were the causes unique to Easter eggs or symptomatic of wider industry problems?
Apologising to customers for the short supply of Easter eggs at some stores, Sainsbury’s said “more people than usual” had bought them this year.
The cold weather was partly to blame. Unlike last year when exceptionally hot weather dampened the demand for Easter eggs, the bitterly cold weather this year encouraged people into stores to stock up on chocolate.
“The weather would have had an impact,” says Tim Morris, Europe MD of business weather intelligence experts Planalytics. “When it’s inclement, demand for comfort foods like chocolate increases.”
The weather’s influence on chocolate sales is frequently acknowledged. Thorntons has made a habit of blaming poor sales on the weather in recent years. But few organisations make an effort to study or quantify the weather’s impact on sales outside a few strongly correlated categories such as ice cream, alcohol and cold remedies.
Sainsbury’s: Shoppers reported no eggs two days before Easter the seasonal aisle was turned over to gardening.
Asda: It reported selling out of its £1 eggs and suffering “availability issues” in some stores on Easter Saturday.
Cadbury: A shopper said on Facebook that supermarkets had loads the day after Boxing Day, but none Easter weekend.
Tesco: It ran an in-store Easter egg hunt offering a free Malteser Bunny to winners, but many reported that stores had run out of prizes.
In the case of chocolate - and a number of other categories - retailers and suppliers simply focus on past sales when forecasting demand. Despite being based on sophisticated computer modelling, and taking into account sales trends over a two or three-year period, these ‘time series projections’ methods have obvious limitations.
“Sometimes it is inadequate to look only at what has happened in the past,” says Douglas Green, director of Forecast Solutions. “It is important to consider causal factors such as pricing and the weather, but use of such analysis remains patchy.”
British weather is notoriously difficult to predict, even two or three days ahead, so looking to the Met Office to plan for future demand is unlikely to bring much joy. What weather analysis can do is help companies better understand their underlying sales.
Considering the weather’s impact can improve demand forecasts by 4% to 8%, claims Morris.
Even small sounding improvements in forecasting are important, because retailers want to minimise stock levels in order to improve efficiency and cut waste.
Indeed, retailers are increasingly willing to risk poorer availability. And the problem is not unique to Easter eggs - it is an industry-wide trend.
“What may be limiting availability is the drive to be lean and efficient, which can tend towards the anorexic. Often there is simply not enough stock in the system,” says Green.
The supermarkets’ record on availability is slipping, falling from 97.1% in 2008 to 95.2% in 2012, according to our monitoring in The Grocer 33.
However, the problem is particularly acute for Easter eggs because of the changing economics of the category, with margins on Easter eggs significantly lower than they were 10-15 years ago - which means that holding enough stock to ensure availability is riskier than it used to be.
The potential gain in extra sales is outweighed by the potential cost of being lumbered with excess stock that would be difficult to shift. “It comes down to the economics and the size of the risk - carrying extra stock is no longer worth the pay off,” says one supplier.
As a result, supermarkets are increasingly prepared to run out of Easter egg stock just before closing time on Easter Saturday - even though that means risking bare shelves if forecasts are slightly off, he adds.
Fewer lines, easier forecasting
Over the years, the industry has adapted to the vagaries of Easter egg demand by reducing the range of Easter eggs produced - because it is easier to forecast demand accurately for a more limited number of products.
This year, the early Easter may have also discouraged some chains from stocking up adequately because it fell close to the year-end for a number of retailers, including Tesco and Sainsbury’s.
“Any company would want to ensure that stock is at a minimum - we normally see reductions in orders as retailers lead up to year-end and restock afterwards,” says another supplier.
So what can be done to reverse the downward trend in availability? There is still a lot that could be done to improve forecasting. As well as paying more attention to the impact of factors such as the weather and promotions, more collaboration between retailers and suppliers would help, adds Green.
“Use of systems such as the Collaborative Planning Forecasting and Replenishment concept developed by Wal-Mart [and others] in the mid-1990s remains low. Suppliers are still reluctant to base plans on sales figures supplied by retailers, and instead work on the basis of retailer buying behaviour,” he says. Suppliers still fear retailers are over-egging forecasts to make sure stock is available.
It’s hardly an ideal situation. Until supermarkets can make any money on Easter eggs, stock level tolerances, like margins, will be wafer thin. And consumers may have to go on their egg hunts earlier.