The Institute of Grocery Distribution (IGD) published an interesting article recently highlighting the difficulties of forecasting demand in the food and grocery sector. The IGD’s recent survey of food and grocery businesses found that 67% of businesses in this sector believe forecasting demand has got harder.
The IGD’s research into shopper behaviour has found that a great deal has changed in recent years. The financial crisis coupled with advances in technology has prompted shoppers to make changes to their lifestyles, resulting in shopper behaviours that are significantly different from the traditional loyalties.
In fact, shoppers increasingly have no loyalty to one particular type of store: preferring to take advantage of the proliferation of online channels, discounters and convenience stores to find good value. The IGD’s research shows that 58% of shoppers are now using at least four different channels a month.
This new world of changing shopper behaviour has created challenges, adding further levels of difficulty to businesses’ ability to forecast demand. The competition in this sector has rapidly increased and the success of the online and discount stores has reduced the influence that the large well-known stores can exert in this sector.
The resulting fragmentation of the marketplace leaves businesses with smaller accumulations of data that can be used to successfully forecast demand. It also encourages businesses to change prices, increase promotions and reduce ranges, leading to yet more unpredictability.
Nevertheless, businesses in this sector have also reported some good news to the IGD. Investment in more fit for purpose forecasting methodology, enhanced analytical abilities and increased cross-functional interaction has brought improvements in the accuracy of sales forecasting, with 77% of businesses reporting that they have seen positive developments in the past five years.
Developing the cross-functional interaction between teams has been used successfully in some businesses to share time-sensitive data more accurately. The IGD reports that 63% of suppliers in this sector have in place close relationships between commercial and supply chain teams who meet regularly and help deliver a more unified, consensus-driven approach to demand forecasting.
Looking to the future, the IGD recommends that businesses in the food and grocery sector scrutinise carefully all the major factors which influence demand forecasting. For example, the IGD advises businesses to look more closely at the activity of competitors, rated as a close third to seasonality and events as the most significant factor driving demand externally. Currently only 27% of businesses reported to the IGD that they were taking account of the activity of competitors in their demand planning.
The IGD concludes that food and grocery businesses need to recognise the new volatile nature of the marketplace. They recommend that businesses, as much as possible, develop greater flexibility and adapt their demand planning processes: thus enabling them to respond effectively to the challenges of demand forecasting in an unpredictable world.