How To Forecast Inventory in Your Grocery Store: 6 Tips & Tools

Imagine this: A local grocery store in a small town is preparing for a big spring grilling sale. The owner makes sure to stock up on ground beef, steaks, and other sale items.

The only problem? They didn’t check their numbers from last year. Spring break is approaching, and meat is already in higher demand than usual. Paired with the sale, the store runs out faster than it can reorder.

Worse, they’re so focused on the sale, they completely forget to stock extra snacks and prep more sides at the deli. Before long, customers leave without buying anything, and the owner frantically puts in an order with his supplier for more of everything — except now he’s ordered too much and won’t be able to sell it fast enough.

Scenarios like these are surprisingly common, but they are avoidable if you know how to forecast inventory.

Inventory forecasting is how grocery stores prepare for surges in demand, keep track of customers’ shopping habits, and avoid stockouts and overordering. It’s an essential inventory management skill, but one that requires some know-how and the right technology to get right.

In this blog, we’ll explore everything you need to know about how to forecast inventory, including why it matters and practical tips for optimizing stock levels at your store.

What Inventory Forecasting Is and Why It Matters

Inventory management is one of the most important ingredients for grocery store success — but it’s also one of the most challenging. If your shelves are understocked, you’ll frustrate customers and lose sales. If you overstock your store, you’ll run into cash flow, storage, and spoilage problems.

Inventory forecasting helps you strike the right balance. At its core, inventory forecasting uses sales data and external factors to predict customer demand. What do we mean by “external factors”? Here are some examples:

• Seasons
• Times of month/day/week
• Weather (e.g., bread and milk before snowstorms)
• Holidays and events (e.g., Thanksgiving, Fourth of July)
• Customer preferences

There are internal factors you need to account for, too — like if you plan to run a sale or promotion.

H3: Inventory Forecasting Benefits for Grocery Stores

Inventory forecasting isn’t hard, it just takes consistency and time to get right. But once you do, regular inventory forecasting can have noticeable benefits for your store, including:

• Preventing stockouts: Accurately predicting demand and setting low-stock thresholds helps you avoid stockouts and keeps customers happy.
• Reducing waste: Inventory forecasting helps you stock just enough to meet demand, preventing overstocking and spoilage.
• Controlling cash flow: Forecasting ensures you’re investing in inventory that will actually sell, keeping costs low and profits high.
• Capitalizing on trends: Forecasting inventory helps you spot trending products and understand your customers’ preferences.
• Preparing for disruptions: As you get more comfortable with demand forecasting, you’ll naturally create action plans for supply chain disruptions or other unpredictable events.

In short, inventory forecasting is a win-win for you and your customers. It protects your bottom line and ensures your customers can always find what they want in your grocery store.

Types of Grocery Inventory Forecasting

There are a few methods grocery stores use to forecast inventory. Here are the most common ones.

How To Forecast Inventory: Practical Tips & Tools for Success

Now that we’ve covered why inventory forecasting matters, let’s dive into how to do it. Here are four steps to understanding your customers’ shopping behaviors, spotting trends, and taking a flexible approach to stocking your store.

1. Invest in a Modern POS System

First, let’s make sure you have the right tools for the job — most importantly, a grocery store point of sale (POS) system.

Beyond handling payments, a POS system digitizes your entire store’s inventory, automatically tracking stock levels in real time whenever you receive a purchase order or make sales. A digital inventory list starts to automatically generate data on inventory turnover rates, monthly sales, and other key inventory metrics.

This visibility is a must for accurate inventory forecasting. Without an honest way to check inventory levels at a given time, you’re forced to make stocking decisions either on a hunch or by crunching the numbers manually — neither are an effective long-term strategy.

Of course, upgrading your POS system is helpful for much more than inventory forecasting. It also helps speed up checkout, simplify daily tasks like stock counts, and create a better shopping experience for your customers.

Related Read: What Is the Best POS Software for Grocery? 6 Top Providers

2. Set Clear Goals

There are a lot of reports on a modern POS system, but it’s difficult to use them if you don’t know what you’re looking for. The best place to start is to figure out what problem you’re trying to solve.

Are certain departments frequently running out of stock on the weekends?

Do you find that you find yourself overstocked on certain brands of soft drinks in the winter months?

In some cases, you won’t be able to articulate a problem until you look at your reports. Once you identify a problem, you can determine which reports to use and what the goal of your forecast is (e.g., to avoid stockouts, to see how a product performs on weekdays vs. weekends).

When doing any kind of sales forecasting, you should consider:

• The time you’re forecasting for (e.g., a quarter, a certain holiday period, the duration of a big sale)
• The product(s), department, or product category you want to measure
• The outcome you hope to see

This helps you understand what data will be most helpful and allows you to measure actual sales against your expectations.

3. Dig Into Your Sales Reports

To predict the future, you need to understand the past. Put another way, analyzing your historical sales data is crucial when learning how to forecast inventory.

Frequently reviewing your sales reports helps you identify patterns in customers’ shopping behaviors and product performance — both of which should influence your approach to stocking.

Here are a few examples of trends to look for in your sales reports:

• Bestselling products: Are sales of a particular product growing? Stock more of it to keep up with demand.
• Underperforming products: Are there products gathering dust on your shelves? Check sales trends to see if it’s time to phase them out for good or if the sales slump is part of a seasonal trend.
• Seasonal shifts: How do sales change throughout the year? Add context to your sales reports by paying attention to seasonal changes and holidays.
• Peak hours: When’s the best time to stock your shelves? Find out when your store’s busiest times of day and week are so you can prepare in advance.
• Event-based sales: Frequently stocking out on certain items during football season? Check your sales reports to find if there are spikes in demand for certain items around certain events or holidays.

Knowing what customers purchase, when they purchase it, and how their shopping habits fluctuate over time helps you make more informed decisions about your grocery store’s inventory selection and quantity.

4. Stay on Top of Trends

A successful approach to inventory forecasting goes beyond understanding your customers. You also need to stay on top of broader trends emerging in the grocery industry. Subscribe to industry magazines and newsletters, browse social media, and visit your competitors to stay informed.

Combine what you see with what you know. In other words, if you’re an organic grocer, it’s likely a waste of time to closely follow a trend involving name-brand candies and sodas.

You should also keep an eye out for supply chain disruptions and shortages. For example, if you have connections with a local farm that grows kale and spinach, you might want to bulk up your orders if you see news stories about a national recall of those same items.

That said, before you start chasing trends, get comfortable tracking demand and having a plan for predictable demand swings (e.g., winter holidays, summer vacation).

H3: 5. Use Low-Stock Reports To Manage Short-Term Needs

Effective inventory forecasting isn’t just for big demand swings and holidays. It’s helpful for short-term inventory needs, too.

Use your forecasting numbers to set low-stock thresholds for popular items on your inventory management system. Put simply, your POS system keeps track of sales and amount on hand for all of your products — by setting a low-stock threshold, items will appear automatically in a low-stock report as soon as the amount on hand drops below it.

With low-stock reports, you can easily generate purchase orders with your vendors without having to physically check for empty shelves (when it’s too late).

At first, you might guess these numbers. The more you master inventory forecasting, the more precise you can be. Ideally, base your low-stock thresholds on:

• Daily sales volume
• Supplier lead times
• Time of year (e.g., you may wait a bit longer to stock certain produce in the winter vs. the summer)

If you find that the low-stock numbers you’ve set aren’t keeping up with demand, you have a good indicator to bulk up orders for those items.

Free Resource: The Guide to Grocery Store Inventory Management

6. Stay Flexible and Adaptable

Grocery inventory forecasting isn’t a “set it and forget it” type of task.

Changing trends, supply chain interruptions, and shifting shopping habits all impact your inventory turnover rates. To protect your bottom line, you need to stay informed and flexible, taking action to optimize your inventory before stockouts or spoilage spikes.

Here are a few tips to craft a dynamic approach to forecasting inventory:

• Since accurate forecasting depends on accurate inventory records, follow best practices like barcode labeling and regular cycle counts.
• Schedule a regular time to review your sales reports and research emerging grocery store trends.
• Build strong relationships with your suppliers and ask them to keep you informed about any supply chain issues.
• Start your seasonal inventory planning as early as possible.
• Use promotions strategically to increase turnover for near-expiry products or to highlight new, trendy arrivals.

Following these simple tips helps you forecast grocery inventory like a pro.

Tackle Grocery Inventory Management With a System Built for Grocers

Along with making strategic price adjustments, learning how to forecast inventory is one of the best ways to improve cash flow at your grocery store.

While most POS systems are good enough for the most basic demand forecasting, a grocery-specific system gives you better visibility into specifics like:

• Department performance and sales
• Perishable inventory tracking and spoilage sources
• Vendor profitability and lead times
• Weight-based inventory tracking

Small grocery stores are facing a lot of competition from big chains. You need every advantage you can get.

At POS Nation, we’re passionate about helping independent Main Street businesses achieve their goals with specialized (and affordable) POS systems.

Use our in-depth Build and Price tool to customize a grocery store system that’s designed to grow with your business.