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.
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:
There are internal factors you need to account for, too — like if you plan to run a sale or promotion.
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Inventory forecasting in action |
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As the winter holidays approach, check last year’s sales reports to see which seasonal products flew off your shelves and which lasted well into the new year. If customers cleared out your frozen hams but passed over the turkeys, you can meet their demand and cut inventory costs by ordering more pork and less poultry. |
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:
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.
There are a few methods grocery stores use to forecast inventory. Here are the most common ones.
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Method |
How it's used |
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Time series |
Uses historical sales to find repeatable patterns (seasonality, weekly cycles) and project future demand for predictable categories |
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Collaborative |
Shares forecasts and sales signals with suppliers so both sides order/produce closer to real demand, reducing stockouts and waste |
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Scenario planning |
Builds “if/then” inventory plans for plausible events so you can respond faster when conditions change (e.g., supply chain disruption or food safety recall) |
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Causal |
Forecasts demand by tying sales to drivers like price, promotions, merchandising changes, and external factors (e.g., weather or local events) |
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Qualitative |
Uses staff/customer input (e.g., feedback, surveys, observations, preorders) to estimate demand when data is limited, or conditions are abnormal |
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Long-term |
Looks beyond short-term fluctuations to plan inventory year over year using seasonal trends plus expected growth and strategic changes |
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.
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
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:
This helps you understand what data will be most helpful and allows you to measure actual sales against your expectations.
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:
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.
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).
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.
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An example:
Say you stock popular 1-pound packs of ground beef from a local farm. Using your sales reports, you see that the average weekly sales volume is 50 packs a week (about seven packs a day). The farm’s lead time is around two days, so you set a low order threshold at 20 units (14 should last about two days but you put in a little wiggle room).
If you see that ground beef on your low-stock report, you now know you have about two days on hand left, and it’s time to put in another order. |
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:
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
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:
Following these simple tips helps you forecast grocery inventory like a pro.
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:
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.