Improving Foodworld operations

Abstract

‘Foodworld’ is a retail chain that concentrates on food items. The Fruits and Vegetables (F&V) section of retail stores is susceptible to high shrinkage volume. This makes it a difficult product mix to forecast and manage. Almost 40% of perishable food items are fruits and vegetables. This study targets to improve operational efficiency within ‘Foodworld’ by concentrating on vegetables and looking at the various prevailing sales trends to suggest factors that will be an integral part of the forecasting or indenting system for vegetables. Fruits and vegetables are different in their nature of consumption as well. Most fruits are a part of discretionary purchase and may not be a part of daily consumption in average Indian households. But vegetables on the other hand are a part of non-discretionary consumption. Given this difference in nature of consumption, the forecasting system in modern retail has to accustom to these trends. To arrive at various factors affecting the forecasting function, we go about the following 3 methods: 1) Information Analysis: Interviews with store managers to understand everyday sales 2) Hypothesis Formation: We formed certain hypothesis based on generic consumer behavior and nature of produce available at stores 3) Data Analysis: Analysis of vegetables sold between 01-Jan-2009 and 31-Aug2009. Information analysis showed that store managers were not really concerned about vegetable sales as they believed the consumption followed a stable pattern. Store managers were not aware of what factors would drive the sale. They did stack up vegetables before a weekend though. They were only cautious about shrinkage in high priced vegetable items. Based on this Information Analysis, I made the following basic hypotheses: i) There is a specific basket of vegetables which governs F&V sales in stores. ii) Exotic vegetables would behave differently in consumption as compared to normal vegetables. iii) There is a “Day of the Week” effect on sales of vegetables as well. iv) Price fluctuation affects vegetables sales. v) Availability of vegetables is crucial for sustaining buying patterns. The basic idea behind these hypotheses was to come up with common consumption patterns, which would yield some factors that effect sales. Finally, data analysis actually gave me the basket of vegetables which governed consumer consumption. Regression models and simple calculations helped me come up with the crucial list of vegetables that governed everyday consumption. It also proved that buyers preferred Saturday and Sunday to buy vegetables. Exotic vegetables showed more price elasticity when availability patterns remained constant. Fluctuation in prices always did not show negative or proportional elasticity in sales. Availability in vegetables governed sales and proved to be a crucial factor. The determination of all these results helped us create a basic form of the forecasting or sales function. I Sales is a strong function of availability and footfall, both of which are a function of establishment time. Data also suggests that price does not affect sales much. Data also revealed that some vegetables were constantly a part of basket of vegetables and hence their availability was absolutely crucial to sales. Currently, ‘Foodworld’ does not use a forecasting function which uses all the variables mentioned above. I suggest that it redefines it sales and forecasting functions accordingly.