Impact of On Shelf Availability on Profitability of Super Markets in Karachi

Research Paper (postgraduate), 2014

35 Pages


Table of Contents

Chapter One: Introduction
1.1 Overview
1.2 Background
1.3 Statement of Problem
1.4 Objectives
1.5 Purpose of the Study
1.6 Research Questions
1.7 Methodology
1.8 Significance of study
1.9 Delimitations
1.10 Operational Definitions of key terms
1.10.1 Supply Chain
1.10.2 Logistics
1.10.3 Out of Stock (OOS)
1.10.4 Replenishment
1.10.5 National Brands
1.10.6 Private Brands

Chapter Two: Literature Review
2.1 Background
2.2 Supplier
2.2.1 Case Pack Size
2.2.2 DSD
2.3 Merchandising Coverage
2.4 Retailer
2.5 Forecasting and ordering
2.6 Store Size
2.7 Number of facings
2.8 Backroom
2.9 Shelf Maintenance
2.10 Price Promotion
2.11 Time
2.11.1 Day of Week
2.12 Product Placement
2.13 Inventory Management

Chapter Three: Methodology
3.1 Research Approaches
3.2 Sample Design and Procedure
3.3 Sampling Technique
3.4 Instrument Formulation
3.5 Variables
3.6 Hypothesis
3.7 Data collection method
3.8 Data Collection technique
3.9 Time line

Chapter Four: Data Analysis
4.0 Data Finding

Chapter Five: Conclusion and Recommendations
5.1 Conclusion
5.2 Recommendation
5.3 Future Agenda

6.0 References


Chapter One: Introduction

1.1 Overview

Our objective of research is to figure out the factors which retailers take into consideration before allotting shelf space to national and private brands. Here its impact on profit and sales will also be analyzed.

By conducting our research we collected data via interviews and questionnaires and by analyzing them their results tell that building of image and shelf space for private brand are the key factors for retailer’s decision whereas bargaining power is not a key factor. For a retailer a shelf space is important in the same way shelf space is important to manufacturers of national brands. So as to sell out national brand manufacturer needs shelf space as well, so he has to pay a premium amount to get the shelf space.

Five factors which increase financial performance of store for a retailer are location of product category, Location of fixture, off shelf display, location of items in category and point of sales material (F.Buttle, 1984). Build up method and sales productivity methods are the most frequently used technique for shelf space allocation (F.Buttle, 1984).

This chapter includes background; define the problem, purpose of the study, methodology, and significance of the study, delimitations and operational definition of key terms. Room given to different products in a shelf is known as shelf space. For a retailer it is a precious asset. However it is a very challenging task for retailer to assign proper shelf spaces for products. Assigning proper spaces for products is directly related to the profits of retailers. They assign more space to those products which generate more revenues and profits to them. Purpose of this study is to find out issues which more or less influence the retailer’s shelf space decision to national & private brands. For this purpose various retailers in Karachi city are selected. Retailers are taken as respondents. In retail business shelf space is considered to be a big issue, as it is considered an essential tool to appeal consumers. Retailers handle the shelf space very wisely so as they increase customer satisfaction level and as well as build promising strong supplier relationships. As the competition has increased with the passage of time, a serious issue of placing products in shelves is becoming critical. Retailers sell national as well as private brands (Zaccour, 2008). Private brands are being allocated more shelf space, while manufacturer also wants the appropriate shelf space as well. If retailer fails to give a proper space to national brands as well so it gives a negative image, due to the reason that national brands are more known by the customers and if they do not find one at the concerned place they build a perception that retailer is of low quality. Important industry of Pakistan is the retail industry; the portion of retailers is growing everyday which shows a good percentage is contributing to GDP.

1.2 Background

In these days maintaining sales volume is a major success because as soon the sales go down the business enters loss state and thus decreasing customer loyalty (Trautrims et al, 2009). Consumers are smarter these days: they are more informed, have more knowledge about the product, ask more queries and demand better service which provides a new challenge for retailers who are trying to hold down the costs (Gruen et al, 2002). ‘Item for consumption’ is defined as On Shelf Availability in the store when a buyer order comes (Chopra and Meindl 2007, 77). The shelf of a store can be considered as the most important asset in the supply chain: 70 percent of purchase decisions are made at Point of Sale (ICTSNewfieldTech BV 2011.). Shelf is the place where the customer meets the product, its packaging, advertising, the brand and the product (ICTS NewfieldTech BV 2011.) Customer patience for Out of Stock items is decreasing these days (Gruen et al, 2002), which may threat retailers by losing sales (Trautrims et al, 2009). According to a study (Corsten and Gruen (2003) identified five main responses when a store faces Out of Stock Situation:

- Replace same brand with a different size
- Replace the brand
- Postpone Purchase
- Visit a different store
- Don’t make a purchase

Every response from a consumer has a different cost for the retailer or manufacturer with potential of seriously hurting them (Corsten and Gruen (2003).

To identify the root causes of OSA, the Progressive Grocer (1968) addressed supply side issues linked with OSA. The Coca Cola Research Council made a report in 1996 which identified various causes leading to out of stock items. Following the study Gruen, Corsten, and Bhardawaj (2002), produced the most comprehensive analysis which defined the causes leading to Out of Stock Items at that time (Aastrup and Kotzab, 2009). Their study outlined three general processes which defines major causes of Out of Stock

- Ordering Practices
- Replenishment Practices
- Planning Practices

According to several studies, store level issues carry the most of the weight responsibility in Out of Stock Situations (Coca Cola Research Council, 1996; Corsten and Gruen, 2003; ECR Europe 2003). Corsten and Gruen (2002) stated that minimizing the out of stock problems would require process changes at store, supply chain and store level.

1.3 Statement of Problem

In every organization profit maximization plays a major role. Pakistan is a developing country and is working towards the progress of business. In the Pakistani market as soon the inventory reduces there isn’t sufficient supply available at backhand side to preserve robust level of On Shelf Availability. The period for replenishment has to be decreased with improved deliveries. By using advertisement’s consumer gets to know how the product is important for him (Abideen&Saleem (2011)).

Some of problems are:

- Miscommunication
- Delays in refilling

1.4 Objectives

Our objectives of research are

- To find out products availability on shelves whether the product is available on shelf when customer comes at the counter.
- To learn ways how companies are utilizing On Shelf Availability in Karachi because in other countries they use several techniques for on shelf availability.
- To look into profit maximization due to efficiency and responsiveness, to see in which instant profit maximizes due to on shelf availability.
- To find out the use of technology in replenishing because as many supermarket are using technique for replenishment.

1.5 Purpose of the Study

The study is based on;

- Increase/Optimized accessibility on layer for retailer.
Should educate or work with the retail partners to drive shelf replenishment. Working on point-of-sale data to identify where is out of stock or zero sales incidents and how we can act in-store to fix these issues.
- Increase in customer satisfaction and profitability.
As customer satisfaction increases, the profitability also increases. Which is very important and the bottom line also affected by its Cost, its Marketing Strategy and its Productivity.
- Availability of regular and promotional products both.

1.6 Research Questions

Q: To find the Impact of OSA system on profitability of super market in Karachi?

1.7 Methodology

The study we are conducting is quantitative in nature and because of short time period for the research we have used cross sectional study. The study plan includes primary statistics,figures,data collection through filling out the questionnaire; this will help us in quantifying that data gathered. For collecting the secondary data we took help from online journals, library, books and published articles etc.

For the study the sample size is forty five which will be done using convenience sampling technique. Two weeks’ time would be required to collect the date. The statistical toolwhich will be used is Z-test for testing the hypothesis.

1.8 Significance of study

Brands/Products which are advertised more are most expected to be retailed off because they grabs the attention of the customers, these parts are known to be eye catchy area as they grab attention easily (Abideen&Saleem (2011)). This research will help supermarket management to explore what are some of the factors due to which they faces out of stock issue and the problems because of which this happens and by taking which measures will reduce or totally eliminate this issue.

1.9 Delimitations

As the study will be conducted in super markets of Karachi market only we would only be analyzing the situation and problems occurring in Karachi’s super markets in form of On Shelf Availability which might be different from the rest of Pakistan’s super markets condition.

All the research hypotheses and questionnaires will be evaluated by interpreting the results we gathered from Karachi’s market only. We are only studying the super market’s not the retailer shop issues which they faces at the time of out of stock. On the other hand we are restricted to certain time limit, financial resources, and sample size.

1.10 Operational Definitions of key terms

1.10.1 Supply Chain

Supply Chain is defined by Chopra and Meindl as a link where all parties are involved in fulfilling the customer request. It includes manufacturers, suppliers, transporters, warehouses, retailers and customers themselves.

1.10.2 Logistics

Well-organized utilization of transport from point of source and point of intake in order to meet consumer requirements. It can include information flow, production, inventory, transportation, warehousing.

1.10.3 Out of Stock (OOS)

It is described as an event in which inventory gets exhausted.

1.10.4 Replenishment

To fulfill or refill the stock again by adding a new supply

1.10.5 National Brands

National Brands are the brands which are distributed nationallly under specific brand name by the producer or distributor as opposite to private label brands and local brands.

For example Tapal, Habib and Shan

1.10.6 Private Brands

Private brands are those products which are sold by a Super Store under a single marketing identity. They bear a similarity to the concept of house brands and are sold only within that particular Super market.

For example Imtiaz’s Poonam Rice, Poonam, Flour, Poonam Pulses

Chapter Two: Literature Review

This will explain the on shelf availability insights, its major issues concerning different areas. Serving items on retail shelves lies at core of supply chain, by stocking too many items in shelves gives more cost, while stocking too less means risking stock outs (Sloot et al., 2005; Zentes et al., 2007). Out of stocks has a bad impact on brand manufactures and retailers, directly relating to consumer satisfaction and sales, profit, brand loyalty (Campo et al., 2000, 2003; Fitzsimons, 2000). Stock outs cause lost in sales, they make consumers move out diminish store loyalty and jeopardize marketing expenses (e.g. Marketing Online, 2004; EMFI, 2008).More the shelf space allotted to brands, more the market share, “share of shelf = share of market”(Norm Borin, n.d.) Manufacturer has to rely on retailer for shelf space due to the introduction of PL(Natalia Rubio, 2008). Profitability and PL market share an inverse relationship, due to the reason that limited resources are available to manufacturer and in those he has to establish terms of trade with retailer. If manufacturer fails to meet the requirements and needs of retailer then retailer in turns assign less space to NB. This in turn results assigning more space to PL, and it contributes to a big market share from NB (Wilcox, 1998). When compared to national brands space elasticity is more for PL. A negative connection has been investigated between market share and space elasticity (Curhan, 1972).

Shelf displays, featuring and price promotion increases sales of a brand in the store. From the mentioned three activities price promotion has more impact on store sales then shelf displays and featuring (Kumar and Leone, 1988). National brands are brought due to out sore promotion and consumers buy PL due to instorepromotion(Ailawadi, Neslin et al., 2001). The impact of shelf space does not only affect retailers profit but also manufacturer’s profit, so that’s why manufacturer battles for a shelf space (Wang and Zhao, n.d.). Inventory displayed and placement of brand in shelf are the function of demand. By proper management of products in shelves retailers can increase their sales(Hwang, Choi et al., 2005). As comparing PL and national brands, national brands are found to be more rich in brand equity. Shelf space given to PLs usually rely on its quality, and quality is measured in terms of brand substitution, price positioning and brand equity(NawelAmrouche, 2007). Power of retailer increases with introduction of PL, due to the fact that trade promotions and number of brands are increasing every day but the shelf space assigned remains same (Monoca Gomez, 2007).

2.1 Background

Running out of shelves has been a major concern and numbers of tests were done to measure what impact did running out of stock had on sales (Brown and Tucker 1961, Cox 1970, Curhan 1972). Store profitability has an issue with respect to space allocation (Corstjens and Doyle (1981, 1983)). Dreze et al. (1994) did a sequence of trials in which usefulness of two shelf management was seen:


Excerpt out of 35 pages


Impact of On Shelf Availability on Profitability of Super Markets in Karachi
Shaheed Zulfikar Ali Bhutto Institute of Science & Technology  (Shaheed Zulfikar Ali Bhutto Institute of Science & Technology)
supply chain management
Catalog Number
ISBN (eBook)
ISBN (Book)
File size
582 KB
supply chain, on shelf availability, logistics, procurement, supplier, case pack, methodology, replenishment, out of stock, profits, impact, framework
Quote paper
Osama Pervez (Author)Talha Bin Zahid (Author)Wasif Sherwani (Author), 2014, Impact of On Shelf Availability on Profitability of Super Markets in Karachi, Munich, GRIN Verlag,


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