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Stock answers

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GoSeigen
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Stock answers

#427990

Postby GoSeigen » July 16th, 2021, 8:42 am

Quick DAK about retail business: if a well-run family supermarket held £1m of stock (at sale value) what would its daily turnover be? Or to put it another way how many days' stock does a well-run supermarket hold?

GS

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Re: Stock answers

#428084

Postby GoSeigen » July 16th, 2021, 1:28 pm

Found an expert to ask and for the record, he reckons about two months' stock is usual; credit terms are typically 30 days.


GS

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Re: Stock answers

#428163

Postby genou » July 16th, 2021, 5:31 pm

GoSeigen wrote:Found an expert to ask and for the record, he reckons about two months' stock is usual; credit terms are typically 30 days.


GS


Not to keep this running if you are happy ( other than to satisfy my piqued curiosity ) , but that sounds bizarre. The portion of turnover that is food and FMCG surely can't allow 2 months stock by any metric that I can think of.

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Re: Stock answers

#428167

Postby Dod101 » July 16th, 2021, 5:54 pm

genou wrote:
GoSeigen wrote:Found an expert to ask and for the record, he reckons about two months' stock is usual; credit terms are typically 30 days.


GS


Not to keep this running if you are happy ( other than to satisfy my piqued curiosity ) , but that sounds bizarre. The portion of turnover that is food and FMCG surely can't allow 2 months stock by any metric that I can think of.


Yes. I was trying to work out the logic of the answer as well. I suppose the question is how much of a supermarket's stock is perishable and how much is in cans, dry goods and so on. If you visualise a typical Tesco for instance, a whole lot of the stock at least on the shelves is non perishable for 6 months or more? Cans seem to have at least a twelve month date on them.

Two months when I think about it is perfectly possible, in fact quite efficient I would have thought. The proportion of perishable goods is probably quite low.

Dod

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Re: Stock answers

#428170

Postby dealtn » July 16th, 2021, 6:02 pm

Dod101 wrote:
genou wrote:
GoSeigen wrote:Found an expert to ask and for the record, he reckons about two months' stock is usual; credit terms are typically 30 days.


GS


Not to keep this running if you are happy ( other than to satisfy my piqued curiosity ) , but that sounds bizarre. The portion of turnover that is food and FMCG surely can't allow 2 months stock by any metric that I can think of.


Yes. I was trying to work out the logic of the answer as well. I suppose the question is how much of a supermarket's stock is perishable and how much is in cans, dry goods and so on. If you visualise a typical Tesco for instance, a whole lot of the stock at least on the shelves is non perishable for 6 months or more? Cans seem to have at least a twelve month date on them.

Two months when I think about it is perfectly possible, in fact quite efficient I would have thought. The proportion of perishable goods is probably quite low.

Dod


You think a supermarket would have tins out the back for 6 months? I would reckon on about a week for most lines. Why would you have that much working capital tied up in stock. Margins are tiny at supermarkets as it is. You would want the customer storing the goods in their cupboards not on your shelves surely.

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Re: Stock answers

#428173

Postby genou » July 16th, 2021, 6:20 pm

dealtn wrote:You think a supermarket would have tins out the back for 6 months?


My understanding is that, absent Christmas, what you see on the shelves is pretty much what what there is, with some buffer for fresh goods on JIT delivery. Clearly the perishables turn over more-or-less daily. There's a short(?) step up for cereals / biscuits / oils / vinegars what have you . But I still struggle with the idea that the dwell time for toothpaste / deodorant / haricot beans allows for two months. It's too much working capital.

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Re: Stock answers

#428174

Postby 9873210 » July 16th, 2021, 6:24 pm

dealtn wrote:You think a supermarket would have tins out the back for 6 months? I would reckon on about a week for most lines. Why would you have that much working capital tied up in stock. Margins are tiny at supermarkets as it is. You would want the customer storing the goods in their cupboards not on your shelves surely.

Food production is seasonal, at least to some extent. If you want canned beans in March somebody, somewhere had to store them since August.

As you say the storage could be at the farmer, cannery, or consumer* rather than the supermarket. International trade will also reduce but not eliminate the need for storage. However, in my experience in the material handling industry, warehouse management and distribution is a core competency of supermarket chains. So they might want to store the goods in their own warehouse because they are good at it, and it's the cheapest way for them to stock the shelves in March.

* If you want the consumer to store seasonal goods there should be a seasonal price differences. I have not detected seasonal prices for canned goods.

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Re: Stock answers

#428175

Postby dealtn » July 16th, 2021, 6:25 pm

genou wrote:
dealtn wrote:You think a supermarket would have tins out the back for 6 months?


My understanding is that, absent Christmas, what you see on the shelves is pretty much what what there is, with some buffer for fresh goods on JIT delivery. Clearly the perishables turn over more-or-less daily. There's a short(?) step up for cereals / biscuits / oils / vinegars what have you . But I still struggle with the idea that the dwell time for toothpaste / deodorant / haricot beans allows for two months. It's too much working capital.


Exactly. I ran a shop (very briefly at university to a captured student audience). Very rare anything stayed on the shelves as long as a term - basically my mistakes! How similar that was to a well run family supermarket I can't say precisely, but likely close enough. Even without perishable food turnover would have been less than a month.

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Re: Stock answers

#428176

Postby dealtn » July 16th, 2021, 6:29 pm

9873210 wrote:
dealtn wrote:You think a supermarket would have tins out the back for 6 months? I would reckon on about a week for most lines. Why would you have that much working capital tied up in stock. Margins are tiny at supermarkets as it is. You would want the customer storing the goods in their cupboards not on your shelves surely.

Food production is seasonal, at least to some extent. If you want canned beans in March somebody, somewhere had to store them since August.

As you say the storage could be at the farmer, cannery, or consumer* rather than the supermarket. International trade will also reduce but not eliminate the need for storage. However, in my experience in the material handling industry, warehouse management and distribution is a core competency of supermarket chains. So they might want to store the goods in their own warehouse because they are good at it, and it's the cheapest way for them to stock the shelves in March.

* If you want the consumer to store seasonal goods there should be a seasonal price differences. I have not detected seasonal prices for canned goods.


Agreed a warehouse, rather than on the shelves, or out the back, is much more likely. This is DAK and the question was about a well run family supermarket with £1m of stock. This isn't a large supermarket chain with a warehouse management and distribution competency. They suppliers and distributors and "cash and carry" are effectively having that role subcontracted to them.

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Re: Stock answers

#428177

Postby Mike4 » July 16th, 2021, 6:52 pm

I'd suggest the number of days' stock a given supermarket holds varies enormously according to the stock line, so it's an impossible question to answer unless this is a hypothetical question posed in, say, an accountancy exam.

The supermarket will inevitably hold fewer days-worth of stock of highly perishable lines like fresh trout with non perishable low turnover items like fire lighters, to compare extremes.

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Re: Stock answers

#428179

Postby AF62 » July 16th, 2021, 7:06 pm

The issue is the question refers to a 'family supermarket' which is probably vastly different to the large chains.

Certainly for fresh items some of the chain supermarkets seem to be trying to significantly reduce the stock they hold in store. Go into my local Waitrose at 7pm and there will be damn all on the chilled shelves to buy, despite them being open for several more hours - and it isn't out the back waiting to be put out, but on the delivery for the next day.

Whereas I can't believe that a 'family supermarket' would operate in the same way with stock deliveries for every fresh item every day.

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Re: Stock answers

#428186

Postby Mike4 » July 16th, 2021, 7:23 pm

AF62 wrote:The issue is the question refers to a 'family supermarket' which is probably vastly different to the large chains.

Certainly for fresh items some of the chain supermarkets seem to be trying to significantly reduce the stock they hold in store. Go into my local Waitrose at 7pm and there will be damn all on the chilled shelves to buy, despite them being open for several more hours - and it isn't out the back waiting to be put out, but on the delivery for the next day.

Whereas I can't believe that a 'family supermarket' would operate in the same way with stock deliveries for every fresh item every day.


I think they do. The village here has two general stores and one seems to have an enormous 20 tonne rigid delivery truck parked outside and partly blocking the road for at least an hour every day. I think it has the name of a distribution company on the side, something like "Booker".

The other I think uses a cash and carry, the guvnor's large estate car is often parked outside, back open, being unloaded. Probably because that road is too small for the monster lorry!

Edit to add, I think it is this firm's lorry https://www.booker.co.uk/

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Re: Stock answers

#428195

Postby 9873210 » July 16th, 2021, 7:57 pm

dealtn wrote:This is DAK and the question was about a well run family supermarket with £1m of stock. This isn't a large supermarket chain with a warehouse management and distribution competency. They suppliers and distributors and "cash and carry" are effectively having that role subcontracted to them.


Now I'm curious. Does such a store exist? By my numbers supermarket chains* have 96% of the grocer market and about 17% of stores. The remaining grocery stores are on average quite small, and would have far less inventory. Corner stores rather than supermarkets.

* This includes the co-op, which is an corner case. However co-op members own the central distribution system, so I think they actually have capitol tied up in the warehouses.

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Re: Stock answers

#428197

Postby Dod101 » July 16th, 2021, 8:18 pm

GoSeigen wrote:Found an expert to ask and for the record, he reckons about two months' stock is usual; credit terms are typically 30 days.


GS


I was simply trying to justify the comment here. Obviously it could be more or less.

Dod

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Re: Stock answers

#428297

Postby GoSeigen » July 17th, 2021, 2:26 pm

Interesting comments on this thread -- thank you.

The question was prompted by a supermarket owner I know mentioning their stock value which was not £1m -- that was just a round number in the same ball park, the actual figure a bit lower than that. I thought the stock figure was quite high given my knowledge of the shop and when I questioned them they said some of the stock was things like cigarettes, gift cards, prepaid phone vouchers, household utensils etc so high value and not perishable. Then when I heard the 60-day estimate I thought that was high too, but I guess it is reasonable given that some items ARE low turnover but may be high margin or low risk:margin so you would not want to run out of them if a customer came in seeking a few of the same item (sales lumpy). I imagine a small family supermarket has far more difficulty with lumpy purchases because of the business's limited size. You might have to hold a wider range than you wish because people occasionally want to by odd things and expect them to be in the same shop as their milk, bread and cigs.

My overall impression was that running a small supermarket is a lot of work for not much profit and one would want a few of them to achieve economies to make it really worthwhile. Huge listed chains are a different matter -- they already have the scale to achieve all sorts of economies, can cross-sell and can increase turnover to leverage their fixed costs.

GS


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