Out-of-stock (OOS) is a regular phenomenon for grocery shoppers. The percentages of grocery items that are OOS vary between 5% in The Netherlands and 8% in the USA. An OOS can be very frustrating for shoppers, especially if the purchase is needed urgently and the alternatives offered are not seen as acceptable. In that case a retailer actually ‘forces’ consumers to postpone their purchase or to visit a competing supermarket. In the latter case the sales loss may be bigger than the category loss alone if consumers buy some other products in the competing store as well. In addition, managers of retail companies believe that supermarkets with a structurally high level of OOS will loose many customers in the long run. Therefore OOS may have a short term as well as long term impact on a retailer’s financial performance. The resulting gross margin losses for retailers resulting from OOS are estimated to lie between $7 and $12 billion per year in the United States.

To overcome OOS-problems, some efficient consumer response projects have focused on developing methods to improve the supply chain. Although some projects have showed encouraging decreases of OOS levels, substantial decreases of OOS levels in practice are rare. Moreover, the extension of assortments in supermarkets combined with inflexible shelf space will stimulate OOS levels. Hence, OOS seems to be of permanent concern for retailers. Therefore, retailers need additional insights into the effects of OOS on consumer behavior. Retailers will be particularly interested in which types of OOS situations lead to high levels of store switching, postponement, or a cancellation of purchases, because these types of OOS reactions will lead to a sales (and margin) loss for retailers. Another important issue for retailers pertains to the product groups and brands for which OOS occurrences result in substantial sales losses.

For brand manufacturers, OOS is an important topic as well. Obviously, high OOS levels for a specific brand or item may lead to losses in brand sales and (possibly) decreased brand loyalty. Further, retailer and manufacturer objectives regarding OOS management are often not aligned. For example, if a specific brand is OOS and the potential buyers for this brand decide to switch brands, the pain for the retailer is minimal. Yet it is very harmful for the brand manufacturer who looses consumers wanting to buy its brand! Thus, as well as for retailers as manufacturers it is important to know how consumers react to OOS and what type of variables are related to OOS behavior of consumers. Therefore, we executed a study that aims to explain consumer OOS-reactions.

In our study we investigate consumer reactions towards a hypothetical OOS situation. We asked consumers directly after they purchased grocery items what they probably would have done if a specific item (they just bought) would have been OOS. The research was limited to eight product groups: four product groups with a strong hedonic nature (cigarettes, cola, beer and salty snacks) and four product groups with a strong utilitarian nature (milk, margarine, detergent and toilet paper). The study was executed in the Netherlands. In line with other studies we find that “Brand Switch” (34%) is the most common reaction, followed by “Postponement” (23%), “Buying another item of the same brand” (19%) and “Store Switch” (19%). These figures confirm our remarks that OOS is harmful for retailers as well as for manufacturers. So, lowering OOS should be concerned as a mutual responsibility for retailers and manufacturers.

In our explanatory model we find four distinct antecedents for OOS reactions. 1) product and brand related; 2) store related; 3) situation related and 4) consumer related. We specifically focus on the effect of brand equity and the hedonic level of the product group. In general, we find that the product and brand related variables are the most important antecedents of consumer OOS reactions. From our main variables ‘brand equity’ negatively affects brand switch, while it positively affects store switch and item switch. The hedonic level of a product positively affects store switch. We also find that brand equity has a stronger positive effect on item switch in hedonic categories, probably because high-equity brands provide more items in these categories. For high-equity brands in hedonic categories it also holds that consumers are less inclined to postpone or cancel the purchase. We also find a number of effects of variables, such as number of brands in the category, impulse buying, availability of alternative stores, and part of the week.

Based on our results, we propose simple managerial framework for priority setting regarding decreasing OOS. In general OOS for high equity brands (often the market leader brands) and OOS occurrences in hedonic product groups are most harmful for retailers. OOS situations for these items should be minimized. For manufacturers it is important to know that brand equity ‘preserves’ the brand (partially) from loosing sales in OOS situations. Or, to refer to a famous statement of the former CEO of HJ Heinz Company, A.J. O’Reilly: “My acid test on the issue of brand loyalty is whether a housewife intending to buy Heinz Tomato Ketchup in a store, finding it to be out-of-stock, will walk out of the door to buy it elsewhere or switch to an alternative product or brand.” Further, we believe that OOS reactions of consumers might be indicative for reactions of consumers in the case of a permanent delisting of a brand. In that way, brand equity may be an important marketing weapon to protect loss of shelf space if retailers decide to rationalize assortments.