Assortment and Shelf Space Planning

As we elaborate in Chap. 3, one of the core strategic decisions grocery retailers must take involves determining their assortment and allocating it to the shelves. Retailers need to match consumer demand with shelf supply by balancing variety (number of products) and shelf service levels (number of items of a product). Offering broader assortments thus limits the appropriate service levels and vice versa, as shelf space is scarce. Retailers and producers try to satisfy consumers’ needs with the right merchandise at the right store at the right time. However, the continually increasing number of consumer goods is in conflict with the fixed and scarce resource of shelf space. Consequently, retailers need to make same-time decisions on which products to offer (“listing”), and how much space to allocate for each product (“facing”). A shelf management model needs to balance supply and demand effects, as firstly listing decisions affect possible demand substitutions from delisted to listed items. Secondly, facing decisions as space allocation impact the space-dependent demand and the frequency of refill operations. However, current space allocation models mainly focus on demand modified by space effects, whereas substitution models mainly cover out-of-assortment or out-of-stock effects, but do not consider space effects and the additional effort required for refilling depleted shelf inventory between two basic replenishment periods.