GROCERY INNOVATION // week 4
Precision assortment equals more profit
This series will be published Thursday’s and will review trends, tips and technology to optimize grocery planning. To sign up for series updates – CLICK HERE»
If you precisely target the amount of choices you offer per product, reduce overstocks and markdowns, and ensure that your assortment meets and does not exceed the needs of each of your stores, you will ultimately reduce wastage and increase sales.
“Retailers find they sell a lot more of nearly everything by reducing the number of brands on offer; but figuring out what should stay and what should go can be a tricky business.”
In an intriguing study on the impact of reducing product choices, Wal-Mart found that in many cases less is more. Marina Strauss, Retailing Reporter for The Globe and Mail tells the story of one such product Wal-Mart targeted:
Several months ago Wal-Mart
Canada Corp. decided to overhaul one of the staples of its grocery business – the peanut butter aisle.
It dropped two of its five lines of peanut butter to free up scarce shelf space for cinnamon spreads. But the decision didn’t cost the retailer a single jar in sales. With fewer selections to browse, customers wound up purchasing more than before.
“Folks can get overwhelmed with too much variety,” said Duncan Mac Naughton, chief merchandising officer at Wal-Mart in Mississauga. “With too many choices, they actually don’t buy.”
Many retailers are now reducing the amount of choice on their shelves in order to simplify their offerings. The recession has changed consumer behaviors and encouraged retailers to focus on top sellers and private labels.
Strauss reports that by focusing product lines, retailers can trim costs, reduce consumer confusion, and ultimately boost sales. Reducing the number of products can help companies increase sales by as much as 40% while cutting costs by between 10 and 35%, according to a 2007 study by consultant Bain & Co.
Rationalizing an assortment is difficult. Retailers need to have a keen sense of product performance in order to pick the right products. According to this Globe and Mail report, “Evidence suggests that reducing the number of products on the shelf can improve the overall shopping experience. The average shopper takes just 2.5 seconds looking for an item and notices only half the products on a shelf,” according to research by Procter & Gamble Co., the consumer products giant.
Optimizing sizes and rationalizing products:
In order for retailers to target the right range of products on their shelf, they need an acute awareness of product behavior. There are dozens of product behaviors unique to every store. As well, product behaviors can be unique to customer segments. In order to analyze these behaviors, retailers should look at the performance of package size, brand, value, locality, and flavor as well as things like price points, life cycle, overstocks, under-stocks, amount of markdown, etc. What do these metrics tell you about your assortment of products? How do those metrics change across your stores? How do these products support your customer segmentation and brand strategies? Which stores have similar product behavior? What attributes do those products have in common? How often are you discounting those products?
One of the best ways to analyze these behaviors is to look at the profitability of each product at every location. Do not cut your assortment across your chain, but look at the unique selling patterns at each store to determine what products will sell to their unique customer base. This is a complex exercise, but one that needs to be done on a continuous basis. Your customer’s buying patterns will change – and it is necessary to acknowledge they have already drastically changed.
Consumers Adopting New Behavior to Save on Food
So what are the consumer behaviors that are affecting your sales? The Food Marketing Institute reported the following changes in grocery shopping trends:
Shoppers are economizing when it comes to food purchases. There are three stages of consumer behavior that have changed:
- Stage One: Shoppers save money on eating out by switching from fine dining to fast food. They also seek supermarket meal solutions and prepared foods in place of restaurant fare.
- Stage Two: Consumers change their saving measures in the store by buying more private brands, using coupons, buying basic ingredients, focusing on full meal deals, and shopping with a plan.
- Stage Three: Shoppers switch store formats and choose venues with focused or limited assortments, including superstores, warehouse clubs, and private label food services.
A majority of consumers (69%) surveyed in the study say they are eating out less. An additional 50% said they are eating out at less expensive places. All point to a significant shift in the expectations that consumers have for service and assortment from their food and grocery retailers.
The survey also showed that when deciding how to save money on their grocery bill, consumers are making plans before heading to the supermarket resulting in fewer impulse purchases. In fact, 53% say they make a shopping list, 40% search newspaper or advertising inserts, and 35% responded that they look for coupons in the mail, newspapers, and magazines.
Private Label Brands Should Become a Priority in Product Assortment Targeting Efforts
The FMI found that the effort to save money continues once shoppers are in the store. The report stated that the popularity of private brands has significantly grown, with 97% of shoppers saying they plan to purchase the same amount of private brands or more over the next year.
The following chart from the FMI report, shows consumer responses on private labels:
The shift of focus to private label brands is a logical choice for retailers. The following diagram from the FMI shows how consumers rank their product choices. Today, price is the most important factor in their buying decision followed by quality. When private labels succeed, it shows that customers are more interested in the product than the brand itself. This has caused retailers to stretch the reach of their private label brands, leveraging the appearance and placement of store-brand products.
FMI reports that some retailers are conducting in-store comparison tests to measure shoppers’ preference for store brands versus national brand alternatives. Words associated with private products in the minds of consumers include “quality,” “value,” “cheaper,” and “inexpensive.”
“Shoppers view private brands as a value-added offering in tough economic times.” - FMI
Technology to assist in product rationalization and give insight into product performance
In the complex task of SKU rationalization, planners and buyers need the assistance of smart technology that can give visibility to the performance of every product at every store. This kind of technology can quickly pay for itself as it optimizes your offering, reduces inventory, and increases sales.
What to look for in assortment planning and SKU rationalization technology:
- A system that continuously monitors business strategies, customer strategies, profitability, service levels, and stock levels
- Technology that utilizes the data it takes in to recommend the most profitable assortment for each store, across time
- The ability to optimize SKU rationalization by recommending like-product attributes for new products
- The ability to take in real-time data and automatically recommend inventory need based on local consumer behavior and store performance
When retailers optimize their product range based on local store demand, stock outs, and customer behavior, they will quickly become more profitable and able to compete in today’s retail market.
Get back in the game
Are you ready to know exactly what your customers are asking for at every location and to have the ability to react as their wants change? If you are looking for a solution that can drive momentum for your business this year, check out the solutions offered by Quantum Retail.
Our customers see valuable results in 8 to 12 weeks and our customer engagement approach gives your team access to the solution from early on, so you can manage changes to your processes with ease. Quantum Retail continues to help all of its clients rapidly drive measurable and significant business value through our proven merchandising optimization solutions.
Get resources on how to adapt to today’s retail market HERE»
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There are a variety of demand signals that need to be monitored on a local level, these signals include: the time of day activity occurs, local events, sports schedules, weather, seasonality, social trends and local buying habits. To add to this already complex problem, this must be done at a SKU/store level, in real-time to optimize profit from perishables. Grocers are one of the only retailers who have a legitimate need to plan inventory by the hour in order to avoid situations of ‘scarcity and abundance’.
Because the majority of non-perishables are shelf stable with long code dates, the time-phased element to the demand, delivery, and sale is related to carrying cost, customer service levels and the cost of money invested. The majority of allocation/distribution projects tend to focus on determining how much inventory to push to a given store. Theoretically these items can remain in the store until someone buys them or until they are marked down as part of a clearance initiative.
Grocers and food retailers now need a new approach to forecasting, SKU rationalization, assortment planning and order planning. Retailers who can meet the specific needs of their customers at a local level will become much more successful.
To place inventory in the most efficient and profitable way, merchants can define product objectives, like minimum credible display and service levels, which should be used to decide each inventory placement decision. This enables retailers to make sure every product is in their assortment for a reason.
The days of paper coupons may be even shorter than we thought if supermarket chain A&P’s mobile phone text-coupon program is any indication of a new trend to save shoppers money.
