The Profits in the Detail
Where are we?
We are going back to the 1990’s in the way the grocery trade is structured. Back then the major retailers had around 50% of the market. Savvy industry commentators
are expecting this to be the place they end up, with all that ensues in the way brands will need to restructure their sales approach. If you want growth you will need to talk to more retailers and more buyers, who are all demanding more money than last year – often in the certain knowledge they will deliver less
Brands are also going back that far with shoppers as the number of stores they shop in is increasing up to nearly 4 a month. The brand destined for success needs to be visible in as many as possible. Back then shoppers were coming from a background of shopping in local butchers, green grocers and bakers. Now it is more likely to be for other types of meal or larder fill.
Effective distribution (working for your core shoppers) must come right at the top of your agenda, as must targeted messaging – reaching your core shoppers on the way to, or as they, shop. Targeting these will improve brand growth, the effectiveness of marketing investment AND your profile with the majors, all at a significant ROI in the year you invest.
Is price really the big issue?
Right pricing is the approach brands need to take, for the multiple they are negotiating with, since most people shop for convenience. Retailers need discounting to boost the image of their stores. Brands need to find the best way to profit from the footfall generated by all this noise.
The neglected loyalist can be reached in other ways than discounting, so a growth strategy needs to be developed by retailer that builds loyal shoppers for your brand. That objective will not be reached by discounting. The key value for discounting is volume, and building alongside retailer plans. So investing where you get the best value discount ROI is vital.
However, the Lidl/Aldi small store/restricted range format has bags of room for becoming local to many more people, as does the Waitrose/Booths end of the market. And don’t forget Amazon with their millions of existing customers, and Ocado with a now-profitable model with much more scope for growth and range extension than the Tesco store based supply.
All this adds up to more choice for shoppers, and a greater need for retailer differentiation. The Workshop looks at what this might be.
We can confidently expect that the majors, with their me-too strategies, will remain under pressure for some years to come.
What are the measures that brands and retailers need to focus on?
(Ideally these illustrations are drawn from a brands own data – illustrations we offer free contact
- To identify new benchmarks for success with their retail partners and within the company to get long term change. Two only are vital – stock cover and locating core shopper areas, and the stores in them. These two measures help driving hundreds of thousands of pounds value (millions for big brands)
- To identify the most profitable investment outside of discounting to gain growth. This requires investing in parallel in all distribution channels (including food services and online) in core areas
- To have a measure to evaluate the ROI from their discount activity – and be able to target better the next activity they undertake.
1. Benchmarking for success
Do you know where your core stores are? They are the stores that really overperform for their size, and allocated shelf space. They are also the ones that struggle to keep their shoppers happy when demand ramps up.
What typifies them?
They sell more from the same space as their similar sized colleagues
They are much more likely to run out of stock at critical times
Core measure 1
Stock cover (what you get when you divide weekly stock with weekly sales.)
Stock cover is a mirror of sales success/shopper demand. However sales success will be limited if stock cover drops below a level at which an individual store can keep shelves full. You need to learn by product, the stock cover each product needs, and at that point you can see exactly which stores need to give you more space, and which really need central negotiation. Like this brand.
The Y axis is average sales y store. The X axis is distribution (how many stores are you in). By and large the high stock cover is the brands with lower sales. Retailers do not range by anticipated demand, but by store size. Brand space is allocated by retailers based on their perception of your brand strength.
They often get this wrong. The grey blobs are own brands – and you can see that typically they perform less well, and have greater stock cover than the brands.
Yes, and these core stores also have the potential to respond really well promotionally – see this profile which is for thousands of products. They need more stock to be able to succeed. On the other hand the standard allocation leads to poor stores having excess stock simple because they don’t sell it.
Core measure 2
Coreness – how well does it perform vs similar sized average stores. Core stores cluster together as core people cluster together, and you can stick pins into them on a map.
Core stores will always have the least stock cover, the greatest risk of being out of stock and a disproportionate share of your business. There are clients much more skewed than this. Your core stores can become category drivers for your retailers.
Core stores are core simply because they have a much higher percentage of the right kind of people in their catchment area. This means they could be situated regionally (As this brand was) or geo-demographically, such as along the South Coast where older, better off people might buy you.
One more thing – perhaps obvious – but core stores are much more sensitive to promotion offers whether money, or other appeals. The average core store across many thousands of products can give you a 10 times uplift, while non-core delivers 2. Most stores fall under the heading of average or poor stores. Core stores are a much higher percentage of your business the moment you incentivise their shoppers.
So you can identify a core store either by poor stock cover or higher sales.
ILLUSTRATION AND DISCUSSION
Tesco have now expressed their stock objective in stock turn terms. ie 4 days stock out of 7 on the now expanded shelves (stock cover .44) knowing what you know – will this meet the needs of their shoppers for all brands. Will increased availability overcome additional variety.
Core Stores have the potential to do much better than the average, and you can identify them because they are struggling
If you advertise they are the stores that will deliver you the uplift OR they will irritate your existing customers simply because the new users empty the shelves
DISCUSSION Asda have removed any and all store specific ability to support local demand. How much do you feel that this has contributed to their faster than average rate of decline for your brands. They no longer respond to reasonable requests for demand related allocations.
Is their supply chain actually fit for purpose? What can be done to overcome this barrier?
2. What are the most profitable investments outside price to gain growth?
Step 1 Satisfy your existing customers
Identify the level of stock cover that does not result in out of stocks – and the brands that need the help, and where. Use these insights to drive both immediate action and central negotiation.
Retailers are very poor at managing your brand. Make sure you get at least what they offer you, and target more relevant products in core stores. Click on details to regain £680,000 per annum from stores that should sell – but don’t. (see the variability in stores selling in the chart above).
You can support them in a variety of ways that do not include field visits. Here simple additional central allocations will deliver £680,000 additional annual sales.
Going for Growth
Understand that any good shopper marketing investment into core areas will deliver great returns.
On pack promotions bring in new core users, that discounts don’t. If you want to build, discounts won’t do it.
Click here for shopper marketing ROI that you can gain if you understand supply and demand targeting >> Case Studies
What about new products?
Mintel data shows the number of new food launches fell 33.6% year on year [12 months to June 2015], an acceleration of a three-year trend that saw food NPD fall 18.7% in 2014, and 10.7% in 2013. The last time food launches grew was in 2012. On top of this the market for brand innovation is shrinking fast as discounters take increasing shares of the market, and the major retailers shrink in proportion.
New products have to work fast or they will be dumped fast. We believe you will need to add promotions to build new core users. Check out the Case Studies to see example uplifts and ROI.
Step 4 Allocating your current budget
Strategically, you may want to allocate more investment overall to core areas, and to supply chain initiatives with the majors to build stock, in particular promotionally.
Different retailers will give you different ROI from investment in discounting. This can all be measured, as can any other directed activity, to identify best practice.