The Branded Pantry

CG companies are struggling with the prospects of having line items, entire brands (and in some cases entire companies) delisted from the shelf lineup at the “BIGS.” The “BIGS” are the large retailers such as Safeway, Kroger, Wal-Mart, Walgreen, 7-Eleven, Target and others.  These retailers have been the engine of growth for CG companies for over 20 years.  The retailers, following each other and now being followed by mid-tier players are all pursuing at least a two prong strategy to bolster profits and build a stronger bond with their target customer segment.  Prong one is the systematic reduction of entire national brands or sizes/flavors of national brands in order to reduce stocking and inventory costs.  Prong two is the introduction of a stronger lineup of Private Label items. 

CG companies will lose sales on the items and brands “rationalized” out of the lineup.  Profitability on items that remain on the shelf will be challenged as the CG companies are being asked to spend more of their ad & promotion dollars supporting those remaining items.  Interestingly the items that will no longer greet consumer on the shelves of the BIGS all have assets, the most important of which are brand equity, roughly translated into consumer interest and loyalty.  Manufacturers who own these brands/items now have decisions to either harvesting them or to build a strategy to thrive, without the “BIGS.” 

Life is possible, and can be quite good the “BIGS.”  There are tens of thousands of items and thousands of brands that have never been distributed, at least broadly, through the “BIGS.”   One such product is SPARKLE. Sparkle was born in WWII as a military formula for reliably cleaning B29 Gun Sights.  After the war it was produced and sold by a paper company, A.J. Funk throughout select channels nationally and more broadly in certain geographies.   Over the years Sparkle was sold by a direct sales group coupled with brokers and distributors.  It gained distribution primarily in grocery stores.  It used the usual promotion and advertising vehicles including radio, print and some local TV.   

As more and more retail consolidation occurred, it became evident that Sparkle needed to find distribution independent of the traditional grocery channels.  Sparkle feared delisting due to limited geographic distribution.  It was also tougher to fund promotions profitably in a market dominated by national brands with much deeper pockets.  In one sense Sparkle was very much caught between a rock and a hard place.  It was a product with some unique glass and plastic cleaning characteristics, but was used most often for cleaning windows and in that regard, was unremarkable vs. the national brands.   Dick Lane came to Sparkle from Jewel to head up sales.  He moved into the President slot after a few years.  He put his very considerable skills to the task of laying out a strategy that would see less dependency on traditional, more competitive markets while developing a path to increased consumer brand recognition and appreciation.   

Dick recognized early on, the appeal of home centers as an alternate shopping choice for Midwest staple needs, particularly general merchandise and cleaning products.  There are some strong local and rural retail brands in the home center space and Sparkle worked hard at becoming a featured brand in those outlets with key seasonal promotions.   He also moved the brand, and high end companion products onto the consumer direct web store years before most brands even began to think about that channel.   

Leveraging the unique streakless-smearless cleaning characteristics of Sparkle, particularly on sensitive surfaces, was the next target.  Sparkle re-sized the product and packaged it with accessories for the professional the academic and the scientist.  Reaching those audiences with a focused message, focused media and focused distribution put Sparkle on the map, and more importantly in the supply cabinet of this new niche group. The native “green” status of Sparkle’s formula was the next brand focal point; with a line extension brought out to accentuate that status, again well ahead of the trend.  

These moves have not just kept the brand in consumers pantry’s but increased year over year sales consistently, with the latest quarter ahead by 30% vs. year ago.   Life after the “BIGS?”  Heck yes, and then some.  According to Dick, who has worked with Panther Mountain for years, “to stay ahead, you need to re-invent your brand every day.”

On January 17, 1952 Save Mart Supermarkets opened its first store in Modesto California.  58 years later it is estimated to generate $5.2 billion dollars from its 244 stores and 28,000 employees.   They are ranked as the 28^th largest Supermarket retailer/wholesaler in the U.S./Canada in 2009.  

Yesterday the Wall Street Journal reported that for the first time, Wal-Mart saw the majority of its US sales 51%, comeing from groceries.   This hallmark statistic for the country’s number one grocery seller,  is made all the more impressive by the fact that two decades or so ago the retailer was not much of a factor at all in this category.  

That 51% is up from 49% last year.  Based on the $258.2 billion in annual sales generated in the U.S. Wal-Mart’s one year gain in grocery sales was $5.2 billion, the equivalent of the annual volume of the entire Save Mart Supermarket Chain.  

The article continues to claim that Wal-Marts “aggressive push in food and other consumables is paying off.”  Ya think?  That year over year growth rate of 4% is 4X the population growth.  Despite the widely discussed traffic challenges (which appear to stem more from shopper interruptions from a very large number of fleet remodels than anything else), more consumers are choosing to purchase more of their grocery items from this retailer.  

The complex formula for becoming and staying a successful, large merchant of groceries has changed dynamically over the last 2-3 years.  Those participating in that leadership, the risk takers, benefit. 

Bloomberg seized some movement by the world’s largest retailer to add back some SKU’s pared in year old Win-Place-Show program as a sign that the pendulum was swinging back from SKU rationalization.  They quote one head-hunter as indicating that manufacturer’s are stepping up efforts to staff now that they have a seat back at the Bentonville table.  I can hear the cheers from a half dozen CPG sales executives as they hope this will reverse the SKU-Rat programs not only at Wal-Mart, but at Safeway, Kroger, Walgreens, Supervalu and even 7-eleven.   

Logistics Viewpoint’s Adrian Gonzalez gives a little more guarded view in his March 11 post quoting the retailer’s COO Bill Simon.  Mr. Simon acknowledged at the BOA Merrill Lynch Conference that they were adding back some items to avoid disappointing some consumers.  He indicated that these were anticipated course corrections and that the real reason for Wal-Mart’s traffic declines in the fourth quarter, were much more connected to the severity of shopper disruption from the Project Impact remodels which started in ’09 and will not be complete until 2014.  Major remodels on 15-19% of the fleet each year is bound to have some impact on traffic.  

All of that cheering reported earlier might well end with Morgan Stanley’s Mark Wiltamuth announcing on the 19^th that the world’s largest retailer will dramatically increase grocery promotions over the next six weeks.  He called it a “major setback for U.S. grocers.  Shares of grocers stocks reacted immediately, dropping about 2% in aggregate. 

Wiltamuth indicated this action was built to address Wal-Mart’s traffic slippage in the fourth quarter.  The pricing will affect 10,000 items primarily Grocery, and it will hit stores by April 1 supported by strong media.  This should impact the Easter traffic.     

The SKU-Rat programs are not going away, for any of the players.  In Wal-Mart’s case this is simply one leg of a much bigger plan which has been unfolding in bits and pieces for a couple of years.  This promotion focus over the next six weeks will hammer back at the competition which will have a tough time affording to follow along.   

This is just another example of a lead player willing to lead radical change in the shape of retail.  As Drucker tells us: “to be sure change is painful and risky and above all it requires a great deal of very hard work.  In a period of rapid structural change the only ones who survive are the change leaders.  A goodly proportion of those attempting to make the future will surely not succeed.  But predictably, no one else will.”

A very interesting newsletter, http://www.shelfsnap.com/newsletters/Volume15.htm examining the differences between how shelves look in the store, vs. the plan  for those shelves.

Much has been written (perhaps most succinctly by CPGmatters.com http://www.cpgmatters.com/ProductTrends0310.html#anchor_140) about CPG’s move back into E-tailing.    A number of the articles focus on P&G’s initial “build their own” strategy.  Other articles focus on new platforms such as Alice.com which has attracted participation from 29 manufacturers.  

Almost all of the articles give a lengthy review of past forays into E-Tailing by CPG companies (almost always mentioning Webvan and other spectacular failures).  Many talk about the new efforts “getting it right.” 

Truth be known, CPG has been sold effectively through E-tail since 1989.  And while some efforts failed spectacularly others have quietly, done very nicely and have continued to grow significantly for years and years.   

Online CPG-retail much like many other categories, has shown year over year results that have consistently well out-paced same store physical sales.  Most of this has been on the backs of online sales channels offered by traditional grocers such as ShopRite, Harris Teeter, and Delhaize more through specialized online services such as MywebGrocer.  Other CPG sales have moved through straight E Tail services such as Netgrocer, Amazon, MyBrands, FreshDirect and Alice.com, as well as hybrid services such as Peapod. 

A great deal of innovation continues to flow from these services, so while the recent entries may well lead to some new ideas….there are other, very significant motivators for CPG firms to reengage in direct to consumer channels.  Three connected motivators spring to mind:

1.     The absolute number of outlets which could sell or at least stock the manufacturer’s items has been falling for years, but that decline has accelerated mightily during this downturn. (http://brandedpantry.com/2010/02/28/200000-1/ )

2.  .  Clean stores and SKU rationalization have eliminated sizes, flavors and entire brands from store shelves in the biggest food, drug, mass and even C-store chains.  A brand, size, or flavor eliminated in one retailer, is unlikely to be found worthy or continued space in another. The items left on shelf are being squeezed for pricing and for ad-support making them less and less profitable.

3.  .  Fewer outlets, fewer products and brands on-shelf, more of the ad budget in the hands of the remaining retailers….this all translates into control.  Most importantly this translates into the conscious shift in control of the consumer interface to those remaining large retailers. 

CPG companies know there is no hope in replacing the short term volume lost in the continuing SKU rationalization efforts and in ongoing store closures by simply offering an online shopping opportunity.  They are hoping to maintain or establish a more direct tie to their consumers.  Most I have talked to aren’t sure what they want to communicate to those consumers, since sending buyers into stores which no longer carry the advertised product is a recipe for disappointment.    

Perhaps these new efforts by the CPG companies to get online, might well sit down with the MyWebGrocers, the Peapods, the MyBrands and the FreshDirects of the world and see what has worked and what has not, as a good starting point for new efforts.  

There is little doubt a broader innovation, beyond simply connecting via a website and mobile coupons will emerge.  Little doubt at all. 

The trade papers are riddled with announcements from manufacturers about their new product intentions.  Unilever, Procter and Gamble, Pepsico, Nestle, Kraft and many others have announced their intentions to introduce products into a myriad of categories over the next three months.  New product activity which largely took a hiatus in troubled 2009 is back with a vengeance.  Every manufacturer we have talked with is hoping that they won’t need to pare their line down to make way for the new items.

How will these new products fare when many key retailers have significant SKU rationalization programs underway?  Coupled with retail efforts to broaden private label brands, how new introductions will fare is anybody’s guess.   Oh, that’s right, with ShelfSnap you no longer have to guess. Here is how two recent launches are faring.   ShelfSnap and our Canadian field partner, ForeKnowledge, analyzed two 4^th quarter launches made by two top food manufacturers.

New Item Introduction 1

The first product introduced two new flavors into an existing snack category product.

•  Eighty percent assortment distribution was achieved across the top Canadian grocery banners.

• During the introductory period 20% of the shopper base was not exposed to the product at their primary store locations.

Positioning of the product (facings, shelves, proximity) were literally all over the category. 

Here is an example of placement in three stores across one chain.   New Product Placement and Facings

Same Chain - 3 Stores

• Overall, this new brand achieved a 59% assortment distribution.
• SKU Assortment achieved for the brand ranged from 47-65% across the various retailers.
• In retailers authorizing the new brand, the new items only achieved distribution in 81% of the stores.
• In authorizing stores 76-80% of items in stores that had agreed to list the items.
• Regardless of whether the chain has yet approved listing, 40% of all shoppers will have to work very hard to find this item.  It is not available in their primary stores.

So, as this crush of new products is working its way onto the store shelves, what are YOUR objectives?

·   

1. What percent of the stores should handle these items?
2. What are your assortment objectives?
3. How many facings of each item are you hoping for?
4. Do you have a specific shelf you are targeting?
5. What would you like the new item merchandising next to?
6. What items are you targeting for delisting?
7. What existing items must not be sacrificed for these new items?
8. If a new, competitive item is launching, how will your items be affected?

At this time of any year we would be starting to come out of the malaise that affects most of us from our end of year holidays and we would be starting to execute the plans we put into place during the planning-budgeting cycle from last year.  Those plans were probably based on a management perspective that included continued bad economic conditions and news.  They no doubt reflected a “hunker down”, conservative fiscal philosophy that had the impact of putting a moratorium on hiring and on investing in new products, services or change-outs of any sort.  In short, this translated into “let’s do the same with less…and keep our heads down.” 

Peter Drucker would ask us not to yield to the temptation to “just get on with it”.  He would recommend that we step back and recognize that “virtually no program or activity will perform effectively for a long time without modification and redesign.”  Business professionals “are likely to respond to the failure of a program, process or program by doubling the efforts invested in it.”    “First class resources, especially those scarce resources of human strength need to be pulled out immediately from operations that have ceased to be productive and put to work on the opportunities of tomorrow.”    

We talked recently with a company where the ShelfSnap service had uncovered assortment voids ranging from 10% to almost 30% of the plan for that manufacturer…with facing-shorts much more significant than that in a major account.  They were “hoping” that their recently purchased information program consisting of some new DSR tools and some Task Management reporting systems would take care of the problem.  Those tools had already been deployed in the account where ShelfSnap had found the significant deviations from plan.  In other words, their new information system might have yielded other benefits but it was not helping them in dealing with their compliance issues.  Dealing with those issues would yield between 8 and 20% volume increases.  

I have spent a good bit of space over the last two years writing about what I believe to be a fact, and that is that there are no silver bullet applications available to solve the front-to-back inefficiencies in the CPG and Retail compliance arena.   It doesn’t matter if we are talking about best of class “point” solutions or about the end to end solution suites.  They all promise to conquer compliance issues through some sort of exotic modeling based on POS movement combined with deliveries, or labor based self management task systems.

We have proven over this last year that the most amazing point and end-to-end solutions do generate great results in many areas in the supply chain.  They do not however result in better in-store compliance and we have proven that by looking at the significant deviations from plan in new product introductions, displays and POG resets across the largest retailers in the land.  Check any of our prior newsletters at where we document many of these studies. http://www.shelfsnap.com/news-events.php. 

ShelfSnap was developed to fill the last remaining gap in the in-store intelligence continuum. We are NOT a silver bullet.  We are a link…a link that was largely missing prior to now. Others have begun to see us in the same light. 

ARCweb’s Logistics Viewpoints is a thought provoking authority on all things supply chain.  Their premier analyst, Steve Banker, recently reached out to ShelfSnap and very quickly understood our key role in the demand chain.  Inference based estimates about store conditions have been in place for years and have changed nothing of consequence in the condition of products on-shelf, or on display. 

According to Steve,

“I see the ShelfSnap solution as providing a practical way for manufacturers and retailers to use planogram data for shelf-level collaboration, or for retailers themselves to have more effective task management at the store. I also see it as improving the alerts generated by existing DSR solutions.” 

ShelfSnap couldn’t agree more.    Please read the entire article at: 

http://logisticsviewpoints.com/2009/12/17/filling-a-void-in-shelf-level-collaboration/. Or give us a once over at ShelfSnap.com.  

The CPG Industry appears, once again, to be focused on in store execution and compliance.  Mantras like the In-Store Implementation Network’s Plan-Do-Measure can be heard by numerous groups.  Some experts opine that measuring and managing at the store level is the best way increase sales dollars.  Others seem to think actually understanding issues at the store level is too large a task to undertake and it remains on the “too hard” pile.   

We thought it appropriate time to chat with an Industry Icon who is as responsible for modern day category and space management as any other industry figure, Ted Gladson.  Ted has roamed stores for five decades and has witnessed many changes over the years, playing an important part in many of the positive changes.

Service - One Store at  Time

Armed with a glassine sheet, a grease pen, a Polaroid camera and a vivid imagination, Ted helped pioneer the process known today as Space Management.  One store at a time, Ted walked into pharmacies all across America.  First, he took a Polaroid image of the shelf to memorialize what the store had in place.  Then he sat down with a calculator and sales reports to lay out the retailer’s shelf based on what he thought the customer would view as a logical and easy-to-shop pattern.  Ted gave preference in both shelf position and facings to the brands and items most popular with those consumers.  When he was done perfecting his new shelf design, Ted would reset the section for the owner and then he took another picture to capture the desired set . . . in order to publish it to his sales force.   Ted employed his skill for perfecting product placement and created shelfsets designed to improve the customer’s purchase experience and increase the retailer’s revenue - one store at a time.After years of proving the very substantial ROI that both retailers and manufacturer could achieve from these practices, Ted left the corporate world to found Gladson Interactive.  Ted would run Gladson from 1971 until he sold the firm in late 2005.

Industry Leader and Icon

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