The Branded Pantry

RFIDWorld.ca  is predicting the extinction of the bar code and the end of waits in grocery cues because of new less expensive RFID tags.

A component of their aggressive prediction is the announcement of the adoption of tag equipped apparel (jeans mostly) by the world’s largest retailer.   After all whatever those big fellas want….

Another piece of the puzzle is a new technology born through a joint effort of the Suncheon National University and Rice University that can be directly printed onto a paper or plastic tags made of ink laced with carbon nanotubes.

Regardless of the promise of this new RFID development, I am a good deal more excited about the Advantage “Tunnel” Checkout introduced last week in a Hebron,  Kentucky Kroger store.    The objective of this multi-scanner, scale and image verification technology is to eliminate both the shortcomings in current self checkout systems caused by the potential of theft, but also the bottleneck caused by most current self checkout systems.

The Advantage Checkout offers significant plusses in terms of adaptability and control.  For retailers and consumers to benefit only the retailer need commit.  In the case of RFID tags, one of the biggest hurdles has always been that if not all suppliers tag their products, the RFID checkout promise will remain just that.

Mid-June and Sears announces grocery delivery through their mygofer.com site.  Initial delivery can be found in New York City and the Hamptons in Long Island.   

Pretty ironic move from a number of perspectives.  

1. Grocery has not been the strong suit of Sears or K-Mart in…well in forever.  I can remember their regular K-Mart grocery stores way back when I was a wee lad in Evansville, Indiana.   Pretty much dead last in the food chain of food chains!
2. Sears and K-mart have not had much to crow about since their combination some years back from the standpoint of innovation in merchandising or meeting consumer needs.  
3. Still, from a legacy standpoint, Sears was long dominant in the home delivery business, with demand generated by their catalogue many years ago.   They delivered everything from underwear to houses at one time or another.  
4. One of the early pioneers in web-catalogues and home delivery was Lands End, which was eventually purchased by Sears and folded into their overall web applications.  

Overall a good move.  They understand the role groceries play in the consumer’s life and the impact of having consumers tied out to them via multiple touch-points in an intimate fashion 1.5+ times per week.    However, like so many others they do not understand the key elements necessary to win consumers, and more importantly keep customers in the online grocery world.  The Mygofer.com site is simply not built to accomplish either of these goals, and the lack of fresh thinking about bringing in real expertise is uncomfortably familiar.  

They will need to do some serious rethinking to get this right.  But, the guys that do??? That will be a powerful entity.   

Few new companies in any industry last through their first 12 months, 90% fail.

Companies trying to bring new ideas into the CG and retail space are probably more challenged, than new companies in many other industries.  CG and Retail are notoriously slow to adopt, just ask venture capital companies. 

Companies born in 2008-2009 face a fate more daunting given the deepest, perhaps ugliest recession since early in the last century.

So, with a mixture of exhaustion, continued angst and abiding faith that the contribution of what we offer is going to be recognized, ShelfSnap  finds itself in month 21 of its existence.

With the exception of a stellar PR month in May (Progressive Grocer , Frozen & Dairy Buyer, Logistics Viewpoints and Supply Chain Digest) we have laid very low for the months of March, April, May and June…so far.

This period is what I like to call the “deep dollar conference” season.  It features the In-Store Summit, FMI, NACDS, as well as Nielsen’s, IRI’s and JDA’s user group meetings.   We attended none of these.   One of the reasons is that they are expensive and it is awfully hard for a small company to make a profitable payback from that investment.

The deeper reason is that we have been busy, very busy with some nice assignments from clients.   One of my partners pointed out that rather than continuing to market and continuing to focus on sales, we needed to devote our energies to delivering value to our clients.  Many new companies might be tempted to forget the need to return value for the faith these early clients put into new ideas.  Certainly, every CEO and investor is tempted sorely to chase the next customer.

Still, knowing that your company has delivered value, delivered important information that has never before been available and that the information delivered has generate changes that significantly improve results, is important to the company and to the people who devote every waking hour to trying to build that company.

I thank my stars for the folks who have contributed so much to the building of ShelfSnap.   We have a long way to go.  This is my fourth startup and new companies always strive for survival before they can build for success.  And we still face a tough recession; recovery seems to be more clearly evident in the District than in the aisles of the grocery store.    And we still are trying to bring new measures to an industry famous for its plodding adoption.

So tomorrow we continue the process of delivering value, and begin to step up our efforts to build that value into additional business.

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.”

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. 

You are the CEO.  Ten years ago a competitor emerged creating a new distribution channel.  You eventually followed that competitor into the channel, but not until they had claimed a very substantial chunk of business…a chunk that continues to nibble at your market share.

Now that competitor has opened yet one more channel.   Industry pundits discount the competitor’s self reported  

progress for the new channel, claiming that the product lines delivered through this new format are not full price product and therefore might not represent true impact.  Still, the delivery method has grown from 10% of sales in March of 2009 to 60% of sales in January 2010.  From whom do you take your advice?

Peter Drucker “the most important work fo the executive is to identify change that is already happening.  The challenge is to exploit these changes and to use them as opportunities.  Far too few businesses are willing to slough off yesterday and as a result have too few resources available for tomorrow. ”

The product line in question here are books, the statistics Amazon’s percentage of sales on books “kindle ready”.  The trend is real, rapid and irreversible.  The game is afoot, has been for some time.  Traditional book sellers have already lost with Borders reporting holiday sales off 14% from year ago.   Next year the book source brands people will be talking about for the holidays will be Apple, Google and of course Amazon.   Borders may well be a division of B&N and most probably there will be more empty retail space to add to the over 200,000 retail doors that have closed since the beginning of this downturn. 

I bought two Kindles for Christmas ‘08.  One for my very tech savvy eldest, who travels extensively and reads voriciously.  One for my tech-aphobe wife whose relaxation depends on books.  One week after my daughter left from her Christmas break and went back to work in Texas, my wife still had her head buried in the Kindle and had “improved” the design by adding a battery powered reading light.  The game was clearly well underway at that point. 

What change that has already happened am I failing to exploit?  What game is already afoot, in which I am not engaged?

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?