For Retail World Magazine

In the first article, Margie discussed how Business Regeneration differs from improving your everyday operations, the types of areas Business Regeneration considers, and the need for diagnosis and a regular ‘health checkup’.

Here we’re going to further this theme with an outline of the symptoms of a business in or approaching crisis, to help you diagnose where your business is, and which areas might need ‘curing’.

Divining signals using all six senses, not just financials

In interpreting signals that the business model has failed or is under intense pressure to survive, the obvious place to start is with financial statements, or amongst the market data you collect.

However, a true investigation requires the use of your six senses to spot the symptoms, so we’re going to outline analysis from a number of angles.

That said, we’re going to start with financials anyway.

Financial Lens

1. Start with the macro view
Review current performance against the competitive set.  This can quickly indicate areas where the business model may be working well or highlight area of risk of failure. Key indicators include:
* Total Sales $ (scale advantage)
* Organic Growth % (wining with the consumer)
* Total Growth % (tapping the sources of growth effectively)
* Gross margin % (effective buying and efficient operations)
* Earnings % (sustainable overheads and marketing investments)
* Cash $ (funds for the future)
* Sales : Total Assets (asset utilisation)
* Sales : Employee (workforce productivity)
* Sales : Equity (financial leverage)

Sources of industry comparisons include web searches (eg www.ibisworld.com.au,  http://biz.yahoo.com/ic, ), Brokers Reports, Industry Groups.

2. What’s the trend, and is it your friend?
It is critical to look beyond a one year view and understand the business trajectory over a multi-year timeframe (say 4-6 years):
* Does Sales Growth oscillate between strong growth and stagnation (perhaps the impact of trade loading?)
* Are Margins on a steady decline or is recent performance an outlier?
* Is the sudden improvement in cash delivery sustainable or has the business turned off the tap on business regeneration activities?

People now understand the power of compounding interest on their superannuation (or at least that was the theory prior to the GFC!).  This same logic applies to businesses.  Over a five year period, a business’ performance can increase many-fold simply by delivering something as small as a 1% annual improvement in each of growth, cost reduction and asset utilisation.

3. The  Cash Crunch
The proximate cause of business failure is running out of cash.  But the signs should appear in the financial reports in the lead-up to this event:
* Declining cash flows (absolute $ or as a % of sales)
* Increase in accounts receivables – income recognised but cash not recouped. This may indicate the business taking on customers with increasing risk in order to stay afloat in the hope they don’t go bust. If this strategy is unsuccessful it will lead to higher risk of delinquency
* Decline in the ability to quickly service short term liabilities.  A useful measure is the Quick Ratio which is calculated as (Cash + Marketable Securities + Accounts Receivable)/Current Liabilities. The relationship with the bank is important here and sometimes businesses have not invested in those relationships whilst times were good. The bank can be your best friend and very valuable in times of need, as long as they truly understand you have a good strategy and business model
* Increase in Current Liabilities due to lengthening payment of suppliers. Whilst you want to increase you current liabilities and hold on to your cash, you need to ensure that the business does so without damaging relationships or the viability of suppliers
* A poor or worsening debt rating. Check reference agency watchlists for this.

4. Adverse Selection, aka Doing the Wrong Stuff
A common trap that can befall a business is the attraction of the wrong customers or delivery of the wrong products or services.  A common cause of this phenomenon is the conscious sacrificing of margin in the hope that the business can make it up on increased volume or by up-trading over the long run.  Sometimes the introduction of a product or service leads to the business incurring costs to service customers that were not envisaged.

Reviewing sub-segment margins can identify this business model failure.  Are there particular geographies, customers, or products that are experiencing a performance decline? Or is sub-segment performance constant, with business mix the cause of the decline?

5. The Egg Cup Game
Contrary to the popular belief that accountants are boring and lack any creativity, the Financial Statements provide many opportunities to show discretion.  Application of this discretion can be difficult to identify even with very detailed accounting standards and guidelines that have evolved over many years, but taking a multi-year view makes the task a little easier.

Take the example of accruals and provisions on the profit and loss.  Businesses use accruals and provisions to recognise estimated expenses or future liabilities they know have been, or expect with some certainty to be, incurred in relation to the operations of the business but for which they have not yet been invoiced or there is not a clear final calculation of the cost. A significant change in the way these items are reflected in the profit and loss or balance sheet could indicate a business scrambling to avoid delivering bad news or hiding the true performance of the business.

A review of the financial statement notes should identify if there are any changes in accounting policies such as revenue recognition, depreciation rates and off-balance sheet debt.

6. Sabotaging the Future
As a business starts to feel the impact of a failing model, it pulls the easiest levers it can first.  Typically these levers relate to areas where the pay-offs are more ambiguous and longer term.  Whilst this is appropriate to meet various short-term goals, the failure to invest in these longer term areas will compromise the organisation’s capabilities:
* You slash Marketing and advertising budgets on a continuous basis
* Sustained investment in fixed assets lower than depreciation (follow up with visual inspections of the assets … are they run-down/tired?) Ian McLeod, the Coles chief, recognised this recently in an article in BRW (May 14) and Coles have now made significant investment in their checkouts and scanning technology
* Your innovation pipeline is empty, and you’re not sure where your future growth will come from
* You pull money out of staff development and training to shore up the immediate term, leading to higher staff turnover in the medium term.

Market Lens

Look at your business vs similar businesses in the sector. Have similar businesses in your industry fallen over recently? What happened to them – what can you avoid? Is the industry highly sensitive to economic cycles – do businesses fall over at regular and repeated intervals?
7. Customer Failure
One of the key indications of a failed business model, is the failure to convert or retain customers.  Depending on the category and your access to data, there are a range of metrics that could indicate a failure with your customer base:
* decreasing share of shelf
* increasing trade spend % of sales
* falling market share
* customer repurchase rate declines
* declining customer satisfaction
* falling size of sales ($/order, $/unit, $/kg)
* increasing finished goods inventories
* increasing returns/write-offs.

Look, Listen, Touch, Taste and Smell
In conjunction with a review of financial or market data, you should use all your experience and judgement to help you spot those lurking inconsistencies or issues.

Whilst there is a lot to find in the data that you can look at sitting at your desk, there are a lot of other inputs you can only get from getting out and talking to people within the business (sales, customer service, non manager level) and working closely with customers and suppliers.

8. “People are your most important asset”
A business cannot operate without people, and a motivated workforce has been shown to be an enabler to superior business performance.  Whilst a review of staff turnover levels or conducting employee “engagement” or satisfaction surveys can provide a measure of science, there is no substitute to looking and listening to the staff in their work environment.  Do they appear happy and involved in their tasks? Do they take pride in their work? Are customer facing staff providing the appropriate level of service?

9. Compromising Safety
Far from being a cost impost, an uncompromising stance on quality and safety will ensure that the company is there for the long haul.  Walk around the office, the warehouse, the factory, and the store with a critical perspective:
* Are there clearly visible signs of procedures and processes in place
* Is the equipment protected to eliminate serious injuries
* Are there shortcomings in the design of the area / equipment
* Is hygiene an issue (particularly in Food / Chemical businesses)
* Are there any intriguing odours
* Is there a safety and Quality Assurance officer?

10. “No Bad News” Culture
Perhaps the hardest obstacle to overcome is an organisational culture that is unwilling to recognise its shortcomings and deal with the situation that presents itself.  Some of the tell-tale signs of this culture could include:
* Unanticipated results (management unwilling to communicate until it is too late)
* Managers fired for poor business results (the messenger gets shot – who wants to be the bearer of bad news?)
* Change in accounting policy.

In Summary

The above questions will help you determine where your business sits in the STARS model Margie discussed:  are you in Start-Up, Turnaround, Realignment or Sustaining Success?

Now you’ve done your diagnosis, what needs curing?

Next time: Putting your ladder against the right wall – Getting your core proposition right. In the meantime, we welcome feedback from you. Email us at enquiries@sh-opportunity.com.au

“All the world’s a stage!” Except for mainstream retail in Australia, which is singularly boring compared to its counterpart in the UK and Europe.

Shoppers are being entertained, engaged and inspired by larger-than-life in store theming, creative merchandising and display. And whilst it’s Harrods that inevitably takes the cake for most magnificent in-store theatre, there were still massive wall murals in Marks & Spencer, interactive TV screens in Sainsbury’s and large lightbox displays in Boots and Superdrug.

We’ll look at grocery / mass and pharmacy in particular next time around, but for today, let us feast our eyes on the shopper experience in UK department stores Harrods and Harvey Nichols.

Food Glorious Food !

Harrods Food Halls are internationally acclaimed – for good reason. Check out the market fresh presentation using baskets, mirrors, good lighting and extra plants weaving in and out of the displays for added fresh appeal.

Centre store excitement is created with large display fixtures that are not standard.  The large cart brings an old-world market fresh charm to the display.


Theatrical props: life-size fake slit pigs in the game section, fish tanks and fresh oysters being served in the seafood section

Willy Wonka-style sweets display – a children’s paradise

Liquor retailing in Harrods: category managed, organized, easy to shop, with large themed displays to add the theatre.

Here’s my favourite part. No space is wasted. Every space is used to create excitement and aspiration – every wall, lift well, escalator well, corridor – you name it. Here is are a couple of lift wells in Harrods:

And a couple of escalator wells in Harvey Nichols (very creative use of space and lighting here!):

Fashion in Harrods – complete with moving images of catwalk parades. There were larger-than-life lightbox displays everywhere, never just a boring mannequin dressed in something (manniquins were generally part of bigger lightbox displays). And again, no wall is wasted.

Magnificent retailing!

Some key take outs:

• Theatre is about big, bold, larger than life. It is not about point of sale clutter. Ultimately the retailer needs to have a broad vision. In Australia, as long as retailers are expecting suppliers to create the theatre in their categories instead of the retailer taking a larger view of the whole store, we’ll never have a true theatre.
• Theatre also supports the shopper experience by helping shoppers find what they are looking for more quickly. Those large fake slit pigs said very clearly and quickly that this is where fresh meat can be found.
• Space in stores in Australia is underutilised from a theatre perspective. When is the last time you saw a creative display in an escalator well, aspirational advertising on lift doors, lightbox displays in corridors or large-scale props hanging from the ceiling? Even Marks & Spencer had massive promotional wall murals in their grocery stores.
• Why is food shopping so boring here? Some strides are being made, with market-fresh sections in some of the new format supermarkets etc. But much more is yet to be achieved. Food can be no less exciting than fashion – we need to be making shoppers’ mouths water!

So, come on Australia, time to get on the international ‘stage!’.

#1 Coles St Agnes – Centro Mall St Agnes

Good lord, a supermarket with SERVICE. Who’d a thunk it, as the man said.

Those who’ve been to our retail training sessions on Point of Purchase drivers (RSVP3) would be aware that we generally refer to Staff Persuasion as a driver reserved for channels outside of grocery … well, not any more.

The first thing that hits you about Coles St Agnes store – aside from the stonking great fresh area that’s 1/3 of the store footprint and the means through which you enter the open plan store – is the number of staff stocking shelves (on average 2 staff per aisle) and actively assisting shoppers with choices and enquiries.

Like other new format Coles stores, the St Agnes stores has all its (low profile) chillers grouped behind the fresh area and in front of Deli, Butcher, Seafood and Bakery (which ring the perimeter of the store).

I was peering at the chilled seafood case, looking for white anchovies among the pickled herrings, when approached by a friendly staff member asking what I was looking for and could they help.  They weren’t able to answer my question around ranging of white anchovies specifically so they escorted me to the deli supervisor, who enquired as to the application of the anchovies – ‘Do they need to be white? Because other types of anchovy fillets we range are equally good in salads and as garnishes’.  Alas I wasn’t making a salad, I just wanted marinated white anchovies as an antipasto, and they didn’t range them. However, the deli supervisor made a note of this.

So although they weren’t able to help me on this occasion, the effort was certainly noted.  Only when I reached the checkout with some other items in the basket did I see the large overhead sign ‘Looking for something? We’ll take you to it, no excuses’. Nice to see a store walking the talk.  Oh, and the checkout staff were chatty and friendly too. (Maybe being from Sydney I’m just not used to that).

What’s new vs other Coles trial stores:
* Certainly the service element. Be interested to see if they can keep it up
* The Food to Go area. Yay! the beginnings of where Whole Foods, Bristol Farms and Pavilions are at in the USA, and Tesco in the UK, with their takeaway lunch trade – prepacked meat and salad trays, pre-cut sandwiches and deli rolls, single serve drinks

* The Produce of SA section – two islands – promoted outside the store and the signage carried through to instore. Mostly condiments eg Maggie Beer
* The Asian and Indian foods aisle was clearly signed and not relegated to promotional aisle or in a separate part of the store
* Good clear aisle signage both at aisle ends and along the aisles. You don’t have to wander up and down aisles looking for something, it’s all visible from the aisle ends.

Things to work on:
* OK, so the low profile chillers keep the store looking clean and open. But I think they’re missing an occasion based, co-location  impulse opportunity here … why not range the relevant condiments and dressings on top of the chillers … eg the BBQ sauces etc on top of the meat chillers? This is not new news, Woolworths have ranged the crackers next to the cheese chillers for years.
* Bakery way over in the far left corner – near the frozens (which, common with Peter’s Coles Balgowlah review, are located on the opposite side of the store from the rest of the chilled foods). OK it might be a function of store footprint size –  and they’ve stuck to the mantra of major fresh departments around the perimeter – but here the effect is one of being a bit of an afterthought. And the bakery range was reasonably small.
* Overhead signs that sit above a specific category that say ‘Sugar … I’m here’ or ‘Batteries … I’m here’ with an arrow.  I think they’re meant to be directional for destination categories, but because they’re often at aisle ends you miss them … those type of signs are more visible in the middle of the aisle. I don’t think they add anything.
* Lacking in theatre … the salad bars are an improvement but not there yet. But like the WW 2010 format stores, definitely easier to shop.

Verdict:
A pleasure to shop in for destination items. The service element sets it apart from the other Coles trial stores. Not surprising to hear it’s the first SA Coles store to crack $1m per week in sales.

#2 Foodland Adelaide’s Finest Fairview Park

Now THIS is an interesting retail experiment and one we like to see. It looks like a cross between Costco, with its warehouse footprint and exposed ceiling quasi industrial feel; and Ikea from a clean, cool, modern design point of view.

Everything is black, silver and chocolate … very ‘now’ colours. The entry looks like something from an upmarket furniture store.

What’s new news:
* An instore café serving baguettes, soups, pastries you eat at either high benches or low communal tables … this part of the store was full on a Saturday morning
* A coffee service station that included biscuits, with gourmet nuts and dukkahs located right alongside
* A ‘chef’s corner’ with the in-store chef making ‘today’s recipes’ … displays of the produce used in the recipe
* Self service delicatessen digital kiosks where you plug in your order from a product menu, it produces your order and number on paper and staff then prepare and provide your order to you
* LOADS of condiments, dips and gourmet yummy things from lesser known producers and brands both SA and eastern seaboard … if you’re entertaining, come here.

Things that need work:
* The overhead produce imagery, digital signs and section wording around what are meant to be the deli, butcher and seafood areas is too emotive and from reading the signage you’re not clear what the product offer is and need to look in the produce cases themselves to figure it out. More straightforward signage wording, but maintaining the imagery, would be good.
* Ditto the Chefs Corner, the front of store coffee station and the eat-in Café … wasn’t clear what they were until you stumbled across them … need to shout out that they are there, as they are the store’s points of difference!
* The deli digital order kiosks are slightly confusing – looks like an instore product locator – a simple sign above the kiosks saying ‘Place Your Deli Order Here’ would help. Lots of people milling around the deli section waiting for their numbers to be called indicated either the order process was slow or the deli was understaffed
* The bakery in the far left corner (again!) away from everything else … would be better placed right between the coffee station and the fresh section … natural lead from coffee into baked goods
* Some basics – all the shelving and freezers are too high (7ft), reducing visibility, increasing darkness despite high exposed warehouse ceilings and bright fluoro lights, and producing the effect of too much choice and stock. A number of punters looked confused
* Aisle signage only at aisle ends … needs more aisle signage along aisles.

Verdict:
Where Coles’ new formats are evolution, there are some revolutionary elements here. Couldn’t be further from Peter’s Franklin’s St Ives “welcome to the ‘80s” experience, but the whole is currently less than the sum of the parts … some fantastic ideas just requiring some simple signage and visibility  to bring cohesion. Well worth a visit to see how they’re thinking outside the proverbial nine dots and what grocery shopping could become, if done well.

And then there’s …

BP On the Run.

For those Sydneysiders and Melburnians not familiar with it, it’s the closest thing there currently is to one-stop convenience shopping. And they’ve been in Adelaide for around 3 years now.

On The Run sites offer a combination of fuel, Subway, Brumbys Bakery, C Coffee cafe, SmokeMart, HappyWash car wash and a true mini supermarket. They’re open 24/7 and all their ‘We NEVER close’ external signage clearly underscores this.

The mini mart is not just your typical convenience softdrinks, salty snacks and confectionery offering. There are generally around 6-8 aisles, with promotional gondola ends, covering most grocery categories with a reasonable number of products per category, at reasonable prices. Not the ‘emergency occasion’ price gouging tokenism of 1-2 products per category you see in Coles Express, Caltex Starmart and the like.

Blackboard signs out front of store advertise the weekly/fortnightly specials (replicated on the gondola ends, like in supermarkets).

Whilst there’s no fresh offer here (aside from flowers) it’s certainly an alternative if you have a top up shop or destination shop for half a dozen items you’re about to run out of and can’t be bothered braving the supermarket parking and queuing. Or if you want some fresh bakery goods and a coffee to go with your Saturday morning milk and newspaper.

When can we get more of them in Sydney and Melbourne?!!

By Margaret Haseltine of  Shopportunity for Retail World Magazine

This is the first in a series of five articles about Regenerating Your Business from the team at Shopportunity. Our first article centres on what ‘Business Regeneration’ is, how it differs from improving your everyday operations, and the types of areas Business Regeneration considers.

Future articles will cover:
2.      Tell Tale Signs of a Business in Crisis
3.      Avoiding meteorites – Risk Management
4.      Putting the ladder against the right wall – getting your core proposition right
5.      How are we doing? – Scoring your business.

Rather than tweaking yesterday’s results or fighting today’s fires, Business Regeneration is about future proofing your business for long term sustainable growth.

Why Business Regeneration?

“In the past 12 months, around 8898 companies have been placed in administration, liquidation or receivership. Also a concern is the number of big brands that have collapsed, including household names such as ABC Learning, Kleins, Kleenmaid, Strathfield and Midas.”
(Reference Smart company, James Thompson,12 February 2009)

Could this be you?

What is Business regeneration?

In simple terms, Business Regeneration is about revamping your entire business.
Now is a good time to do this, as the nature and balance of economic and retail markets is changing, and old business models won’t necessarily hold up in the future.

What’s your diagnosis?

An equivalent analogy is going to the doctor for the annual health check. It’s important to have the independent opinion! None of us ever want to believe we eat and drink too much, and should exercise more!

Business is no different, as it is the same human beings leading and making decisions. We can get too close and become blinded.

Once you’ve worked out what’s wrong, or how fantastic you’re feeling – the ‘diagnostic’ – then you can decide next steps. In business this equates to what you need to do, or where you must improve, or what strategies you need to realign, to either cost reduce and/or grow your business.

What needs curing?

Recognising when change is required is probably one of the toughest decisions a leader has to make. Every successful company firstly “has”, and secondly “operates”, with a well proven business model. Recognition of when the model needs to change is the tough part, and is what Business Regeneration is all about.  Execution and ‘doing’ is then the easy part, putting the plans and measurable actions in place, and getting on with it. Figuring out what needs to change first up puts the ‘doing’ in perspective.

Don’t waste an endemic business crisis. This is the ideal time for change and taking the lead on your competitors. There is no better time than now, for action. Your staff understands the need for change, as does the entire supply chain, as they too are operating in these challenging times.

Figuring out where your business is vs where it needs to be

Inaction is not the solution, nor is an uncoordinated or disorganised approach – in these times of uncertainty this could quickly destabilise any business. Be careful not to unnecessarily scare the horses.

Many companies fail to take advantage of the opportunities presented in a crisis, or use the external environment to be the catalyst for much needed change. The best companies are using the current global financial crisis to position themselves for the future, and remain sustainable for the longer term.

All too often businesses get caught “in” the business and forget about the helicopter view “of the business”. A diagnostic or health check, coupled with the CEO leadership and clear and focussed strategic goals enable a business to put together a prioritised action plan.

Some key questions to ask yourself of your business:
1. What is the single minded purpose of your business? Why do you exist?
2. What is your unique point of difference – why will your customers buy your products or services?
3. What is your proven business model? Eg. Quality, lean, service
4. What has driven your success or failure to date? What makes it work, or detracts from improving?
5. What insures you from future risk? How sustainable is your business in the longer term? Can someone or something take you out? Eg. Ipod

Once you’re clear on your purpose, then you need to work out how you’re going. What are your exposures, your risks and your opportunities?

A simple high level tool to match the strategy to the situation is the STARS model (courtesy of Michael Watkins, The First 90 Days, page 63).

Is your business in Start-Up, Turnaround, Realignment or Sustaining success? The real test here is reality vs belief or opinion.

Once the situation is clear, there needs to be a structured process to review each function and key drivers of the business and in turn the P&L shape. Using diagnostic checklists across Finance, Human Resources, Supply chain, Sales and Marketing and in particular your growth pipeline, this will allow prioritising your focus for quick wins.

Business Regeneration helps improve performance

Through the following means:

1.Strategy
Is your strategic plan clear and focussed to keep you growing even through the tough times?
Do you understand what it will take to have a clear and competitive position and competitor strategy?

Are your objectives, goals, strategies and measures in place?

2. Business Models

In any change management program, clarity of the goals, transparent communication and demonstrating quick wins and early results is essential to staff morale and leadership confidence.

Here are some warning signs that your business model needs to change, or you need to revamp your business:
* Growth has slowed, and your costs are rising at a faster rate than growth
* Staff morale and productivity is deteriorating
* You spend your time worrying more about your what your competitors are doing than your own progress
* Cash flow is an issue
* Marketing and advertising budgets are slashed on a continuous basis
* Your innovation pipeline is empty, and you’re not sure where your future growth will come from
* The list that keeps you awake at night is growing
* Your time is spent on fire fighting and actions rather than strategy and thinking.

3. Financials – Are the results you have the ones you want?

Any diagnostic must start with the financial shape and drivers of the business:
* Making sure your cash position is sound
* Understanding whether your immediate focus is cost control or growth
* Are your sales and marketing budgets intact or slashed?
* Are you attempting to ‘save yourself rich’?
Will you regret in times to come the opportunity cost of the investments you didn’t make, because you were not sure what the real problems were, and how you should prioritise your resources?

4. New Products, Services and Markets

* Is your pipeline full, do you have enough regrowth to generate stronger growth than costs?
* Do you have a process to grow your business?
* Do you know where and who your target market is?

5. Processes and structures

Do your processes and structures match your business model, and are they fit for the future? A sustainable business is all about removing waste, and making sure everything that counts, is counted. Businesses have limited resources and energy it is important that what gets done, adds value.
End to end application is essential.

6. Culture and Communication

Change is a constant.
Is the organisation structure right? How many layers from top to bottom, is the reporting structure built for management decisiveness and clarity?

Restructuring whilst painful, at times can be the most effective tool to unblock and free an organisation. How effective is your organisation?
Is the culture one that you’re proud of, that is aligned to the strategies of your unique point of difference and your single minded business purpose. Are your staff adding value or detracting?

It is critical that in any change management strategy that the organisation and staff move with the change. To do this, open communication and transparency are essential. This will allow open discussion and engage the staff to speed the process, not become road blocks. A well thought-through communication plan, that is shared to allow feedback and input, will enable quick wins, and early successes.

7. Reporting  – The leaders’ eyes must be on the numbers and trends at all times
If it’s worth measuring it’s worth reporting.
Reporting is key to open communication, signalling the progress and the trends, to motivate an organisation in to change, or recognition of either a job well done, or one that involves commitment and all hands to the deck, to turn the results around.
Your financials are like the thermometer, guiding you on what to do next.

When the going gets tough, the tough get going

Business regeneration is about, working out what’s working, or not working, in your business. The ever painful diagnostic, that look in the mirror.

Remember the toughest decision to make is to know you need to change, and doing something about it.

With the right strategy and business model, together with the right people in the right jobs, using the right processes, with commitment and clarity of direction, the business will deliver the right rewards.

Next time: Tell Tale Signs of a Business in Crisis. In the meantime, we welcome feedback from you. Email us at enquiries@sh-opportunity.com.au

References:
Seize Advantage in a Downturn, by David Rhodes and Daniel Stelter. HBR Feb 2009
Reinventing your business model. Mark Johnson, Clayton Christensen, Henning Kagerman, HBR Dec 2008.

If the average pharmacy ranges up to 4000 skus, and they’re mostly small bottles and boxes, what’s the best way to lay it all out? Shopportunity discuss getting best return from your store ‘box’ in this latest article in the series.

From our previous few articles you’d now have an idea of how to tackle what to range and how much of it.  The next retail question is then where do you put it all in the store so it makes sense to shoppers and they can find what they are looking for easily.

This article we’re going to discuss this under the headings Space and Layout.

What is space & layout?

Space and layout pertains to how shoppers navigate a store and an individual category – how they get to what they want and how easy it is to find an individual product. We will discuss both store and category levels.

Layout includes what categories go where (“Location”), in what order (“Flow”), and what goes next to what (“Adjacencies”).

Space considers how much physical space a department, category, category segment, brand an individual sku has. Physical space is typically calculated in metres, bays, shelves, and facings.  Levels of space are represented in Figure 1.

Space and Layout  = Easy to Shop

Space, layout and navigation are important because they are direct contributors to ease of shopping and the in store experience.  In most retail channels space attributes impact a shopper’s choice of your store. Attributes such as ‘easy to shop’, ‘quick to find what I want’, and ‘well laid out’ generally figure in the top 10 reasons shoppers choose your store over another.

Your store – the retail ‘box’ – is a finite space. You need to look at what return you’re getting on that space, particularly when you’re paying high rents. The most common way to do this is measuring your space to sales – sales per square metre, and number of ‘facings’ of an individual product vs its sale rate.

The role of space to retailers is a bit like Yield in air travel. There are only so many seats on the plane, so they manage the available space for best return.

Laying out your store

Think of your store as a box if drawn from an aerial view. Most pharmacies have the dispensary at the back of the box (if you draw the door at the front). Categories in the box are like bits of Lego that you can move around and stick next to each other. By looking at it as an aerial view you can quickly see where the traffic blockages are likely to happen.

In most pharmacies, since dispensary is the destination for up to ¾ of shoppers, the question is how do you expose them to the greatest amount of product on the way to and from the dispensary?  In other words, how do you lay out the pharmacy to invite impulse purchase? In grocery, more than 80% of shoppers deviate from the shopping list (they add to it) so ideally you want them to walk every aisle … to get more likelihood of an impulse purchase.

There are also non-dispensary categories that are destination categories eg cosmetics and analgesics. For destination categories, particularly ones that are a distress purchase (such as when the shopper is in physical pain) they need to be easily found.

So you need to find the balance between exposing shoppers to products, and making it quick and easy for them for find a specific thing. There’s no point in irritating them by turning your store into a maze.

When in doubt, err on the side of straight aisles that run from the front to the back of the store so they have a clear ‘run’ to the dispensary. Don’t put aisles cross ways as by doing this you’re effectively creating a block shoppers have to go around.

A very basic store layout might look like Figure 2.

Location, Flow & Adjacencies

Where you locate each category in the store says something about it to the shopper. If it’s in a corner and doesn’t have a lot of space dedicated to it then it mustn’t be an important category. Having an entire wall of cosmetics says that you are a specialist in and destination for cosmetics. The more space a category has, the more visible it is to shoppers and the greater the likelihood of purchase. When laying out your store, think about your range and competitive positioning and ensure that the categories you want to be known for are the most prominent and easily seen.

In grocery, retailers sometimes would place a low traffic or low basket penetration category in the same aisle as a high traffic one, which is why you’ll sometimes see the stationery in the same aisle as the confectionery. The thinking is that the high traffic category is the destination so you might increase your basket penetration of the low traffic one by impulse purchase.

However, shoppers generally think in occasions and solutions and are more likely to look for the stationery where the gift cards are, for example. So retailers are gradually moving toward putting relevant categories next to each other.

Other things to consider

Contributors to perceptions and actual experience of space are aisle width and fixture heights.
Considering the majority of pharmacy shoppers are female, with a fair few mothers, you need aisles wide enough for strollers to get through without knocking everything off shelves.

High fixtures can block light and decrease perceptions of space. And shoppers can’t reach beyond 6 feet anyway. Additionally, once shoppers get to a category the shoppable area – where they look and select from – is generally between shoulder and knee height.

Lower profile fixtures (or at least fixtures with a shoppable area finishing at shoulder height and an easily visible category or segment sign on top) create the illusion of space. But there’s not much point ranging anything on shelves below knee height as shoppers won’t see it, and older shoppers aren’t going to bend down to get it. So again, you need to find a balance.

Lastly, security measures – desirable theft items shouldn’t be next to the entry unless they are behind counter and selected by staff (like bottled spirits often are in drive through bottleshops).

Laying out a category

The principles of flow and adjacencies apply within categories as well as to the whole store.

Within a category, flow relates to what category segments are next to each other, in what order. In other words, how the category is broken down.

So you need to figure out, or work with your suppliers on, how the category is broken down – from a shopper perspective (not just on manufacturing specifics).

For cold drinks this broadly looks like Soft Drinks, Water, Juice, Tea, Flavoured Milk, Energy and Sports.

For categories in pharmacy the way you break it down by category may vary. When in doubt, by product purpose is a good way to go. Some categories you might segment by condition or ailment. Other categories might segment by body part. Eg painkillers might look like head, period/menstrual pain, stomach, back.

Once you’ve broken the category down (segmented it) you need to figure out what the flow and adjacencies of the segments are. There aren’t any particular rules for this. You might cluster body parts in similar regions together, or start with head at one end and work through to feet at the other.  Keep in mind that shoppers ‘read’ a category like a newspaper – from top left to bottom right.

Most categories work best using vertical blocking  – ranging the products in a block from top to bottom (rather than horizontally across the bay). Premium lines are generally on the top shelves, value and private label brands are down the bottom and the mainstream lines are in the middle.

Figure 3 is a visual representation of this – a ‘mudmap’.

Vertical blocking doesn’t always apply though. Tall skinny products that are all only going in one bay work better in rows (think like soft drinks in a vending machine) – you need the multiple facings across ways to be able to see what the product actually is.

You also need to consider how many products there are for a given segment and whether you should group like products together, or block by brand. Normally a shopper shops by category, but for some categories there MAY be a case for brand blocking … traditionally vitamins have been brand blocked, with Blackmores the ‘beacon’ brand, mainly because it’s a very dense category (lots of different products, all only 1 sku each, all in small bottles). However that’s not to say that’s the only or best way to do it.

Allocating Proportionate Space

So now you’ve sorted out what segments are in the category, you need to look at what each segment is worth of total category sales.

The principle here is space to sales. A segment or product should have a roughly equal % of category space to the % of category volume or value it represents.  This is where the concept of Facings comes in.

Each individual unit of a product is one facing wide, because its face takes up one space. The overall shelf display is measured in terms of the number of facings per product.
The more facings a product has, the easier it is to see. Note that facings are an expression of product width. Product and shelf depth (number of products sitting behind the front facing, from the front to the back of the shelf) is an indicator of stock holding capacity.

So for example, if Neurofen White is 30% of total painkiller sales then in theory it would get 30% of the space (ie 30% of the total facings). And if painkillers are a growing category and Neurofen brand is outpacing category growth, you might give it a bit more space again.

Some operational realities apply though. If giving Neurofen White 30% of space meant that a lot of other specific painkillers would have 1 or no space facings, then you might adjust it up or down a bit.

Pharmacy is interesting for category space allocations because there are so many skus, and most are small boxes or bottles.  For small products you need multiple facings simply to be able to SEE them.

From an operational standpoint, space allocations impact on stock holding and stock turn (and refilling/merchandising requirements. Things you need to consider include:
• Layout adjustments based on category performance and segment growth trends
• Match layouts against the shelf inventories to identify any operational impacts on stock holding and days of supply – if you have a fast moving product and ‘under-face’ it you will have to restock the shelves frequently.

You need to look at your Space and Layout if …

So, you might need to do a Space and Layout analysis on your whole store or a specific category if you answer yes to one or more of the following:
1. There are navigation and traffic roadblocks in the store
2. The categories that are your major points of difference are not easily seen, not easily found or hard to get to
3. Shoppers spend a long time trying to find a specific product in a given category
4. You have shelf refilling issues where some products need refilling all the time
5. The top selling products, brands and segments in a category have changed.

So that was a bit about how to make products easy to find using space. Next issue we’ll look at how to think about how you sign your categories to make things more visible within the available space.

In the meantime, we welcome feedback on these articles – what you agree with, what you don’t – and what you’d like to hear about. Email us with feedback on enquiries@sh-opportunity.com.au

By Norrelle Goldring for Drinks Magazine

Lately I’ve been seeing a lot of commercial, substandard, wishy-washy wines on lists in pubs and restaurants, where it’s obvious the range is based on whichever supplier threw the most money to provide and produce the list.

Equally, I’ve been seeing some really interesting things starting to pop up on well-thought out lists.

This got me thinking about what to do if you’re a small establishment who wants to provide a quality wine offer to your patrons, but you don’t want to carry heaps of inventory.

How do you decide which wines to range?

The easiest way to keep your wine list tight, yet jam packed with quality, is to cherry pick wine varieties from the regions that express them best. Wines with best varietal expression from that region in theory equal best quality for the money.

Which varieties?  The obvious, must-cover bases would be:
Whites:     sauvignon blanc and pinot grigio for unwooded, chardonnay for wooded (but go easy)
Reds:     shiraz, merlot
Easy drinking/’occasion’ wines:     sparkling white, rose

The ‘should have’ varieties would include at least a couple of blends – a semillon sauvignon blanc white blend, and a red blend like a shiraz/cabernet, cabernet merlot, or gsm (grenache shiraz mourvedre). You would also range one type of aromatic white (riesling, gewurztraminer), one ‘other white varietal’ such as a semillon or a verdelho, and for the reds a pinot noir and a cabernet sauvignon.

The ‘could haves’, if you wanted to extend to that, would be lesser known varieties – interesting Italian and Spanish things like albarinos, vermentinos and verdejos, or regional specialties like Rutherglen durif or Barossa/McLaren Grenache.

Which Australian and NZ regions are the best/most known expressions of these varieties then?  For my money, these are:

WHITES
Sauvignon Blanc:   Marlborough, Adelaide Hills
Pinot Grigio:   Adelaide Hills, Mornington Peninsula, Gibbston Valley
Chardonnay:   Hawkes Bay, Yarra Valley, Eden Valley, Margaret River
Semillon:   Hunter Valley, Margaret River
Riesling:   Clare Valley, Mt Barker/Great Southern
Verdelho:   Margaret River (again!); Swan Valley, Hunter Valley, and Sth East Queensland
Sem Sauv blends:   Margaret River (signature blend)
Sparkling whites:   Tamar Valley/Tassie all the way … anything cool climate

REDS
Shiraz:   Barossa Valley, McLaren Vale
Merlot:   Yarra Valley
Pinot Noir:   Adelaide Hills, Martinborough/Wairarapa, Central Otago, Mornington Peninsula
Cabernet:   Coonawarra, Margaret River
Grenache:   Barossa Valley, McLaren Vale

This doesn’t mean your list can’t be interesting. You can range wines from emerging regions on small list, as long as the ‘best region for the variety’ rule applies. That is, you are clear on what some of the emerging or lesser known regions are known for. Eg the King Valley in Vic is known for its interesting Italian origin varieties, things like saperavi, cortese, arneis. Orange is becoming known for its cool climate sauvignon blanc. Cowra is big on chardonnay.

So the message is don’t bastardise a good list with a crappy wine unsuited to the region. What is the point of a Hunter Valley Sauvignon Blanc (all hot air and no acid or herbal characters) when there are regions that do it so much better?

Right variety from the right place wins every time.

By Shopportunity for Retail Pharmacy Magazine

Last article we talked about how you decide what things to range, taking into account your competitive strategy and shopper types, and concepts such as category weighting, segmentation, depth, and breath.

We looked at how to determine what your range should be at a total store level.

This time around let’s take this thinking one step further and look at how to make the most of your existing range within a given category, now that you’ve established what it should be.

What is Efficient Assortment?

Otherwise known as ‘Range Optimisation’ or ‘Range Rationalisation’, Efficient Assortment ‘right sizes’ your range in a given category based on the top selling products either or both of volume and value terms, and as measured against stock turn velocity and return on inventory.

Why is Efficient Assortment Important?

You might have the deepest or broadest range, or the most high margin products, but not all of it is necessarily moving or worth a lot to you.
Efficient Assortment helps you get best bang for buck from your available space for a given category, because it ensures you’re ranging the top selling and fastest moving products and minimizing space wastage on slow movers.

Which ‘level’ is Efficient Assortment performed at?

‘Efficient Assortment’ is normally performed at Category level, involving individual products and SKUs (see Fig 1). Traditionally, category segments, individual brands and unique SKUs are secondary considerations.

How it works – the 80/20 rule

You’ve heard of the 80/20 rule, otherwise known as the Pareto Principle.  Traditional Efficient Assortment uses the Pareto Principle to determine how many SKUs (individual products – stock keeping units) are worth 80% of category sales (the 80% analysis should be done for both volume and value).

Anything over the 80% line is called the ‘tail’. Anything that is in the Tail, unless it performs a unique role or is of high value, is ripe for rationalization – particularly if it duplicates the functionality of a product in the top 80%.

Below is an example Cumulative SKU graph (in both volume and value) for Category X. This kind of cumulative graph can be done very simply in an Excel spreadsheet, drawing from your sales data/point of sale system.
In Figure 2, the category is a sparse one (as opposed to dense one) because only a small number of SKUs make up the Top 80%. In this example there is a long tail.

Docking the Tail

The fastest way to shorten the tail is to ‘deduplicate’ it.
This simply means looking at the products in the tail and determining which ones have an identical function or role to their counterparts in the Top 80%.
In the Figure 2 example, though, there may not be many duplications as there are so few products making up the Top 80%.
So if they’re not duplicate products, how else can you determine what should go from the tail?

Return on Inventory

Look at what’s in the tail and what it’s worth to you – not just from a gross margin perspective on an individual item, but its stock turn rates.  You can’t bank margin – there’s no point ranging something that gives you 60% margin if you only sell one item a year unless it’s an extremely high $ value item. 60% of nothing is still nothing.
What we’re referring to here is GMROI – gross margin return on inventory. Using GMROI, a product with a lower margin but a high stock turn rate might actually be netting you more $ than a higher margin product that isn’t moving.

So in looking at the ‘tail’ in your category, have a look at the margins of the individual products versus their velocity – both hurdle rates (units per store per week) and annual stock inventory.
Products that are in the tail that are two or more of a) duplicates of something else b) low margin and c) low stock turn, should be the first cabs off the rank to be rationalized.

But make sure you don’t leave home without …

… checking what’s missing.
A traditional Efficient Assortment analysis tells you what to delete, but not what to range (which was the focus of the first article).  The 80/20 method of range rationalization looks at individual SKU contributions, but doesn’t look at coverage or unique needs.
So in doing an Efficient Assortment analysis, and looking at your Top 80%, you also need to keep in mind the following:

• Category coverage: Do my Top 80% skus cover most or all of the needs of the category?
• Segment coverage: Do my Top 80% skus represent products from each Segment of the category? Or are there products in the Tail that fulfill this function?
• Unique skus: are any of the products in the Tail a unique SKU that fulfills a special need and therefore can’t be deleted?
• New products: are any of the products in the Tail newly introduced (ie in the past 6 months)?

To mitigate the newness factor, Efficient Assortment analysis needs to be done on a quarterly or 6 monthly basis so you can track the progress of new product introductions and their potential entry into the Top 80% – ie to track trends rather than just dipstick one point in time.

So I’ve done my analysis, now what?

Once you’ve done your analysis you need to put the results into action instore. This might include:

• Out with the Old: Sell through (via special, promotion or other mechanic) or return the items in the tail that you’ve decided to rationalize (working with suppliers on how best to do this)
• Go with the Goers: Put a plan in place for how you will better support the products in the Top 80%. Decide whether you will focus on further supporting your Top 20% of skus or whether you will put focus on growing and improving the SKUs that sit between the 20% and 80% marks. This might include facing them up (giving them more facings on shelf), since you’ve now got more space to play with, or things like point of sale at the fixture and consumer promotions.

In summary: why you should look at Efficient Assortment

You might need to do an Efficient Assortment exercise on a category if you answer yes to one or more of the following:
1. You have a number of products that perform the same functions
2. You have a lot of products for a category but not enough space and you need to get rid of some
3. You don’t know which products are your top sellers and/or bottom performers
4. You are spending time and money promoting products that you suspect aren’t moving.

We’ve talked a bit here about the role of space on range. Next issue we’ll look at how to think about laying out a category and the products in it in more detail.

In the meantime, we welcome feedback on these articles – what you agree with, what you don’t – and what you’d like to hear about. Email us with feedback on enquiries@sh-opportunity.com.au

#1 Coles Balgowlah – Stockland Mall

Gee it’s nice to see a supermarket retailer doing something a little different and in some instances just plain logical. The new 4000 sq mtr Coles at Balgowlah is a hybrid of some of the initiatives unveiled at more recent openings such as Chatswood here in Sydney and Ivanhoe in Melbourne, plus they’ve added a few more whistles and bows as well.
It certainly marks a clear point of difference between the WW latest format and that of the old style Coles formats….and mostly for the better, and about time the trade are saying.

Theatre and Shopper intimacy have made a welcome return and don’t the locals like it!

Some great points:

• Open front without security gates or trolleys across checkouts which treats us all as valued Customers not suspected thieves
• Well lit open feel with wide aisles and low height fixtures, well merchandised and a good weight of stock
• Low height Dairy/ Chiller cabinets adjacent to Fresh depts. – logical
• All bread together, in house bakery and Proprietary bread – logical (shoppers buy bread and don’t intentionally shop either/ or – have a look at a shopping list!)
• Milk at the front of store – logical, for small baskets and big alike
• No big bulky ends – an aisle of value down the middle which is just as aggressive

Theatre:

• Open meat counter with real live butchers you can ask a question of
• Fish dept that again has a fish monger feel with knowledgeable staff
• Fresh vegies and fruit on ice
• Salad bars
• Indian naan bread oven
• Cheese, cheese and more cheese
• Plenty of sampling and spruiking
• Staff that are actually interested in helping you, bubbly pleasant personalities and plenty of them
• Pharmacy, Baby, checkouts, new uniforms….and the list goes on.

Points to work on:

• Why isn’t freezer near the entrance with the rest of the fresh/ chilled depts? This consigns the Freezer to back up supply only rather than the location of genuine dinner tonight or lunch tomorrow meal alternatives.
• Bakery would be better at the front, but hey, something has to give
• Home Entertainment (DVD’s and Magazines) looks like it was a last minute add on rather than a considered strategy/ location
• The Seasonal Wall in the back left hand corner appeared to be a patch up, seasonal stock requires a high profile location to get the most out of the impulse nature of seasonal lines and this location will get a low % of store traffic – it’s behind Petfood and Laundry
• Will they cross merchandise the store? The open space cries out for it.
• Location and access to  Vintage Cellars, pity it’s a fire/ smoke wall

Let’s wait and see:

• Will this store fade after the traditional new store opening honey moon period?
• Will the higher potential GP mix that is being targeted return the investment in fitout and higher running costs such as wages?
• Will the out of stocks and the poor standards return or will the current high standard be maintained?
• Will this store be the direction for the future (you’d have to think so based on the recent openings?)
• Will this snap WW out of their cookie cutting lethargy?
• Will this format be transferrable to other footprints? Will it translate to a 1600 sq mtr store for example as all stores are not of this size.

Conclusion – a great store – do yourself a favour and pay a visit!

The “New” Franklins at Mosman and St Ives

And now for something completely the opposite – we were pretty disappointed in these stores after hearing the PR that went ahead of the launch. Franklins supposed ‘store of the future’ looks like it is a throwback to the 80’s and 90’s and quite like an older generation WW or Coles store.

The St Ives store has a freshened feel about it with an added Deli/ Meals/ Bakery area but the fixtures and design treatment are dated.

• The font for the dept signage is white on a timber background and does not stand out
• Weight of stock and range was average and did not make a statement
• Grocery/ centre store felt cold and uninviting, very wide aisles with little merchandising, few cut carton displays or anything to tempt Shoppers
• Produce bins looked a direct copy of the old WW units
• Traditional layout with traditional category treatment – certainly not a progressive format
• Good South African ranging but if they couldn’t get it right in this store (and with the current ownership) I’d be pretty worried!

The Mosman store has just been relaunched, again with a refreshed feel. This store is adjacent to a booming Harris Farm Market and Franklins have added a small (read meagre) range of fresh and baked products plus a Deli area, but the width of range and display was poor leaving you with the impression they are going through the motions but not really serious about a genuine offer and therefore a genuine competitive contender.
Again :

• wide aisles but with little to no theatre
• traditional category treatment
• no real attempt to leverage the local affluent Shoppers
• No WOW to much at all in the store

Is Price the ace card Franklins used to play still valid? Still surfing off reputation more like it and these formats do little to support the myth.

Conclusion – Mr Luscombe and Mr McLeod don’t have much to worry about.

Check out this series of articles we wrote for Retail World Magazine on this very topic:

#1: Introducing retail objectives: frequency and inter purchase interval
#2 Average Weight of Purchase (AWOP)
#3 Basket Penetration and Incidence
#4 Traffic Driving

Final article coming soon, on Trial Management! Let us know what you think / what you’d like to hear more about: enquiries@sh-opportunity.com.au

The economic downturn has changed shopper behaviour. There are opportunities, and there are risks. What are the impacts on YOUR business?

On July 1st, Nielsen released research results indicating that nearly two thirds of Australian consumers believe the country is in a recession.

Despite recent economic data showing that Australia is not in a technical recession, shoppers are still battening down the hatches and cutting back on spending.

The losers – Out of Home Channels and ‘Nice to Have’ Categories

Some 63% of Australian consumers say they have changed their household expenditure versus last year. The big losers are take-away meals and out-of-home entertainment, with almost two thirds of respondents saying they have cut back on these items.

Aussies are staying home to eat, socialise and entertain themselves.

Other losing categories are new clothes (59%), premium grocery brands (56%) and gas & electricity (55%).

The winners – In Home Channels and Categories

Supermarkets, and many grocery suppliers are the winners, as are retailers in the discount and mass channels.

According to Nielsen, there is strong growth in ‘back to basics’ food categories aligned with a shift back to in-home cooking (and the phenomenon that is Masterchef!). Frozen meats, tomato paste and purees, salad dressings and pudding and cake mixes are all performing extremely well.

This is quite a change from data over the past few years that had indicated supermarkets were losing ‘share of stomach’ to out of home channels (like cafes) and specialty stores. Now, the supermarket, mass or discount department store is seen as the best value proposition. Small retailer = expensive, in the new mindset.

Anecdotally, we hear that the in-home entertainment categories are also performing well versus their cinema and theatre counterparts.

Shoppers we’ve spoken to are also indicating their current premise for off premise rather than on premise liquor channels – again it’s all about home.

The opportunities: negotiating the shifting sands

Tip #1 recession buster: occasion-based messaging at point of sale directly speaking to in-home occasions
* Are you in a category that can capitalize on the in-home trend? Right now there are more in-home occasions than ever. For example, we spoke to one shopper who was in a supermarket ‘buying mystery box ingredients’ (Masterchef game of culinary skill) for her husband to make a  mystery box surprise dinner. Now we have a new in-home occasion: the mystery box dinner!
* We have spoken to other shoppers buying things for in-home entertainment ‘because it’s cheaper to entertain the whole family at home’. Not only films and music, also applies to ‘activities’ (whether sport, craft etc), old-fashioned board games as well as the newer Wii wonders of the world, books… the list goes on.
* Keep your POS messaging simple, compelling and occasion-based. ‘New ideas for creative cooking’. ‘Fun stuff for rainy days’.

Tip #2 position yourself as the light at the end of the tunnel; the reward for noble frugality
* If you’re in a premium  / luxury category, it’s tempting to deep discount so hard that your brand equity is damaged in the long term.
* The fact is, shoppers will still allow themselves SOME treats. They will trade down on some things in order to trade up on others. So, if this is you, focus on being in their consideration set when they allow themselves a treat.
* Base your messaging around earned reward and move away from any previous positioning around overt flashiness and status symbolism (this is now officially ‘on the nose’ along with all those glitzy handbags with designer names spray painted all over them). Remember, we’re in a time of austerity, but a little naughtiness is allowed as long as it is earned and as long as it still represents ‘value’ in a broader sense. Still focus on quality – quality NEVER goes out of fashion.
* Hang in there and keep communicating. The Nielsen survey showed that consumers say some of their behaviour is considered a ‘short-term fix’. Almost 80% don’t believe they will still be curbing entertainment spending in the longer-term, for example.

Tip #3 Review your channel strategy
* Have you changed your trade spend in each channel and segment according to how it is performing in the current climate? Have a short, medium and long-term plan to adapt and move through the current shifting sands.
* Who is your primary shopper, and where are they NOW? Is it the same as 12 months ago? Find out where shoppers are looking for your products in the current climate and put your immediate focus there. Conduct shopper research.
* Short-term, you should be spending more of your focus and budget in your in-home channels and less in your out-of-home channels than you normally would, but with a weather eye on timing and your long-term strategy to leverage OOH channels when Australians venture out of the house again.

Tip #4 Review your business big picture
* Now is the perfect time to think about your business regeneration.
* What sorts of new systems, tools, structures, processes and strategies do you need to meet the challenge of the post-GFC era?
* There is no doubt that the GFC has changed the way we think about business, and that change is likely to be permanent.
* Time to get the mothballs out of the cupboard and renew with an eye firmly on the horizon (and beyond).

How we can help

* Business Regeneration

* Channel strategy and route to market

* Shopper Research

By Shopportunity for Retail Pharmacy Magazine

In our first article in the Shopper Marketing series we identified the key levers you can pull in store to convert more sales. We outlined the 5 way retail multiple and the key Point Of Purchase  tenets of ‘RSVP3’: Range, Space, Visibility, Promotion, Price and Persuasion (ie staff persuasion).

This issue we’ll focus specifically on Range. How can you use Range as a draw card for shoppers, avoid wasted retail space and differentiate the store offer versus competitors?

In this instance, we’re referring to your front-of-store and OTC products. Range is basically the amount and types of products your store carries.

Ranging needs to be considered at three levels – Store, Category, and Product. This can be represented as follows:

Store Level

What you range says volumes about you

Range is a key traffic driver. What you range – both quality and quantity – says something to shoppers about who you are and why they should shop with you.

Range talks directly to your competitive strategy. Who are you trying to be and what are you trying to do? If you are ranging the same items as competitors, but more are more expensive, then shoppers would need to see a different in store environment and service to make up the difference.

If you’re ranging the same products as competitors but more cheaply then you’re aiming to drive traffic based on price (which doesn’t necessarily lead to profit).

If you are ranging some similar but a number of different categories and products to competitors, then shoppers will come to know that your store has a range of items that other pharmacies don’t, and your pharmacy may become a destination for those items.

What you range vs your competitors also says something about you – how are you different or the same?

Category Roles

Different categories play different roles. Typically, these roles are Destination, Preferred, Seasonal/Occasional, and Convenience. How you activate the other Point Of Purchase drivers (space, display, price, promotion, persuasion) can also have a role in how the categories are viewed by shoppers.

The Pharmacy channel is interesting in that a) pharmacies are health retail generalists, operating across a number of categories and b) several categories are Destination categories based on shopper/patient distress situations, such as Cough/Cold and Analgesics. Or your pharmacy may attract Destination perfume shoppers, for example, because your range of perfume is good and prices are competitive versus department stores.

Categories like Weight Management, Vitamins & Baby might be Preferred categories for pharmacy (over and above mass merchants or grocery) because of the staff knowledge and service element. Categories like Allergy/Hayfever are highly Seasonal. Convenience categories are ‘while I’m here’, impulse type purchases typically with a narrow range, such as confectionery.

An example of category roles and their impact on range and retail measures is provided below. Don’t forget, the Retail Drivers are where the rubber hits the road. As you can see, by understanding your category roles (and the impact of that on your range decisions), you can leverage your retail drivers to increase profit.

So you need to figure out which roles each of your categories play, and what that means for the kind of range in each you should carry.

Category coverage & weighting

To achieve basic level category ‘coverage’, ranging products across the top selling categories is the obvious place to start. Naturally you need basic offers across the top 10 OTC categories (according to Nielsen’s 2009 OTC report): vitamins & supplements; cosmetics; analgesics; cough & cold; skin care; gastro intestinal; allergies; wound care; baby; and weight management.

So the above gets you to a place where you’ve covered the basics and you’re all things to everybody.

From a coverage point of view, if you only range the above Top 10 categories, what is missing? Is there another category that you could range to gain competitive difference? Could you be known as the orthopaedic shoe specialists, for instance?

Weighting is about relative emphasis. If you range more skus and devote more space to a specific category, promote it, and provide staff training in it, you will eventually become known as a specialist in that category. Are there any particular categories in which you would upweight your range, in order to become a ‘specialist’? What could you be ‘famous’ for?

When thinking about this, it is useful to ‘profile’ what kind of shoppers you see most often in your store. How old are they? Male to female split? What are their most common needs? What ELSE is that kind of shopper likely to need that either you or your competitors are not currently providing? Look for gaps and opportunities… how can you increase your usefulness to your primary shopper?

Depth vs Breadth

Depth is having few categories, but lots of skus (stock keeping units = individual products/packs) within the few categories you stock. In bottleshops, an example is Vintage Cellars – lots of depth in wine (and a few boutique beers) but really only the basics for beer, spirits, mixers etc.

Breadth is having many categories but only a few products per category. The soon-to-open Costco warehouse club is an example of this – they carry many more categories than the average supermarket – only 40% of what Costco carries is food, 60% is ‘general merchandise’, including everything from BBQs to plasma TVs to Tiffany jewellery – but in each category they only carry 2 or 3 skus.

You need to decide whether you are going to go for Depth (ie be a specialist in a few things, and just cover the basics with everything else) or Breadth (try to be all things to everybody, in which case you’re competing with the Pricelines and Chemist Warehouses of the world … and you probably won’t be able to match them on price because you won’t have their economies of scale and trading term relationships with suppliers).

Category Level

Categories are broken down into subcategories or ‘segments’.  Depending on your depth/breadth ranging strategy, in theory you need to cover most segments within a category.

For skincare, the segments might look like Face, Hand, Foot, Body and Suncare.  For Vitamins & Supplements it might be vitamin type (Echinacea, Vitamin A, Multivitamins) or condition specific (arthritis, period pain etc).

For each category, you need to a) segment the category/divide it into product groups based on how SHOPPERS look at it, and then b) decide whether you’re going to range products in EVERY segment or just focus on specific segments (ie back to depth vs breadth).

You also need to think about whether there are any ‘unique skus’ that are effectively a one-product segment, servicing a particular market, and how you might treat those in your category segmentation.

Note that as per the Store Level, individual Category Segments may play different roles.  Eg Glucosamine is Destination within Vitamins & Supplements.

The theory of coverage and weighting applies at category and category segment level too -  are there any category segments in which you would upweight or downweight your range?

Product Level

At this level, you’re deciding which brands and individual items (skus) you’re going to carry. Eg for Analgesics Brand X, will you carry tablets, liquid capsules, powder capsules or all three? Will you carry only the all purpose painkiller, or also the period pain and injury specific varieties?

This comes back to your store level strategy (focus/specialty categories vs basic categories, and their roles) and the decisions you made at category level.

What you’re now deciding is how many different products of a specific brand you’re going to carry across segments and across the category.

You also need to decide the mix of branded products vs own-label/private label/generics you’re going to carry.

In order to do this, you need to understand the role of ‘beacon brands’ for a category (eg Nurofen is a Beacon Brand in analgesics), and how substitutable the products are. Beacon brands may or may not be substituted for other products by shoppers. If it is a Destination category (eg Analgesics) and a Beacon Brand (eg Nurofen) a shopper may abandon the purchase if you’re not carrying the beacon brand … or if you don’t have a persuasive argument as to why they should buy an alternative product.

Ways you can determine the core products to range include sales analysis and trends of your own product sales (volume and transactions per line item); space to sales; and hurdle rates (units sold per store per week … otherwise known as velocity); industry intelligence and reports as to what’s selling, and trend monitoring to see what’s new that’s selling that you’re not ranging. Note that seasonal products will have highly variable velocity rates.

At a more advanced level, smart operators also look at the cost of supply per brand and line item, the cost/benefit of a broad vs narrow range within a category, and build in space limitations.

In summary: explore your range of possibilities

With the foregoing in mind, have a think about:
1. Who is your typical shopper? What do they need?
2. What does your ranging point of difference and strategy need to be to appeal to that shopper more versus competitors?
3. What types of category and segment level additions or cutbacks would achieve this?
4. What changes do you need to make to your category mix and segment/product mix within categories?

We’ll be back in the next issue to talk you through how to then come up with the right range for the size of your available retail space … known as ‘efficient assortment’.

In the meantime, we welcome feedback on these articles – what you agree with, what you don’t – and what you’d like to hear about. Email us with feedback on enquiries@sh-opportunity.com.au

By Shopportunity for Retail World Magazine  

This is the fourth in a series of five articles about Achieving Retail Objectives from the team at Shopportunity. We have previously discussed Frequency and Inter-Purchase Interval, Average Weight of Purchase, and Basket Incidence (these articles are re-published here at www.sh-opportunity.com.au/news-articles if you missed them). The focus of this issue is driving Traffic to deliver growth.

What is Traffic?

Traffic relates to footfall – the number of shoppers crossing the store threshold in a given period (hour, day, week, month, year).

Essentially, there are two kinds of traffic: new and repeat. Traffic might be repeat to the retailer, but new at a store level. The importance of each changes depending on the kind of retailer. For example, given that 80% of Australian shoppers already frequent both Woolworths and Coles (based on proximity), it’s difficult to argue that very many initiatives will generate new traffic at a supermarket retailer level. However, increasing repeat traffic (ie increasing frequency) at a store level is a worthwhile goal in these outlets. As a supplier, if your category is a destination category, you can help to do this.

Who is responsible for Traffic?

In our view, creating new traffic at retailer level is largely the role of the retailer. They can do this by differentiating their retail offer and experience versus competitors in order to appeal to specific shopper types.

Driving traffic to the store is also largely the role of the retailer. It could be argued that it’s the retailer’s job to get the traffic to the store and the supplier’s job to help in providing the best experience at category, brand and product level once the shopper is inside. Ie

The line is blurred, however, for categories thought to be destination or traffic driving categories. There are also a handful of brands thought to drive traffic. For these categories and brands, suppliers need to consider their role in using their above the line and promotional activities to drive traffic to a retailer/store, as well as promoting brand purchase conversion in the store.  Destination categories and brands drive traffic at a store level and are thus important to retailers from a Spend point of view.

Suppliers therefore need to understand the role of their category within the store (destination, routine, convenience, impulse – and also whether it’s a traffic driver, frequency driver, AWOP or spend driver) in order to determine whether or not, or how best, to support their products with store-traffic driving activities.

In an environment where manufacturer brands are playing against private label brands, particularly in retailer store catalogues, in our view most suppliers need to focus their above the line marketing activity around brand building to generate brand conversion instore, and judiciously use above the line activity under specific retail drivers (traffic may or may not be one of them) once the category, brand and product opportunity instore is understood.

The more in demand your brand, or exclusive it is, the better you are able to argue it drives traffic (ie it becomes a destination).

Driving traffic to store is the retailer’s job, via catalogue promotions, other promotions and retail brand marketing.  Supplier brands may be part of the catalogue but are not solely responsible for traffic driving.

How is Traffic Driving built in to your KPIs and planning?

First cab off the rank here is to understand baseline store and category traffic vs promotional period traffic.

It may be worthwhile to include some shopper research in the assessment process. For example, instore observations on how many shoppers are shopping the category during the promotional period, versus off promotion baseline, in specific stores. These observations would also tell you purchase conversion rates (browsed vs bought) for both on- and off-promo periods.

Your measures for Frequency and Basket Incidence – if you’re using a Homescan product or similar – can also demonstrate repeat Traffic.

Why is Traffic Driving important?

Traffic is a critical retail driver. Assuming purchase conversion rates remain constant, and increase in traffic can equate to an increase in one or more of frequency, AWOP, and spend.

Understanding what drives shopper traffic is fundamental for any retailer. Their survival literally depends on it. If there are no shoppers, there are no $.

For suppliers, understanding what drives both new and repeat traffic to your category and brand enables you to help the retailer grow traffic to the store.

Traffic counting technologies assist in measuring footfall (although currently moves to differentiate new vs repeat shoppers via traffic counting are still in their infancy).  When measured store transactions, it’s possible to get a measure of conversion rates … and the size of the missed opportunity (the number of shoppers browsing but not buying, or abandoning planned purchase due to out of stocks or other reasons).

Traffic Driving applied to shopper behaviour

Traffic is linked to the drivers of individual store selection. Shoppers choose stores based on proximity, range, ease of shopping, value/price, occasion shopping for, and shopping trip type (mission), and special offers – in pretty much that order for grocery stores. (For other channels Service often ranks in the top 3 store choice drivers).

Proximity can’t be influenced but the rest can, and all do, influence traffic.

Improving store range and shopping experience is a long term retail goal and may result in increased store traffic over time driven by consumer preference.

The other drivers – range, value/price, occasion, mission, and offers are all tactical and thus easily influenced.

5 Ways to Increase Traffic

1. Catalogue promotions

• Bear in mind that this only appeals to a certain kind of shopper (price-driven) and that many shoppers don’t choose a specific retailer simply because they are going to save 5c on a can of tomatoes. However, catalogue promotions can be effective for specific shopping occasions (such as gifting or entertaining) and to promote new products. New products can help drive the buzz required to generate new traffic to the store, and to your category.

2. Loyalty programs & rewards schemes

• These are all about repeat traffic, and dovetail with your other retail objectives of Frequency and Basket Penetration. Mechanics offered for your product can be tailored to other retail drivers such as AWOP, eg ‘earn 3x the points if you buy two Product Xs’.
• Loyalty programs and rewards schemes can be used to drive traffic at specific days and times (typically to boost lower traffic periods)  by offering ‘double bonus point’ days. This works brilliantly for retailers in the USA such as Petco.

3. Day and day part promotions

• Shoppers often demonstrate their different missions and occasions by shopping in different day parts. An obvious example is the ‘dinner tonight’ shop which is most likely to occur between 4 – 7pm and accounts for between 10 and 15% of all shopping trips. Day parts are underutilized promotional opportunities in Australia. Specialty retailers in the USA do this well by offering additional discounts, extra products or more bonus points on specific days of the week or during happy hours (back to the old ‘red light specials’ that used to happen in the 1970s).
• Pubs have been combating downward traffic trends (a result of the GFC) by ramping up their day and time specific promotions. Not just happy hours from 5-6pm, t ‘$10 steak Tuesdays, ‘half price mussels all day Wednesday’ and other day and day part specials that drive traffic. Cheap movie Tuesdays also succeed at this. How can you use day part promotions in grocery and in the other channels you operate in, such as convenience? Some convenience stores in the UK change their entire front of store displays according to day part, in order to drive traffic.

4. New product development / release

• New products and releases drive traffic. Offering an exclusive launch period on a new product for a specific retailer ‘New X – only available at Retailer Y’ can help drive their traffic (but may obviously antagonize other retailers, so approach with caution).
• Specific packs for specific retailers may assist with traffic driving but only IF it’s a destination category, a highly desirable brand, AND the product is differentiated and/or value adding in some way.

5. Themed Promotions

• Examples include consumer promotions that offer value or experience in a way other than pure price, such as tie ins with movies, television, special events and so forth.
• Retailer specific themed promotions (not just packs) may involve one or multiple suppliers, and could be a category wide promo or against an occasion with multiple suppliers. An example is the recent Coles ‘Feed the Family for $10’ promotion.
• It’s important to ground these kind of promotions in a strong foundation of consumer and shopper research; understanding who your primary shopper is and what is likely to appeal to them.

Green light for proactive planning

Time to take a look at the role of Traffic Driving in your planning process.

Who is responsible for what? Ensure you understand the role of your brand and category in traffic driving – within store and/or to store, and adjust you above and instore marketing programs to suit.

Clarify with your retail partner what shopper missions and occasions you plan to appeal to with your traffic-driving initiatives.

And measure your impact through shopper research, so you can demonstrate to your retail partner that what you are doing delivers positive growth for their store.

Next time; Trial Management. In the meantime we welcome feedback from you. Email us at enquiries@sh-opportunity.com.au

For Retail World Magazine, 8 June 2009, by Norrelle Goldring of Shopportunity.

This is the third in a series of five articles about Achieving Retail Objectives from the team at Shopportunity. The first article introduced the concept of the key retail objectives being a 5-Way Multiple: Frequency, Traffic, Incidence, AWOP, and Spend. It focused on Frequency and Inter Purchase Interval. The second was about Average Weight of Purchase (AWOP) (these articles are re-published at www.sh-opportunity.com.au if you missed them).

The point is to marry your strategies with objectives that are relevant to retailers, demonstrating to your trading partner what the benefits of implementing your ideas are for their overall store. No in-store initiative can work without the buy-in of your retail partners, and understanding their objectives is key to gaining that engagement.

This third article is all about Basket Penetration and Incidence.

The final two in the series will cover:
4.      Traffic driving
5.      Trial management.

What is Basket Penetration?

Basket Penetration is a core retail driver.

Also called Basket Incidence, this objective relates to what % of shopper baskets your category or product is in. Different categories have different Basket Incidence. For example, in a supermarket, toilet paper might make it in to 90% of baskets. Dishwashing gloves might only make it in to a small percentage of baskets.

In other channels like Liquor stores, beer as an overall category might make it in to 70% of baskets but liqueurs only in 2% of baskets.

As a supplier, one of your key retail goals may be to increase the basket penetration of a particular product.

As a retailer, increasing basket incidence of profitable items can increase basket spend and overall profitability. Increasing basket incidence of a number of items simultaneously amounts to an increase in AWOP and transaction value.

Part of your strategy, then, may be to link increasing Basket Incidence of your product to other relevant goals for your retail partner.

For example; by increasing the basket penetration of your premium pet food product, you are also likely to be increasing total Basket Value and Spend for the retailer, helping them to achieve overall store profitability.

By increasing basket penetration of your pet food product, you may also be increasing the Frequency of shopper purchase in the category, thereby also increasing total category growth and value for the retailer, and possibly even frequency of visitation to the store itself if your shoppers become brand loyal purchasers and can’t get the product anywhere else nearby (that one relates to increasing Traffic – we’ll talk about that in later articles).

You will need to demonstrate to the retailer, however, that increasing Basket Penetration of your product is not simply cannibalising their sales of other products – demonstrate that your strategies will actually drive growth for the entire category and therefore the whole store.

How is Basket Incidence built in to your KPIs and planning?

Do you know what percentage of shopping baskets your product is in?  What about the total category? How are you represented versus competitors in shopper baskets? What is the basket incidence of your product, category segment and category cross-retailer – who is the benchmark, who needs to improve? Importantly, do you know why shoppers select your product or category for their baskets and what is likely to increase or decrease that behaviour?

You will need to demonstrate Basket Penetration targets for your category, brand and product, and an overarching strategy for how to increase this, through a combination of sustained initiatives over a period of time as well as short bursts of activity such as promotions.

You also need to demonstrate a CategoryVision which differs by retailer – what is the role of the category to that retailer and how do you grow it in their particular store versus their retail competitors. Collaboratively, you set targets and a schedule of activity that are appropriate for the store as well as for you as a supplier.

Why is Basket Penetration important?

Understanding Basket Penetration, and the shopper behaviour that drives it, is core to understanding the role of the category overall – to the shopper and to the retailer.

If Basket Penetration of a certain category declines over time, it is only natural that the retailer will rationalize range and allocate less space in store to that category. So growing Basket Penetration is important to make sure you stay ranged and still have retail space in the future.

Basket Penetration is basically a barometer for your overall relevance in the scheme of things. If your category is in 2% of baskets, and you are sharing that 2% with competitors, you can expect to be allocated ‘marginal’ status unless you have some strong plans to grow your category and product penetration amongst shoppers – or unless your category is such a high value category that its role is about value rather than volume. Even then, you still need more than marginal volume in order to deliver value.

Basket Incidence applied to shopper behaviour

In our last article on AWOP, we got into milk, in all its shapes and forms. Let’s do that again in the context of Basket Penetration.

What % of baskets is milk likely to be in if you’re in Woolworths or Coles? Probably close to 100%.

Let’s break the category down further then.

What % of baskets is skim milk likely to be in, versus full cream milk? What about calcium enriched, flavoured, A2 and non lactose milks such as soy and rice milk?

It all depends on the type of shopper, their household type, who they are buying for (themselves but also others) and what type of shopping mission they are on.

For example, long life milk might make it into a larger percentage of baskets of shoppers who are there for a stock up weekly shop; versus shoppers who doing on a quick top up (they might just get the skim for their coffee and tea).

By understanding where your product fits into the total category for the shopper, you can start to get a picture of how you might need to market in store based on shopping trip type and consumption occasion.

Last article we talked about flavoured milk as an often impulse purchase, where secondary displays near the counter increase purchase – well this also increases Basket Incidence for the entire milk category.

Checkout coolers can also work for milk as a quick visual reminder to shoppers that they need to top up.

What other things could you do to increase the Basket Incidence of milk? Well, you could introduce new pack variants to make milk relevant for more consumption occasions. Major milk companies that have released ambient tetrapak milk for lunch boxes, for example, have increased Basket Incidence in this way.

You could add a functional benefit (such as protein) to milk and have it become a meal or breakfast replacement, also increasing consumption occasion – and increasing the number of channels of distribution. Sanitarium did this with Up & Go – whilst they were growing their breakfast category into breakfast on the run, the principle is still the same – and it has been phenomenally successful in Petroleum & Convenience, a channel where Sanitarium did not previously have real presence.

Then of course you have all the dairy variations of milk such as yoghurt. Yakult have been clever in marketing the daily vial for intestinal health. This grows consumption occasions and therefore Basket Penetration of yoghurt as a daily consumption for health benefit.

And the list goes on!

5 Ways to Increase Basket Penetration

1. Secondary displays based on occasion and shopping trip type
* Your in-store marketing strategy needs to be well-thought out and address shopping trip types as well as usage occasions. What categories should your product logically have adjacency to – where is best fit for secondary display locations based on shopper behaviour? How can you use the secondary display to communicate to a particular occasion? For example, a secondary location of crackers next to dip speaks directly to the hosting / entertainment occasion. How is this being communicated via the display?

2. Consumer promotions & sampling
* Encourage trial and the conversion of new shoppers to your product via strong sampling and promotions strategies. Support your consumer promotions with relevant above the line activity and tie your promotions in across media and channel types (e.g. movies, gift with purchase etc). Utilise the queues at the checkout for sampling, since most people queue in a grocery store for between 6 to 10 minutes with little to do aside from browse magazines whilst there!

3. Price promotion
* Price promotion is a short-term solution to increasing Basket Incidence. Best used sparingly – make it relevant to specific retail occasions. If your category is appropriate for the gifting occasion, for example, make sure you have enough promotional presence during the major retail gifting occasions such as Christmas, Mother’s Day, Father’s Day and Valentine’s Day.

4. New product development
* NPD initiatives applied to product but also to format and pack type / size, based what shoppers and consumers need and what the category is not currently providing. Where are the gaps?
* Support NPD roll out with sampling and trial packs – a surefire way to increase Basket Incidence of your product
* Increase your pack size range to increase relevance for new consumption occasions.

5. Visibility, Display & Theatre
* Make the category, and therefore your product, more exciting to shop!  Collaboratively develop a category vision with your retail partner that improves the shopper experience in your category. Introduce some theatre, ambience, excitement. Shopping is often a dull chore (especially for groceries) and categories that make emotional connections can increase their chance of making it into more baskets.

Point 6 here, which should really be point 1, is ‘conduct shopper research’ to understand the drivers of the current level of basket incidence – is the issue in store or in home? Without doing this you have no proven basis for your initiatives.

Address the Basket Case

Time to look closely at your basket case!

Is your category and product compelling enough to make it in to a high percentage of baskets? How can you make it more relevant – to shoppers and to retailers?

How can you encourage trial and build new armies of brand loyal shoppers for your product? Do you really understand the drivers behind how your shoppers are shopping, and what they need?

Next time; Traffic Driving. In the meantime we welcome feedback from you. Email us at enquiries@sh-opportunity.com.au

For Drinks Magazine, May  2009, by Norrelle Goldring of Shopportunity

As independent bottleshops wring their hands about trying to match the low price points of the big boys to bring in traffic, they are missing some easy additional sales from their existing customers.

This was demonstrated yet again to me recently when I visited one of my locals to replenish my gin, scotch and vodka stocks after a party. I placed my three spirits bottles on the counter, at which point the staff member simply picked them up and started scanning them.  What’s missing from this scene?

Unsurprisingly, I was not asked whether I would like a Tonic Water to go with the gin, a Coke for the scotch or any number of flavoured drinks that could go with the vodka. In fact, I had to ask where they were (not obviously displayed), by which time the transaction was already going through EFTPOS and the staff member clearly considered it all too hard.

Yet, margins and profits on sundries in bottleshops are often better than mainstream case beer. You could be increasing your average transaction value by around $5. Go figure.

Most service stations you go to, even if staffed by a pimply fifteen-year-old, try to sell you mints at ‘2 for the price of one’ or upsell your bag of chips from a small to a large for ‘just 30c more’. OK they sometimes get the execution wrong, since they tend to ask AFTER your EFTPOS transaction is going through, but at least they ask. I can’t remember the last time a bottle shop did it.

The size of this missed opportunity is underscored when you understand that around two thirds of bottle shop ‘baskets’ are single item baskets. That means two thirds of shoppers are leaving with the one thing (1 case of beer, 1 bottle of wine etc) they came in for, and nothing else.

Because nobody is offering them anything else!

So, how can bottle shops optimise the incremental sales opportunity?

Bundle and cross-promote in-store
1. How can the store be optimised for ‘this goes with that’ purchases? Does your softdrink fridge need to be located next to or in the spirits shelves? Or better yet, at the counter?
2. Is your counter area laid out to encourage impulse purchases? Are your chips, chocolate, nuts, dips, flowers and any other impulse items located clearly at or near the counter? Are they promoted effectively either via price or another compelling message (such as the occasion … ‘off to dinner? Try these …’) ? Could you range DVDs as impulse for ‘quiet nights in’?
3. How are you communicating ‘this goes with that’ instore? Do you need to call out your sundry offers more clearly through at-shelf signage and promotions in relevant beverage categories?

Get staff involved and measure them
OK there will always be staff turnover, but there are some simple processes you can put in place to optimise incremental sales regardless of the calibre and number of store staff:
1. Set a standardised script and set of offers for how staff are supposed to cross-promote and encourage additional item purchase. For starters, they should be asking ‘would you like an X with that’ for any categories that obviously go together, like Spirits and mixers, beer and chips, red wine and chocolate, white wine and cheese / dips / nuts etc. They can also ask ‘would you like a Coke with that’ for pretty much anything. Another way is to identify the shopper occasion and upsell based on that. ‘Doing something special tonight?’ may receive an ‘out to dinner at a friend’s’ response from the customer, at which point staff can point out the promotions on chocolates, flowers and pre-dinner snack s etc.
2. Measure items per transaction, and make number of units per transaction a key KPI for sales staff, management and whole of store(set an average target higher than 1, for example average 1.65 units per transaction, meaning the majority of shoppers buy two items)
3. If you’re really keen, measure staff and management performance against average unit sales by engaging mystery shoppers.

Time to pick up the game on incremental sales, bottle shop folk! The wins are too easy for excuse making. Next time I buy gin I expect to be actively sold a Tonic!

In the second of a series of 5 articles about achieving retail objectives, Shopportunity discuss the key retail objective of AWOP; its applications for shopper behaviour, and how to leverage it for category growth.

Our first article  introduced the concept of the key retail objectives being a 5-Way Multiple: Frequency, Traffic, Incidence, AWOP, and Spend (this article is re-published here at www.sh-opportunity.com.au if you missed it).

By orienting your strategies around these retail objectives you grow your relevance and relationships to Retailers and Shoppers, thereby driving category growth and profitability.

While the first article focussed on Frequency and Inter Purchase Interval, today’s article centres on Average Weight of Purchase as a lever to drive growth.

Future articles will cover:
3.      Basket penetration and incidence
4.      Traffic driving
5.      Trial management.

In our experience many suppliers are not yet aligning their business strategies and operations clearly enough with retail objectives. These articles focus on specific retail objectives and how to use them for win-win growth for both you and the retailer.

What is AWOP?

Average Weight of Purchase is one of the key retail drivers.

AWOP:     Average Weight of Purchase refers either to the number of items in the basket, or their weight in kilograms or litres. A common retail goal is to increase AWOP, which can also amount to an increase in Spend. A common way to achieve this retail objective are promotions such as ‘2 for the price of’ and ‘3 for the price of’ to drive multi-item buys. Alternatively, promotion of larger pack sizes can result in a higher weight in kilograms or litres.

A related retail objective is Basket Value (also called Transaction Value).

Basket value:    Also called Transaction Value, this is the total $ value of all items in the basket. Common ways to increase this are encouraging the purchase of more items (increase basket size) or increasing the value of selected items via uptrade to bigger packs or higher value products.  Achieving this retail objective also amounts to an increase in Spend.

The relationship between AWOP and Basket Value

Increasing AWOP will either have no impact on basket value or will increase it.

The relationship between AWOP and Basket Value can be described in the table below:

Fig 1: Relationship between AWOP and Basket Value © Shopportunity 2009

The only way in which basket value would decrease when AWOP increases is to offer multiple items or larger sizes for LESS THAN the price of a single item or smaller size. This is a highly unlikely scenario and you’d only pursue this as a loss leader strategy short term share grab.

How does AWOP relate to Frequency?

In our last article we discussed Frequency, which is the number of times your category and product is shopped over a defined period of time.

What increasing AWOP and Basket Value essentially does is achieve more dollars or more items this trip, by either encouraging more items in the basket, or higher value items.

What increasing Frequency does is achieve the same dollars more often with more trips. The same dollars more often = more $ overall, over time.

Whilst the objectives are separate, one can negatively impact the other – see Diagram below.

Fig 2: Relationship between AWOP and Frequency © Shopportunity 2009

You need to find the balance between Frequency and AWOP as you can’t increase both at the same time.

How are AWOP and Basket Value built in to your KPIs and planning?

Do you know what the AWOP is for your category, subcategories and at brand level vs how your particular product performs against competitors? Do you know what the AWOP is in similar categories, and what shopper behaviour drives that?

Do you have plans to increase AWOP both strategically over time and tactically using specific promotions? Do you have clearly defined targets for both your brands and the retailer? Your relationships with retailers will strengthen to the degree that you have clearly defined retail objectives in your category, marketing and customer plans.

Why are AWOP and Basket Value important?

Because they have a direct relationship to dollars per shopper per trip. Increasing AWOP and Basket Value in a given category helps drive the top line for the whole store.

A key point with AWOP is that unless you marry your average weight increase with an increase in consumption for your category, you may merely bring sales forward, particularly in categories with non-expandable consumption. Great for short-term targets, but no real benefit in the longer term. How do you address this?

Understanding shopper behaviour and consumption occasions in your category is key. By increasing relevance through occasion-based marketing you can increase AWOP for the long term, not just the short term.

Let’s take skin care. Once upon a time, the skin care usage occasion generally involved three simple steps: ‘cleanse, tone, moisturise’. Now we have ‘cleanse, exfoliate, treatment, moisturise, protect ‘(from sun and ‘free radicals’). ‘Treatment’ as an occasion example can also include several products: masque, serum, pigmentation treatment, eye treatment, spot treatment; the list goes on. All of these specific purpose products serve to increase AWOP in the skin care category, by increasing the number of items in the basket. It is also likely that Basket Value is boosted through higher value items in the basket, such as the ‘treatment’ products. Another common way to increase AWOP in the skin, hair and personal care categories in general is via gift and multi-packs; buy the shampoo and conditioner pack for a value price compared to just the shampoo.

AWOP can also increase brand loyalty by expanding the range of products with which the consumer has a relationship (such as the skin care example). By demonstrating value with the shopper and consumer, either through value-based bulk packs and pricing, or more products in the basket, you create total value perception.

AWOP applied to shopper behaviour

Similarly to our last article on frequency, AWOP in a given category also depend on the nature of the category, the number and type of occasions the product is used for, what kind of shopper they are, and from what household type.

Let’s look at milk. A family of four may default to a 2 or 4 litre carton of white milk in their stock up or top up shopping basket. But what about the occasions for different types of milk based on different family members? The adult female in the family may choose a 1 litre skim or lite option just for herself. If there is a mid to later life stage female in the family, she may opt for calcium enriched, also in a 1 litre. Children in the family may enjoy flavoured milks for occasions such as gut fill after school. These may be in 250ml packs, or even less. You may have a health-conscious member of the family that prefers to buy soy or long life organic milk from the ambient aisle.

By understanding all the occasions for milk in this particular family, you can increase AWOP substantially by promoting across the range to a single shopper, beyond just upselling to larger packs.

How would you activate against that in store? It depends on the channel. In grocery, you may think about secondary locations for different types of occasion. Flavoured milk, for example, can also be an impulse purchase as part of a top up shop, and may work on a gondola end or near the counter. Simply having your flavoured milk near the counter may increase the number of milk items in the basket from one (plain white milk) to two or three.

Last article we discussed how retail objectives need to be considered in relation to each other. You don’t want your increased AWOP to result in decreased frequency, for example. Again, this depends on the category and shopper / household type. Looking at milk again, by increasing the appeal of a range of milk options you are expanding the category, not just bringing sales forward and decreasing frequency.

The relationship between range and AWOP is critical in terms of increasing the number of items from the category in the basket. Therefore, new product development (NPD) can also be a key way to grow AWOP in your category. This can be especially effective if you are targeting a particular type of shopper and their profile. Back to skin care: the thirty or forty-something female shopper who cares about the way she looks, is concerned about aging, but is not likely to buy high-end products, may shop for skin care in grocery. Brands like Olay and L’Oreal play to this shopper brilliantly; producing a never-ending range of reasonably priced anti-aging skin care products that increase the number of skin care items in the basket, increasing AWOP, and increasing the $ value of items in the basket, thereby increasing overall Basket Value.

5 Ways to Increase AWOP

1. Increase the range of products and pack sizes shoppers can select, based on occasions
   • By increasing range, you avoid simply bringing sales forward through larger pack sizes for only one product
   • Offer a range of pack sizes for each product to increase consumption occasions (such as the 250ml flavoured milk for a treat or gut fill immediate consumption occasion versus the 2 litre white milk for planned stock up shop purchase)
2. Smart multi-buys across product portfolios
   • Instead of 2fors and 3fors of the one product, span your multi-buy promotions across a range of products so as to increase consumption rather than just bring sales forward. Example: shampoo, conditioner and treatment packs.
3. Trial pack promotions
   • Promote your newer or less popular products by combining them with your tried and true products in trial packs e.g. buy this doggie roll bulk pack and trial a free pack of doggie treat. This way you increase AWOP whilst growing the overall category and building brand loyalty.
4. Differ your AWOP pack strategy by household type
   • Have you considered all the types of shoppers that purchase your products and what kinds of households they come from? Don’t forget that people living in small spaces with limited storage can also drive AWOP buy purchasing multiple small, high-value items.
5. Introduce value and bulk lines
   • Introducing a value line in your category can increase AWOP through increasing kilograms or litres purchased.

Love your Weight

Let’s face it, the AWOP opportunity is one of the few times in life where you can enjoy increasing your weight, so do it with relish!

Think about your shoppers, consumers and retail partners. Think through the consumption and shopping occasions for your category, portfolio and products.

Identify the gaps; range, pack sizes, promotion strategy… what’s missing? How can shoppers be encouraged to by more litres or kilograms of your product, or more items from your portfolio? How will this contribute to overall category growth?

Measure where AWOP is now, in relation to your overall category and your company portfolio. Set a realistic target to increase it either through weight per item or number of items, or both. Develop a holistic plan across category, brand, customer and promotions.

Make sure you consider the 360 degree view, and how increasing your AWOP may affect other retail objectives such as frequency.

Then, enjoy your weigh-in … both you and the retailer will be The Biggest Winners rather than The Biggest Losers.

Next time, Basket Penetration and Incidence. In the meantime we welcome feedback from you. Email us at enquiries@sh-opportunity.com.au