It appears that the face of health and beauty is changing. Skin care value was up 6.5 percent last year, and volume up 18 per cent. Given that related categories like Personal Care grew at 2.3, and Sun Care actually declined, it’s an interesting result. What’s going on?

The first thing we look to is NPD and line extensions. Was there much of it? Not really. Simple introduced the new Kind to Skin range of wipes and moisturisers in February, Garnier followed with Miracle Skin Perfector daily moisturiser in August, and Innoxa with SOS Skin Tissue Oil in November. Compared to the amount of NPD in 2011 for cosmetics, which were therefore unsurprisingly up 18+ per cent in both value and volume by year’s end; skin care seems to have performed despite itself.

Is it about media spend?  That’s possibly part of it. According to Nielsen, advertisers spent $88M on skin care, up 5 per cent on the previous year, with share of main media spend going to the usual suspects including L’Oreal and Unilever. But advertising alone doesn’t explain the volume change of 18 per cent. People are buying more skin care in grocery.

CHANNEL SHIFT IN HEALTH AND BEAUTY

It would appear that some things have changed long-term in shopper behaviour in health and beauty categories, post GFC. One of them is channel choice.

Where some shoppers previously looked to specialty (such as salons), and pharmacy for skin care, and also for cosmetics, those shoppers are now prepared to consider supermarkets for these purchases.

Why? It comes down to value – value not being price alone, but total value proposition. Which leads to our next point.

VALUE BEYOND PRICE ALONE – WHAT SKIN CARE BRANDS ARE OFFERING

Recently, at the 2012 Path to Purchase Summit, Jon Bird of Ideaworks discussed the concept of ‘The New Value Equation’, involving 8 ‘paths to value’ that brands can take:

1. Basic Buys
2. Proven Performer
3. Creative Solutions
4. Expert Advice
5. Built to Last
6. Affordable Chic
7. Small Indulgences
8. Everyday Heroes

While each of these deserves their own explanation, we’ll explore just the ones we’re seeing in skin care that are helping to drive growth in a retail landscape where shoppers increasingly seek greater value (in a holistic sense, not price alone).

Looking at the subcategory brand shares, in Facial Cleansers we have Neutrogena highest at 15% brand share. Why? According to Jon Bird, a ‘Proven Performer’ is loved and trusted for many years, offers authenticity and integrity – a guarantee for shoppers. Neutrogena offers all that, and also taps into another trend: the desire for simplicity, honesty and not to be blinded by science or unbelievable claims.

Moving to Facial Moisturisers; we have another Proven Performer at #1: Olay. At #2 we have L’Oreal Dermo Expertise. Products in this category that are ‘salon style’, with a focus on scientific claims and skin technology, but are sold in grocery, can be considered ‘Affordable Chic’. Like Target offering designer clothes in limited edition runs at everyday prices, these brands offer a more premium product, at a lower price point. There’s an abundance of this value proposition in hair care, too. At a macro level, the desire for the most scientifically advanced product for the price is at the other end of the spectrum to the trend towards simplicity and authenticity – and smart suppliers are catering to both shopper orientations with different brands.

In Facial Treatments, we have Clearasil at #1. They offer ‘Expert Advice’ in the business of acne. Expert Advisor brands guide shoppers through something tricky, and we all know spots are no fun. Clearasil have a… bm tish…. clear and narrow focus on what they do best as experts.

When it comes to Body Lotions and Hand and Nail Care, there are a range of players doing well, some of which could be considered ‘Small Indulgences’. Like Bio-Oil and Du’it. They offer affordable ways to treat oneself – in this instance to a quasi day spa at home.

So, in terms of what drove growth in Skin Care in 2011, it really came down to:

Having a value proposition beyond price alone

Post-GFC channel shift in the category (back to point 1 – the value proposition creates permission to shift)

Media investment (again, back to point 1 – communicating the value proposition).

It will be interesting to see what 2012 has in store. The Category has potential for double-digit value growth (not just volume) on the back of some clever NPD playing to macro consumer trends. We’ll have to wait and see if that happens!

As category growth goes; vitamins have been a consistent performer in grocery in recent times. In 2011, volume was up 16.4 percent and value up 9.4%. Which is great news for retailers, but the landscape is somewhat more complex for suppliers.

Historically, health food stores were the original champions of the category, followed later by pharmacy. In recent years, the decline of the health store channel and the emergence of discount pharmacies has presented more than a few challenges for suppliers in the vitamin category.

How do you retain value in your category when your products are being used as loss leaders in baskets at the front of store, or in below-cost catalogue promotions? And how does that educate shoppers in the category who were previously prepared to pay full price?

Then, enter the grocery channel. Whilst grocery has always had a few basics, in recent years the vitamin and supplement category in grocery has grown exponentially, in response to macro consumer trends around health and wellbeing. The tricky part for suppliers: some of that expansion has involved 50% off price promos in supermarkets which have then effectively killed category sales in other (higher value) channels for up to a quarter, and annoyed a bunch of loyal-to-supplier, non-grocery channel retailers who believe their role as ‘expert advisors’ to shoppers in the category provides the encouragement to trial that starts many shoppers on the vitamins journey in the first place.

There’s no doubt it’s a complex category, and the role of ‘advice’ is a differentiator versus more standard categories in grocery.

Where’s it all heading? Like other high emotional involvement categories, playing in the grocery channel does present a ‘race to the bottom’ risk, and the devaluing of the category. Is there any way around that? It’s a tricky question.

One way to look at it is that it is now inevitable that some sub-categories within vitamins have now become commoditised. Looking at the segment shares for grocery sales in 2011, the top #3 are Multi-vitamins, Vitamin B and Fish Oil. Together, those three alone account for more than 53% of value, and 52% of volume. Fourth on the list is Glucusamine. Fish Oil and Glucosamine in particular have also become commoditised because of the sheer volume of it that needs to be taken on a daily basis to address long-term, chronic conditions like arthritis. Hence bulk packs doing so well as loss leaders in discount pharmacies.

It seems that suppliers, in order to survive the channel / category killer conundrum, need to apply channel-specific strategies to their product ranging. Primarily, offering only the major, commoditised lines in grocery (preferably in grocery-specific pack formats) and saving the specialised lines for pharmacy and health food stores, complemented by advertising and marketing support for each of the channels and their tailored strategy. It’s clear the larger players are already on this track.

Looking at the new line introductions in grocery during 2011, they all belong to the ‘commoditised’ subcategories. We had Blackmores launch Liquid Fish Oil into the channel in August, Centrum Advance with a Multi-vitamin line extension also in August, and Caltrate launching a new Vitamin D supplement in September.

Compare and contrast with some of the more specialised lines, like Gingko Biloba for brain function or Evening Primrose for women’s health. One thing that stands out is, again, the role of advice. It has now become common knowledge that Fish Oil and Glucosamine are good for joint health, Multivitamins are a good general insurance, and Vitamin B is good for stress.

But when it comes to the herbals and more specific products, more advice is often sought, and also desirable, given the possible contraindications with other medicines. Back to specialised products in channels where more advice is available, and commoditised, mainstream products only in grocery.

This category really is its own animal. And analysis of its performance also raises interesting questions about the future of other health-related categories where products are available in other channels that are more advice-driven, but then price promoted (without the advice part) in grocery.

Interesting times ahead. The ‘healthy’ part, as far as a genuine holistic vision for the category is concerned, is going to be a tricky balance to achieve. A bit like health in general, really.

All participants receive a FREE summary of the findings in July. The survey is now running and closes on June 2. Click the link below to participate FREE in the online survey, which will take approx 30 mins to complete. http://www.ys3.net.au/surveys/5/y100514register.asp .

Forward to a friend in the industry! If you think someone else involved in, or with views of the shopper marketing and category functions, would be interested in participating (and receiving the findings), please send them this link -http://www.ys3.net.au/surveys/5/y100514register.asp .
The more the merrier for a robust sample and holistic view.

Thank you for your participation, we look forward to presenting you with the results!
. Details about the study below.

The POPAI & ShopAbility Shopper Marketing & Category Management Industry Study  will help provide FMCG and retail sectors with a comprehensive overview of how to optimise both their internal and in-store shopper marketing and category management opportunities.
The Global Association for Marketing at Retail, POPAI Australia and New Zealand and shopper research and strategy firm, ShopAbility, have combined forces to put together a new study to help industry professionals enhance the shopping experience in-store, improve in-store areas of influence and ultimately help boost sales.
The study has come about after reviews of related studies overseas. It will be conducted over April and May and will combine in-depth face-to-face and telephone interviews with an online opinion survey.
“We are excited to be involved in the first industry wide study in this area in Australia,” said POPAI Australia and New Zealand General Manager, Karen Spear.

“We have previously conducted studies on the point of purchase industry but with this study, the scope is significantly expanded to take a more holistic view of the various functions involved in Marketing at Retail,” she said.

Co-Director of ShopAbility, Norrelle Goldring, said the results of the survey will help deliver the information they need to map out an activity and resources path for retailers and manufacturers.

“The study will help us to evaluate how Australian shopper marketing and category management related functions compare with overseas markets, identify common issues and opportunities and outline key steps for industry participants to take to make the most of their capabilities,” she said.

Individuals responsible for creating or running shopper marketing, category management and trade marketing/point of purchase disciplines or those who have frequent dealings with these functions including sales directors, marketing directors, (group) category managers/development directors, insights and innovations professionals, trade marketing managers, customer/channel marketing or development directors are strongly urged to take part in this survey.

To participate in this Australian-first survey, please go to this link:

http://www.ys3.net.au/surveys/5/y100514register.asp .

Results will be available early in the new financial year. Survey participants will receive a free summary of the results of the shopper marketing and category management findings of the survey.

For further information contact:

Norrelle Goldring, Director
ShopAbility
M: 0411 735 190
E: norrelle@shop-ability.com
W: shop-ability.com

Karen Spear, General Manager

POPAI Australia & New Zealand
M: 0412 668 579

E: karens@popai.com.au

W: popai.com.au

About POPAI Australia and New Zealand:

POPAI (Point of Purchase Advertising Institute) is the only global, not-for-profit association exclusively dedicated to the retail marketing industry. It has a global network of 20 offices covering 45 countries dedicated to serving in excess of 1,700 member companies.

In Australia, POPAI’s mission is to advance the evolution of Marketing at Retail as a strategic and tactical advertising medium and an integral part of the marketing mix.

This includes promoting the importance of Marketing at Retail in the total marketing mix; improving levels of education in the industry; developing and encouraging improved standards of practice; representing industry views; promoting a better understanding of POP mediums; provide opportunities to exchange ideas and experiences; and to conduct research for more effective strategy.

Call POPAI on (02) 9984 9322, look us up at www.popai.com.au or email marketing@popai.com.au

About ShopAbility:

ShopAbility is a specialist FMCG & retail consultancy spanning multiple channels. We help clients improve both their thinking and doing capabilities to improve instore execution for increased sales results. We help clients understand shoppers, retailers and store; we develop standout strategies for market advantage; and we build clients’ capability to deliver them.  Our retail and go-to-market strategies are holistic, differentiated and shopper-driven. Our offers span insight/research, strategy, execution, capability and training. Call us on 1300 88 56 44 for more information, look us up at www.shop-ability.com or drop us an email to enquiries@shop-ability.com

What’s your occasion?

There is a lot of confusion about the role of the occasion in retail in Australia. We tend to stay safe and stick to category type displays without actively marketing in-store to specific occasions such as dinner tonight and lunch on-the-go, for example. We’ve been on to the gifting occasion for a while with Xmas, Mother’s Day, Father’s Day and Valentine’s Day, but gifting seems to be the only occasion that retailers seem to universally feel comfortable shouting out about.

Well,  not so in the UK. In-store marketing based on occasion is alive and well in UK Grocery and Pharmacy channels – and there’s a lot we can learn.

Take a look at this.

It’s the Marks & Spencer ‘dine in for 2 for a tenner’ campaign.  You’ve never seen occasion-based messaging quite so blatant or quite so well done as this. Here’s the deal: select an eligible main, a side, a dessert and a bottle of wine all for 10 pounds. A brilliant strategy in an economic downturn, with things still looking pretty dire overall in the Mother Country.

About half of the food section of the M&S store is dedicated to this promotion. Gondola ends contain signage (as per the image) and selections of each item ready to grab and go. An entire three aisles were dedicated to the eligible mains, sides and desserts – a huge range of ready to eat meals, all clearly labelled in terms of their quality, nutritional value and even sustainability credentials (e.g. ‘this salad nicoise is made from sustainable fish stocks’).

The promotion is signed clearly outside the front of the store, at entrance, overhead, on gondola ends and aisles and even blank walls.  And the shoppers LOVE IT.  A real buzz in-store, conversations among friends in the queues, and unsolicited praise about it from friends of mine living in the UK… this is occasion-based shopper marketing that is bang on the money.

Here’s another example: Boots pharmacies located in high-traffic urban areas are offering lunch-on-the-run deals for under 3 pounds 50 including a drink. Brilliant. People often stop in to the Boots for drugs or emergency items like stockings… now they can grab their lunch as well. In fact, I think Boots urban locations are becoming destination lunch-on-the-run stores and their rest of store offer is adding incremental sales to the lunch purchase. A terrific traffic driver.

Superdrug are doing a similar thing: sandwich, snack and drink lunch deals:

Meanwhile, another fabulous example of occasion-based messaging in the BHS department store in Bath. ‘ Beach-ready body for £30′ in the swimwear department. All the push-you-out-and-suck-you-in bathing suits all displayed together in one area for a fixed price. And even more brilliantly, BHS is literally right across the road from the new spa complex and the swimwear is positioned just inside the entry doors to capture all the impulse purchases from disorganised travellers who didn’t book their spa package in advance… like me!

Sainsbury’s, as ever, have all the occasions covered. On your way to a friend’s for dinner or off out on a date? Flowers and chocolates displayed together right at the front of the store with good price points and a service counter located nearby.

Sainsbury’s range of ready-to-eat meal solutions for the dinner tonight occasion also takes some beating! The English sure know how to do ready-to-eat. Gourmet salads, Moroccan, Indian, Thai – you name the cuisine, they’ve probably got it. Leaves our Australian range of overpriced fresh soups and gluggy instant pastas for dead. And the dinner tonight options are together in clear displays easily accessible without shopping the rest of the store.

Yep, the UK are leading the way in occasion-based shopper marketing in store. On the downside, some of these stores are undoing all their good work by only having 1 or 2 serviced checkouts and pushing everyone else through self service checkouts which they quite obviously and loudly hated (and were slow). But, that aside, there is a lot we can look at by way of leveraging occasions in Australian retail.

In Summary:

• What are the relevant shopper occasions for your category? Map your category to your shopper occasion to your channel. Some occasions will belong in one store type and not in another – you may need to change your occasion-based marketing based on channel type.
• What other categories are likely to be shopped by the same shopper for the same occasion and how can they be displayed and promoted together? Are there oppportunities for cross-supplier promotion based on occasion?
• Where in the store are shoppers likely to go to find what they need for the particular occasion? Is your display in the right place?
• Is there a clear value proposition and price point based on the occasion? Marks & Spencer ‘Dine in for 2 for £10′ is a great example of this.
• Is the occasion communicated multiple times on the shopper path to purchase and signposted clearly in terms of where to find it in store?
• Have you thought about the other occasions shoppers visit a particular store type for at what time of day, and how you might leverage the occasion opportunity? Examples are fuel before and after work and the snack / gut fill on the run opportunity, and the Boots-style lunch deals in inner city pharmacies when shoppers come in for emergency items.
• Is there a place for localised occasion-based marketing? A perfect example is the department store opposite the spa centre heavily promoting swimwear.  There may be localised opportunities in particular stores you distribute in.

So… just in time for Xmas… keep your eye out for the best occasion-based marketing of the season! How can you apply these principles to your product or retail offer? Time to think outside just the gift box.

-  By ShopAbility for Retail World Magazine

Last time, Alex discussed measuring your business performance as part of a crisis assessment. This assumes that you’re in the right business in the first place. Ie, that the things being measured are the right things.

In the first article, Margie alluded to determining your core business proposition as a core part of determining your diagnosis and what needs curing. We’re going to explore this further here.

Why is your business here?

What business are you in? Yes, the old clichéd management questions that are currently being jokily used in a banking ad on television are the ones we’re going to dig into here.  This is the first one.

Defining your core business proposition sounds straightforward on paper but is more difficult to define simply. Define your business too narrowly and you miss opportunities and the market might move on without you, like the American railroad company in the late 1800s who defined themselves as being in the railroad business rather than the transport business. In Australia Cobb & Co did the same thing, they thought they were in the stagecoach business not the courier or mail delivery business. Defining the medium can narrow your options.

On the other hand if you’re too broad in your definition you lose vision and flounder in a morass of indirect competitors. An example of this might be if you’re a confectionery manufacturer, and you define yourself as being in the ‘happiness’ business. This puts you in competition with a whole lot of leisure categories such as toys, games, entertainment, and escape/indulgence services like day spas. Useful to look for distribution opportunities and links perhaps, but not a clear proposition for consumers and difficult to do meaningful competitive analysis.

Your business definition needs to be easily understood by your staff, your retail customers and your end shoppers and consumers. It needs to consider the history of the sectors you’ve traditionally played in and the likely future of these and allied sectors.

Keep it straightforward and free of fluffy marketing waffle. Answer the question ‘why are we here?’ by answering ‘what do we do?’ and ‘what need does it satisfy?’

Using confectionery as an example, Figure 1 below provides some levels from a category and consumer perspective to help you pinpoint how wide or narrow you want to go.

Defining your business based on needs and capabilities may uncover sector or channel opportunities. Using the chocolate example above, if a chocolate manufacturer defined themselves as being in the desserts (occasion) business as well as treats business that opens up a whole lot of foodservice applications and opportunities. Or if defined as the ‘ingredient component’ business then the chocolate can be applied to ice cream, biscuits etc.

Making the right stuff

So now you’ve defined the business you’re in, are you making the right stuff to fit that definition? What new opportunities exist?

How is the market performing? Are the categories you are in – or now want to be in as a result of your new business definition – up, down, or static?  Static or even growing share of a declining category spells death in the long term, cash cows die eventually. If you’re in this situation – can the category be turned around? What would that take?

For the categories you are or want to be in, will you drive change or follow it?

What will it take to be truly innovative, vs merely renovating what you already do with line extensions and brand extensions?

To be clear here, the majority of ‘new products’ in the FMCG sector are flavour or pack size variants of existing brands and lines, and therefore have a reasonably high degree of cannibalisation and substitutability. Trying to turn your company around by doing line extensions is like trying to save yourself rich. It’s incrementalism, and perhaps playing the existing game a bit better, but it’s not changing the game.

What is the role of brand to you? Do you need more brands or new brands? Should you be a company playing in brands or in private label, or both?

How extensible are your brands? Traditionally FMCG uses umbrella and sub brands (Arnott’s Tim Tam for instance) where companies like Virgin use the same brand across diverse categories (airlines, credit cards, mobile phones).

If you’ve identified new category or sector opportunities as a result of your business definition you need to determine whether your existing brands can play there or whether you need new ones, or at least new sub-brands.

How full is your innovation (not renovation) pipeline?

Doing the right stuff, for the right people

Once you’ve defined your business and therefore product and brand opportunities, it’s time to review who your customers and consumers should be, and the best options for servicing them.

Who are your target consumers, based on the occasions and categories you’ve identified? Where are they? Where will they buy and consume your product? What are the implications of this for who your retail customers should be?

By reviewing your consumer and shopper targets there will be both channel strategy and  route to market implications. This may throw out opportunities to amend your supply chain, eg to backward or vertically integrate. Or alternatively, to divest or outsource elements of your supply chain so you can be more focussed on manufacture.

This is also an opportunity to identify all potential channels you could be in and to size/prioritise them based on what the product/brand offer in each would be and what the degree of difficulty is in servicing them – barriers to retail entry, competitors etc.

This requires a review of the parts of the route to market you operate in – manufacturer, wholesaler, distributor, reseller, retailer.

In Summary

The above is a set of thought starters to get you thinking about your business at a broader level and get you out of the day-to-day. This type of review should be done every few years, not just waiting until the market has changed and the train has left the station.

Looking at your business purpose, your product offer and your customers (both consumer and retailer) is core in determining whether you’ve still got the ladder against the right wall, or even in the right room.

Next time: Risk Management. In the meantime, we welcome feedback from you. Email us at enquiries@shop-ability.com

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? ShopAbility 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 ShopAbility 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 ShopAbility 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

By ShopAbility 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