SAN DIEGO -- Retailers' increasing emphasis on image-defining perimeter departments and premium private-label items is creating a merchandising crunch in Center Store, where manufacturer goals have grown to conflict with -- and even contradict -- those of the retailer, an industry expert told attendees at the Reinventing CPG Summit 2004, sponsored by Information Resources Inc.
"The [grocery aisles] are effectively programmed with lots of stuff on display, but there's not as much excitement going on as in the perimeter of the store," said Kim Feil, chief executive officer of Mosaic InfoForce, a Chicago-based in-store conditions provider.
The situation may grow critical in as little as a year since a host of new health-minded products are hitting the market -- on top of the 35,000 new products that were introduced in the past year, she added.
"I predict that this year, it's going to come to gridlock, as all the healthy extensions hit the marketplace," Feil said.
Mosaic studies show that there were an average of 22 more Center Store displays every week in 2003 than there were the year before, an 18.8% increase; similarly, there were 219 more UPCs on the shelf than in 2002. The result was less promotional impact overall, and a more cluttered, unfriendly store to shop.
"You have to ask yourself, 'When is this too much?" Feil said. "The industry needs to tackle what the optimum really is, in light of what the consumer's needs really are."
While manufacturers and retailers seek the same goal of driving category volume for the benefit of the consumer, the means they use differ: Suppliers promote a brand without regard to the chain's total-store strategy; retailers seek to maximize the promotion as part of the total-store umbrella.
Available data models may not reveal for suppliers the true picture of what's happening at store level, Feil cautioned.
Category management, the primary method for determining how items are sold in the supermarket, helps to maximize variety and square-footage profitability. Yet, the end result often reveals a gap between supplier expectations and the gritty reality of selling at retail. The disparity explains why promoted volume can fall even though display allocations increase. In actuality, retailers are combining displays with other products across all categories, and in the process lessening the promotional impact of any single item.
"The category management practices that were so carefully designed at headquarters are not translating through to the end aisle because retailers are trying to make the most of all these promotions and trying to maximize their space in the store to accomplish it," Feil said.
For example, a departmental breakdown by Mosaic found that edibles had a 60.4% share of display in September 2003. On its face, the number was impressive, Feil said. However, the share actually represented a 2% decrease in the number of Center Store items on end-aisle displays from the same month a year before. The biggest shifts were recorded in salty snacks (-1%), cookies (-0.9%) and carbonated beverages (-0.8%).
At the same time, nonfood, health and beauty care, and a number of fresh-foods departments recorded incremental increases in that same promotional real estate.
Information tools the manufacturers are accustomed to using, such as sales data provided by firms like IRI or ACNielsen, can accurately reflect display presence but do not reveal a snapshot of what is actually happening at individual stores, where displays often carry a number of other products -- some of which, like private label, might compete directly with the branded item.
"So, it's very misleading just to look at your own category or your own space vs. a year ago because the major categories are getting chipped away, and that may not be the total-store opportunity for the manufacturer -- or the retailer," she told manufacturers.
Feil said the entire industry is overdue for a hard look at current category management practices. To avoid the gridlock that's around the corner, category management practices must be adjusted so that retailers and suppliers will gain equal shares of the benefits. She suggested the following steps:
Build retailer and manufacturer brand images simultaneously (such as the way Target ads integrate manufacturers' brands);
Identify regular and seasonally optimal total-store display mix across categories;
Optimize the number of displayed UPCs for shopper satisfaction and return on investment; and
Design more logical, across-category, consumer-targeted and lifestyle displays (such as meal centers).
