UPPER SADDLE RIVER, N.J. — Retailers must use promotions not simply to drive volume but to drive incremental volume, industry consultants said last week during a webinar cosponsored by The Food Institute here.
Jim Hertel, managing partner at Willard Bishop, Barrington, Ill. — the other co-sponsor — said promotions and discounts that drive traffic and build basket size can amount to 15% of sales revenues, “but they may not generate incremental sales, enhance a store's price image or build shopper loyalty.”
“Disciplined planning and analysis yields much better results,” he said.
He urged retailers not to promote low-velocity items “because they don't help your price image. And promotions that don't meet minimum savings thresholds fail to deliver value and may hurt price image.
“You've got to break through the noise and provide meaningful value for shoppers, with a minimum 10% savings on items priced up to $4.99, and 50-cent savings on higher-priced items.”
Craig Rosenblum, partner in the Willard Bishop firm, offered several suggestions on how to drive incremental volume:
Get prices right on the right items across the store, especially on known-value items.
Make sure a second- or third-tier corporate-brand offering is complete but not overdone. “Many retailers abandoned second- and third-tier private-label offerings years ago, but today you must provide them for commodity shoppers,” he said.
Tell customers how the store can save them money. “Be clear and concrete in price communications so price-sensitive shoppers can ‘play the system’ and save,” he advised.
Promote items that disproportionately impact price image — “the 10 to 15 items that cannot be out-of-line,” he said.
Make sure displays create a desirable price image. “An item can be a good bargain, but if it carries a high price point despite being a bargain, it may not be an effective use of display space,” he explained.
Rosenblum said reducing SKU counts is a good idea, but retailers need to make sure the items they cut do not affect sales among their best customers.
“There was a time before the 1980s when the goal was to satisfy all shoppers' needs. But as retailers fight for sales, it's important to recognize the needs of their top shoppers first,” he explained.
Cutting assortments by 15% storewide is OK, he said, “but not in all categories because that will alienate top shoppers. Cuts should be made in high-SKU categories like hair care and skin care.”
Hertel said most retailers are not making full use of the loyalty card data available to them to make promotional decisions. “The single-biggest skills gap at retail is the gap between access to the information and making good decisions based on that data,” he pointed out.
“You can crawl, walk or run into the ocean of data that's available, and it can be overwhelming,” Rosenblum said. “But going after just one segment of the data — looking at your top shoppers, for example, or ways to convert the second tier to become top shoppers — can take you a long way.”
The two executives also said the kind of smaller-format stores that served specific neighborhoods in the early years of supermarketing will be the format of the future.
“The small-format store — not necessarily 15,000 square feet but right-sized to fit the neighborhood — will expand and offer significant value to shoppers in each neighborhood,” Hertel noted. “It will be back to the future, where local stores will do the best job of satisfying shoppers within a couple of miles around them.”
Rosenblum said these smaller stores will not necessarily be operated by new retailers, “but they will develop as a result of today's retailers expanding into different formats, particularly as some companies go out of business and more retail space opens up at lower prices.”