April 28, 2008
Ahold’s Strategy: Less is More
Stop & Shop and Giant Food are in the process of delisting large numbers of products as part of the Ahold chain’s Value Improvement Program (VIP). The rationale is carrying products on the shelf that don’t move ultimately raises the cost of doing business for the chains that wind up getting passed along in higher prices to consumers. By culling slow movers, the chains believe that consumers will have access to products they most want and at prices they feel good about paying.
The SKU reduction initiative has taken place across the store even in departments such as produce where some competitors are looking to broaden selection to meet the needs of what is perceived as an increasingly diverse and culinary adventurous consumer base. In a press release, Stop & Shop and Giant claimed the VIP has enabled it to “enhance freshness by reducing transit and warehousing time in our supply chain.”
Removing product from shelves opens up shelf space that Giant spokesperson Jamie Miller told The Associated Press the company was filling with “larger quantities of our more popular items.”
Not all of Stop & Shop and Giant’s customers are happy with the changes taking place.
Lynee Lee, 62, who has shopped at Giant for years said, “I can’t stand it. There are certain things I’ve gotten used to getting, and it seems like every time I come in here, something else isn’t here anymore.”
Ms. Lee added, “A lot of my friends feel the same way.”
While Stop & Shop and Giant are cutting back, neither chain is in danger of becoming a limited assortment store operator. According to Giant’s Miller, the company still carries more than 50,000 items and is clearing space to add categories including books and DVDs to make it a “one-stop shop.”
Buddy Mays, president of a United Food and Commercial Workers (UFCW) union local that represents workers at Giant, thinks the chain’s strategy is flawed.
“I personally don’t think it’s the right direction,” he said. “That’s an opinion a lot of our customers and members have said to me. There was a day when Giant had the variety, but since Ahold has taken over they’ve become a price-driven company, not a service one.”
David Livingston, principal with DJL Research and RetailWire BrainTrust panelist, said Stop & Shop and Giant are moving in a logical direction.
“I don’t think they’re taking risk,” he told the AP. “What’s happened with Giant is it’s gone from a regional grocery chain to just a small portion of a conglomerate, and it’s lost touch with the market and allowed the competition to get the better of (it).”
Discussion Question: Are Stop & Shop and Giant Food going in the right direction by discontinuing items and filling the space with a greater number of facings of top sellers? Will it bring the chains to the point where they can become perceived as being truly price competitive? Will the chain’s perceived price competitiveness be negated as manufacturers continue to push through price increases in categories across the store?
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This only makes sense. Getting rid of slow movers (dogs) for high moving product is the name of the game. The Pareto Rule, rules! Twenty percent of your product is responsible for eighty percent of the volume. If you are out of the twenty percent and not cost competitive, it will be noticed.
One can easily argue both sides of this topic. On one hand, it’s easy to understand why retailers would want to carry items that turn over quickly. On the other, this limits choice, and prevents the introduction of new products.
Consumers are overwhelmed by the choices they have in categories like toothpaste, but in an “I want it my way” economy, consumers want what they want, when they want it. It’s a vicious cycle for retailers, with no easy answer.
Reducing assortment in order to make room for more of what apparently you are unable to keep in stock sounds like a serious operational issue. If they are unable to keep their current produce shelf stock replenished, how does increasing your shelf help? Either you will be unable to maintain inventory of the expanded stock or you will carry too much inventory and end up with a great deal more waste.
These actions are symptomatic of a chain that is out of touch with its customer base. I don’t know that I believe that 20% of the items represent 80% of the volume in produce, however I do know that that 20% is likely to be highly identifiable and therefore very low margin.
A regional chain can master their competition by carrying produce which reflects each store’s unique customer base; by homogenizing and reducing their assortment they are giving up one of their greatest potential strengths against their larger and more national competition.
Looks like the accountants are making decisions at Giant Ahold.
It has been said that successful food retailers have a strong Sense of Theater. Consumers, whether they realize it or not, want some “entertainment” of some sort when shopping. Few items have appeal on their own, only when they are unique or exclusive like at Stew Leonard’s or Trader Joe’s. In larger supermarkets, when you take away the variety, color, displays and packaging from the shelves–slow movers included–you dim the lights and lessen the appeal of the theater.
Consumers’ main complaint about traditional grocers is that they’re “cluttered” and “over-assorted” and “difficult to shop.” Given that, this concept is a “duh” as far as we’re concerned.
Overall SKU reduction on the part of grocers is inevitable as customers will select other sources (Whole Foods) or other means of shopping (online/delivery) if they don’t.
What it boils down to is what we call “a merchant’s point of view,” in other words, an edited inventory based on what you buy. Having said that, some of the comments above are very valid…there has to be trust of that merchant’s decisions, or the edited view will be seen as “you’re making up my mind for me” vs. “just what I want.”
SKU rationalization may make sense across some categories, but doing this across all categories will upset consumers to the point that they will stop shopping at that outlet. Ahold is assuming that consumers will accept a limited selection across all categories.
There are some categories where consumers may not even notice a change in assortment–but there are other categories where consumers are looking for variety, for innovation and new products, and for a broad choice of assortment. By tying in properly defined category roles & strategies (including where they need to maintain a broad assortment of SKUs), they would much better serve their consumer needs. At the same time, they could reduce the number of SKUs in the categories in which consumers don’t require a broad assortment.
I agree with David, this is a huge step in the wrong direction. Haven’t we learned in the past few years that the classic category management style of crunching numbers for product selection is out of date?
Retailers who want to stay ahead of the game need to focus on Shopper Insights in their mix of how to run their businesses properly. Plus, Ahold putting price over Service is bad idea #2. Looks like all they need is 1 more strike and they’ll be out of the game for good.
Ahold is falling into a trap that most of the retailers in the Grocery channel have recently into plunged head first: Wal-Mart Price Competition. Even though Wal-Mart does not have the presence in the Northeast that they have elsewhere, the move toward restricting variety to lower prices is akin to a mountain climber dropping his provisions to move lighter only to starve to death on the summit.
Consumers are asking for variety on an occasional basis while shopping a narrow selection on a regular basis. Consumers are comforted by the retailer’s variety knowing that it is there when the need arises. Should that variety disappear, the consumer may not immediately switch retailers, but as soon as the need for variety arises, they leave in search of the “hard to find” item and pledge loyalty to the retailer that provides it. Wal-Mart’s notoriously narrow variety may help keep prices low, but consumers are quick to eliminate the retailer from a shopping trip that requires a unique item for a special eating occasion.
Stop & Shop was my top choice when I lived in Boston for picking up the gourmet and specialty ingredients I needed for entertaining and special meals. As such, I found most of my grocery dollars spent there rather than the competitor Shaws or the Wal-Mart Supercenter. There is comfort knowing that I can get ALL of the items on my list at one retailer. This will become more important as gasoline prices rise.
Marsh and Kroger fill those needs for me since moving to the Midwest where the supercenter approach is even more prominent. These retailers have realized that they can set themselves apart from Wal-Mart by continuing to carry the variety and regional items consumers can’t find at the discount giant. This has lead to growth at Kroger and loyal consumers. Marsh, too, is seeing this strategy pay-off after putting the years of management issues behind them.
Even knowing that I could save money at Wal-Mart, I refuse to sacrifice quality and variety when cooking for my friends and family. Ahold is looking at this issue from a too distant perspective. Wegmans has already successfully used a similar strategy (variety and premium products vs. low price) and has taken share from Ahold’s Tops Markets in Buffalo. I fear Stop & Shop and Giant will soon watch their share erode to competitors willing to maintain variety and differentiate themselves.
Culling slow movers has always been an integral part of the merchandising function. However, it seems that S&S/Giant is going further. I believe that approach will lead to lost market share. As Herb Brody, one of Pathmark’s founders always said, “to the woman who buys specialty olives, that item is important.” It was Herb’s way of saying that customer preferences should come first.
I’m all for intelligent loss of work. Paring away slow-movers may accomplish this, and coincidentally reduce some out-of-stocks on faster movers. But filling in facings has an undesirable side effect of increasing the proportion of shelf inventory in excess of 7 days of supply. The threat here is more idle inventory dollars and adverse pressure on GMROII as a result.
If VIP decisions are being made chainwide–then I suspect a likely outcome may be improvements in supply chain efficiencies and possibly lower shelf replenishment costs but coupled with a lower return on shelf space. The acid test will be consumer perception. If the stores seem more satisfying to shop for most customers, then you may have a win, but if the Coleman’s Mustard crowd is sent packing (thanks, Ron M. for that example) then the program may backfire.
I agree that this sounds like a case of managing assortments strictly by the numbers instead of with a merchant’s touch. S&S has carved out its niche in upscale assortments, a niche that is not likely to drive units per linear foot. Are they really under-faced on their highest volume items?
Driving towards maximizing inventory return per item may work at cross purposes with its whole strategic positioning.
So there is a supermarket chain in America that sells about $100 million per year per store, while the rest average in the $10 – 20 million range. Of course the former carries less than 2000 items and the latter 30,000+ items. And the typical household only buys about 300 different items PER YEAR, only about half of those regularly.
What we have here is the management of the “big head” vs. the “long tail” problem. The big head is those few items that are needed to satisfy nearly all market needs, and the long tail is everything else. Unfortunately, most supermarkets’ strategy is to NOT manage these distinctly, but to indiscriminately stir them all together on one shelf, and let the shopper sort it out.
Shoppers hate sorting it out, and reward generously retailers who will make their choices for them. Most buyers prefer a rifle shot offer instead of a shotgun blast. Supermarket shoppers are no different.
These arguments about “I want this specific item” and “all the people I know are like me,” are just so lame. The reality is that the vast majority of people will be satisfied with far fewer choices, and will pay more for the privilege. But there ARE people who insist on having idiosyncratic products, and at bottom dollar. These people, are a tiny share of the population, a share that the industry watches like a hawk, and tries to cater to their every whim.
The reality is that huge stores stuffed with massive options meets the needs of suppliers for shelf space (a competitive necessity) and the needs of retailers for slotting fees and promotional allowances, NOT the needs of shoppers.
I notice that the punditry here largely disapproves of Tesco’s Fresh & Easy stores, too, (3500 items per store.) And immediately leaped on Tesco’s break for evaluation of the roll-out as proof of the punditry’s judgment. Tsk, tsk! Better pack a big lunch if you are waiting to see a train wreck here.
Having said all this, there IS a role for the long tail in a standard supermarket. But it is NOT simply stirring it into the big head offering, in the hopes that in forcing the shopper to look for what they want, maybe they will buy something else, too. That way leads to the continuing slide of the supermarket business.
In most respects I am with the less is more philosophy. My wife and I grocery shop together, her to complete the task, me for the adventure. You only have to watch consumers in a category like toothpaste to realize our grocery stores are infested with SKU proliferation. Recently I watched my wife, an incredibly intelligent women, take well over 5 minutes to find the Crest Toothpaste with Scope that she wanted. Is there that much of a need for a 6.2 oz and 4.6 oz tube of toothpaste?
Eliminating slow movers? Well, great human judgment is needed. Produce items with such slow movement that a single case results in majority spoilage? The 12th top selling mustard in the third size? The item that only sells in volume 1 week a year? What about the ethnic item that sells in only 5 locations out of 105?
It sounds as if these chains need to figure out who their customer is and what s/he wants before they commit to such a massive overhaul.
If it’s true that the big-basket shopper is the one buying the specialty products, it would seem to me that the first goal of any store should be to grow the number of those big-basket shoppers who are coming to Ahold stores.
After all, we’ve all been raised on that old saw about it costing five times as much to get a new customer as it is to keep a current one. And then there’s this one about finding new customers: Identify and profile your best current customers, then target prospects who match the profile.
Of course, management has to think growth is possible. If you’re just trying to keep margins up and extract cash while you drive the company into the ground, then discontinuing SKUs at the expense of customer satisfaction makes perfect sense.
Every food retailer (and every retailer, for that matter) needs to balance breadth of assortment against the profitability and productivity of the merchandise in the store. The “80/20” rule may not have exact application to the grocery business, but surely there is a bottom tier of SKUs that is tying up shelf space and not carrying their weight in terms of sales and margins. If the trade off is more depth of most-wanted merchandise, at more competitive prices because of the margin gained through this process, most consumers would welcome the change.
Consumers may not buy Arm & Hammer baking soda often but they expect to be able to purchase it when they need it. Since it’s a slow moving item should it be eliminated? Many assortment studies indicate that giving consumers a smaller choice set that includes what they want is more effective.
It’s the “what they want” that makes the difference. If consumers are loyal to the product and/or brand they will go to another store to find the product and purchase other things at the same time. Determining which items are slow moving and not important to consumers as opposed to those items that are slow moving AND important to consumers is a critical decision. Loyalty or consumer demand needs to be just as important as the number of times the product sells.
This is a good idea if implemented correctly but it is easy to alienate customers. If you eliminate the wrong items you risk forcing your customers to look for these items at your competitors…best case, or losing them completely, which is the worst case.
Eliminating items can’t be done strictly from the standpoint of sales volume, it has to include the decision tree and a careful examination of the uniqueness of each item. Items that are clearly duplicates should be able to be dropped fairly safely freeing up valuable space and reducing inventory. Studies have shown that consumers actually don’t realize that items have been pruned when it is done properly and enjoy shopping in a new, improved planogram that is laid out according to the decision tree.
Doing this properly takes time, research and cooperation between the retailer and a trusted supplier or broker, unless the retailer is willing and able to invest the time and talent in-house. And making these decisions while ignoring slotting fees and other distractions is very important too, as is the full support of senior management.
Combining all these factors in order to make good decisions for the consumer is rare but can pay big dividends to any retailer up to the challenge. Is this retailer one of them? Only time will tell.
Classic inventory management would tell you that as delivery costs go up, order sizes should increase and as carrying costs go up, order sizes should go down. The challenge everyone is facing today is that all the costs are going up at once and carrying costs will only accelerate as interest rates begin to increase. (Although higher prices mean more gross profit dollars (at the same rate) for handling costs.) The proper answer is unclear because everything is changing together.
Managing store inventories is focused on “presentation stock,” which represents most of the inventory in the selling area. Manufacturers increase case packs and assortments in order to create the largest possible presence on shelf. Too often, this perverse game is bolstered by economic incentives that encourage the retailer to take on questionable product variations in order to receive stocking allowances.
The uncertainty that this climate creates makes it difficult for retailers to “do the right thing.” Ahold deserves credit for giving it a try, but they must be very careful to look at items from several perspectives. Total warehouse, or region sales on DSD items cannot be used to make these decisions. The selection of what items to cut must be made on a store by store basis and in addition to individual item sales it must consider the “shopping basket characteristics” of the consumers. This must rely on frequent shopper data to understand that a particular item like baking powder is a slow mover, but is most popular among the big basket consumers. These are the folks you don’t want to lose.
Another aspect of this whole thing could be to work with manufacturers to go back to more “mixed case” containers. The inability of many retail ordering systems to handle them, has reduced the number of situations where manufacturers supply assorted cases of products. Maybe retailers and manufacturers can work together to figure out how to integrate assorted cases back into the supply channel. Another option may also be to consider ways to reduce case packs, but this still leaves slotting and handling costs.
Shelf space is prime real estate and it cannot be taken up by no-velocity items. Culling sku lists is always a good idea. Increasing facings and shelf presence is the best way to maintain image. Seeing bulk fillings inspires consumers to buy. If Ahold buys more of a certain sku, vendors should be happy as they are making volume allocations. Consumers looking for low velocity items will suffer because of this strategy but overall it is a good operational move for Ahold. They just need strict merchandise execution at the store level for this to succeed.
Removing unproductive items is always a good thing. However, there are more definitions of unproductive than sales/linear foot. One example–a retailer might keep a variety of specialty mustards that don’t sell a lot because it gives the retailer an upscale or variety positioning. This is another way to keep shoppers from switching to a limited-assortment retailer and should be considered a productive use of space. From the tone of the article, Ahold is ignoring the positioning aspect in favor of the financial aspect.
Discontinuing items and filling the space with a greater number of facings of top sellers is not a good strategy:
• Unless the prices are always amazingly lower than everyone else’s the consumer has no motivation to shop a store that carries only the exact same assortment that every competitor in every channel of trade already carries.
• Many items pale by comparison in unit velocity when compared to a P&G or other mass markets leading brand item. However, it’s often that one niche or specialty item that is truly the tie-breaker for any given consumer on whether or not she shops any given store.
The mentality of using strictly IRI and Nielsen rankings to determine which items to carry is a flawed approach because it relies completely on the past, and on the “me-too,” and it discourages points of differentiation, forward thinking, and entrepreneurialism…and causes a shopping experience to be extremely boring.
It sounds like Accounting is making the decision not Merchandising.
It is well known that less than 200 of the 35,000 items sell one or more cases per week per store in the typical supermarket. When retailers build big stores, they must fill them with items. When a retailer decides to only carry fast moving items, they start the downward spiral to a limited assortment format. They are also likely to lose some customers that shop the store for specific items.
This type problem should not happen with a real category management approach.
I remember doing a study with a client that made a forecasting engine a few years ago in which we analyzed the data of every order over $500 at three stores for a two-week period. As I recall, the study covered about 1,200 orders.
We ran a correlation of the products purchased in the set, as well as a comparison to the store’s overall t-log data. We found that the large orders had a lot of commonalities to each other and with the average store orders in that milk, eggs, butter, soda, bread, cereal, snacks, etc. The interesting results were in the area of what the large orders had in common with each other but not with the average store orders. Several items, including some which were selling only a case or two a month at the store, were almost exclusively purchased by the group of large orders.
I remember Coleman’s Powdered Mustard was one of the products in this category, with nearly 10% of the $500+ orders buying the item. So what will happen if Stop & Shop and Giant Foods stop selling Coleman’s Powdered Mustard? Will those $500+ per order customers do all of their shopping at another store?
Ahold is making a serious mistake and angering loyal customers in the process.
Why should I shop Giant/Stop & Shop if they don’t carry the products I normally purchase?
They are going about this the wrong way. If they want to convert to limited selection stores, they should be open about it and say so.
That leaves more of the pie for its competitors like A&P/Super Fresh and Pathmark along with Acme, Shop Rite, and others, who have not cut back on product shelf depth and selection, which matters most to certain customers.
Personally, I think this is why online stores have surpassed brick and mortar in customer satisfaction this year. I see this trend in more than just grocery–compare the in-store vs. online assortment of dishes at Bed Bath & Beyond for evidence of tighter, higher volume assortment in store, and wide selection online. The problem with grocery is that the online half of that equation is not widely available in the US. It’s much more risky to edit your in-store assortment if you can’t make favorite products available through other channels.
It makes me wonder what the future grocery store format is going to look like. What if you went to a store that was filled only with fresh–produce, meat, dairy, bakery–and the rest you could order online from home the day before and then pick it up in the store when you went to pick out your fresh items? Or you ordered center-store stuff through a kiosk in the store and had it delivered to your house? Seems like that eliminates the two biggest problems for mutli-channel for grocery: the fresh problem for online (I want to pick the best fruit for myself) and the SKU proliferation problem in stores….
This appears to me to be Ahold’s way of spinning the fact that they don’t have the best personnel doing the buying and category management. Centralizing and consolidating these functions will often result in inexperienced buyers and category managers trying to to oversee markets they have little knowledge of. The final result is a store full of items nobody wants. Look at what Ahold did to Tops as proof.
Ahold, like A&P, Safeway, Kroger, etc, will never have a price image. It would be impossible with their high labor and rent costs to be price competitive with stores like Wal-Mart or Aldi. Just like they will never offer the quality and service levels of a Wegmans or Whole Foods. They are stuck in the supermarket hourglass.
I think I can almost guarantee that same store sales at Ahold’s USA stores will continue to be negative after growth and inflation is factored out.
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This only makes sense. Getting rid of slow movers (dogs) for high moving product is the name of the game. The Pareto Rule, rules! Twenty percent of your product is responsible for eighty percent of the volume. If you are out of the twenty percent and not cost competitive, it will be noticed.
One can easily argue both sides of this topic. On one hand, it’s easy to understand why retailers would want to carry items that turn over quickly. On the other, this limits choice, and prevents the introduction of new products.
Consumers are overwhelmed by the choices they have in categories like toothpaste, but in an “I want it my way” economy, consumers want what they want, when they want it. It’s a vicious cycle for retailers, with no easy answer.
Reducing assortment in order to make room for more of what apparently you are unable to keep in stock sounds like a serious operational issue. If they are unable to keep their current produce shelf stock replenished, how does increasing your shelf help? Either you will be unable to maintain inventory of the expanded stock or you will carry too much inventory and end up with a great deal more waste.
These actions are symptomatic of a chain that is out of touch with its customer base. I don’t know that I believe that 20% of the items represent 80% of the volume in produce, however I do know that that 20% is likely to be highly identifiable and therefore very low margin.
A regional chain can master their competition by carrying produce which reflects each store’s unique customer base; by homogenizing and reducing their assortment they are giving up one of their greatest potential strengths against their larger and more national competition.
Looks like the accountants are making decisions at Giant Ahold.
It has been said that successful food retailers have a strong Sense of Theater. Consumers, whether they realize it or not, want some “entertainment” of some sort when shopping. Few items have appeal on their own, only when they are unique or exclusive like at Stew Leonard’s or Trader Joe’s. In larger supermarkets, when you take away the variety, color, displays and packaging from the shelves–slow movers included–you dim the lights and lessen the appeal of the theater.
Consumers’ main complaint about traditional grocers is that they’re “cluttered” and “over-assorted” and “difficult to shop.” Given that, this concept is a “duh” as far as we’re concerned.
Overall SKU reduction on the part of grocers is inevitable as customers will select other sources (Whole Foods) or other means of shopping (online/delivery) if they don’t.
What it boils down to is what we call “a merchant’s point of view,” in other words, an edited inventory based on what you buy. Having said that, some of the comments above are very valid…there has to be trust of that merchant’s decisions, or the edited view will be seen as “you’re making up my mind for me” vs. “just what I want.”
SKU rationalization may make sense across some categories, but doing this across all categories will upset consumers to the point that they will stop shopping at that outlet. Ahold is assuming that consumers will accept a limited selection across all categories.
There are some categories where consumers may not even notice a change in assortment–but there are other categories where consumers are looking for variety, for innovation and new products, and for a broad choice of assortment. By tying in properly defined category roles & strategies (including where they need to maintain a broad assortment of SKUs), they would much better serve their consumer needs. At the same time, they could reduce the number of SKUs in the categories in which consumers don’t require a broad assortment.
I agree with David, this is a huge step in the wrong direction. Haven’t we learned in the past few years that the classic category management style of crunching numbers for product selection is out of date?
Retailers who want to stay ahead of the game need to focus on Shopper Insights in their mix of how to run their businesses properly. Plus, Ahold putting price over Service is bad idea #2. Looks like all they need is 1 more strike and they’ll be out of the game for good.
Ahold is falling into a trap that most of the retailers in the Grocery channel have recently into plunged head first: Wal-Mart Price Competition. Even though Wal-Mart does not have the presence in the Northeast that they have elsewhere, the move toward restricting variety to lower prices is akin to a mountain climber dropping his provisions to move lighter only to starve to death on the summit.
Consumers are asking for variety on an occasional basis while shopping a narrow selection on a regular basis. Consumers are comforted by the retailer’s variety knowing that it is there when the need arises. Should that variety disappear, the consumer may not immediately switch retailers, but as soon as the need for variety arises, they leave in search of the “hard to find” item and pledge loyalty to the retailer that provides it. Wal-Mart’s notoriously narrow variety may help keep prices low, but consumers are quick to eliminate the retailer from a shopping trip that requires a unique item for a special eating occasion.
Stop & Shop was my top choice when I lived in Boston for picking up the gourmet and specialty ingredients I needed for entertaining and special meals. As such, I found most of my grocery dollars spent there rather than the competitor Shaws or the Wal-Mart Supercenter. There is comfort knowing that I can get ALL of the items on my list at one retailer. This will become more important as gasoline prices rise.
Marsh and Kroger fill those needs for me since moving to the Midwest where the supercenter approach is even more prominent. These retailers have realized that they can set themselves apart from Wal-Mart by continuing to carry the variety and regional items consumers can’t find at the discount giant. This has lead to growth at Kroger and loyal consumers. Marsh, too, is seeing this strategy pay-off after putting the years of management issues behind them.
Even knowing that I could save money at Wal-Mart, I refuse to sacrifice quality and variety when cooking for my friends and family. Ahold is looking at this issue from a too distant perspective. Wegmans has already successfully used a similar strategy (variety and premium products vs. low price) and has taken share from Ahold’s Tops Markets in Buffalo. I fear Stop & Shop and Giant will soon watch their share erode to competitors willing to maintain variety and differentiate themselves.
Culling slow movers has always been an integral part of the merchandising function. However, it seems that S&S/Giant is going further. I believe that approach will lead to lost market share. As Herb Brody, one of Pathmark’s founders always said, “to the woman who buys specialty olives, that item is important.” It was Herb’s way of saying that customer preferences should come first.
I’m all for intelligent loss of work. Paring away slow-movers may accomplish this, and coincidentally reduce some out-of-stocks on faster movers. But filling in facings has an undesirable side effect of increasing the proportion of shelf inventory in excess of 7 days of supply. The threat here is more idle inventory dollars and adverse pressure on GMROII as a result.
If VIP decisions are being made chainwide–then I suspect a likely outcome may be improvements in supply chain efficiencies and possibly lower shelf replenishment costs but coupled with a lower return on shelf space. The acid test will be consumer perception. If the stores seem more satisfying to shop for most customers, then you may have a win, but if the Coleman’s Mustard crowd is sent packing (thanks, Ron M. for that example) then the program may backfire.
I agree that this sounds like a case of managing assortments strictly by the numbers instead of with a merchant’s touch. S&S has carved out its niche in upscale assortments, a niche that is not likely to drive units per linear foot. Are they really under-faced on their highest volume items?
Driving towards maximizing inventory return per item may work at cross purposes with its whole strategic positioning.
So there is a supermarket chain in America that sells about $100 million per year per store, while the rest average in the $10 – 20 million range. Of course the former carries less than 2000 items and the latter 30,000+ items. And the typical household only buys about 300 different items PER YEAR, only about half of those regularly.
What we have here is the management of the “big head” vs. the “long tail” problem. The big head is those few items that are needed to satisfy nearly all market needs, and the long tail is everything else. Unfortunately, most supermarkets’ strategy is to NOT manage these distinctly, but to indiscriminately stir them all together on one shelf, and let the shopper sort it out.
Shoppers hate sorting it out, and reward generously retailers who will make their choices for them. Most buyers prefer a rifle shot offer instead of a shotgun blast. Supermarket shoppers are no different.
These arguments about “I want this specific item” and “all the people I know are like me,” are just so lame. The reality is that the vast majority of people will be satisfied with far fewer choices, and will pay more for the privilege. But there ARE people who insist on having idiosyncratic products, and at bottom dollar. These people, are a tiny share of the population, a share that the industry watches like a hawk, and tries to cater to their every whim.
The reality is that huge stores stuffed with massive options meets the needs of suppliers for shelf space (a competitive necessity) and the needs of retailers for slotting fees and promotional allowances, NOT the needs of shoppers.
I notice that the punditry here largely disapproves of Tesco’s Fresh & Easy stores, too, (3500 items per store.) And immediately leaped on Tesco’s break for evaluation of the roll-out as proof of the punditry’s judgment. Tsk, tsk! Better pack a big lunch if you are waiting to see a train wreck here.
Having said all this, there IS a role for the long tail in a standard supermarket. But it is NOT simply stirring it into the big head offering, in the hopes that in forcing the shopper to look for what they want, maybe they will buy something else, too. That way leads to the continuing slide of the supermarket business.
In most respects I am with the less is more philosophy. My wife and I grocery shop together, her to complete the task, me for the adventure. You only have to watch consumers in a category like toothpaste to realize our grocery stores are infested with SKU proliferation. Recently I watched my wife, an incredibly intelligent women, take well over 5 minutes to find the Crest Toothpaste with Scope that she wanted. Is there that much of a need for a 6.2 oz and 4.6 oz tube of toothpaste?
Eliminating slow movers? Well, great human judgment is needed. Produce items with such slow movement that a single case results in majority spoilage? The 12th top selling mustard in the third size? The item that only sells in volume 1 week a year? What about the ethnic item that sells in only 5 locations out of 105?
It sounds as if these chains need to figure out who their customer is and what s/he wants before they commit to such a massive overhaul.
If it’s true that the big-basket shopper is the one buying the specialty products, it would seem to me that the first goal of any store should be to grow the number of those big-basket shoppers who are coming to Ahold stores.
After all, we’ve all been raised on that old saw about it costing five times as much to get a new customer as it is to keep a current one. And then there’s this one about finding new customers: Identify and profile your best current customers, then target prospects who match the profile.
Of course, management has to think growth is possible. If you’re just trying to keep margins up and extract cash while you drive the company into the ground, then discontinuing SKUs at the expense of customer satisfaction makes perfect sense.
Every food retailer (and every retailer, for that matter) needs to balance breadth of assortment against the profitability and productivity of the merchandise in the store. The “80/20” rule may not have exact application to the grocery business, but surely there is a bottom tier of SKUs that is tying up shelf space and not carrying their weight in terms of sales and margins. If the trade off is more depth of most-wanted merchandise, at more competitive prices because of the margin gained through this process, most consumers would welcome the change.
Consumers may not buy Arm & Hammer baking soda often but they expect to be able to purchase it when they need it. Since it’s a slow moving item should it be eliminated? Many assortment studies indicate that giving consumers a smaller choice set that includes what they want is more effective.
It’s the “what they want” that makes the difference. If consumers are loyal to the product and/or brand they will go to another store to find the product and purchase other things at the same time. Determining which items are slow moving and not important to consumers as opposed to those items that are slow moving AND important to consumers is a critical decision. Loyalty or consumer demand needs to be just as important as the number of times the product sells.
This is a good idea if implemented correctly but it is easy to alienate customers. If you eliminate the wrong items you risk forcing your customers to look for these items at your competitors…best case, or losing them completely, which is the worst case.
Eliminating items can’t be done strictly from the standpoint of sales volume, it has to include the decision tree and a careful examination of the uniqueness of each item. Items that are clearly duplicates should be able to be dropped fairly safely freeing up valuable space and reducing inventory. Studies have shown that consumers actually don’t realize that items have been pruned when it is done properly and enjoy shopping in a new, improved planogram that is laid out according to the decision tree.
Doing this properly takes time, research and cooperation between the retailer and a trusted supplier or broker, unless the retailer is willing and able to invest the time and talent in-house. And making these decisions while ignoring slotting fees and other distractions is very important too, as is the full support of senior management.
Combining all these factors in order to make good decisions for the consumer is rare but can pay big dividends to any retailer up to the challenge. Is this retailer one of them? Only time will tell.
Classic inventory management would tell you that as delivery costs go up, order sizes should increase and as carrying costs go up, order sizes should go down. The challenge everyone is facing today is that all the costs are going up at once and carrying costs will only accelerate as interest rates begin to increase. (Although higher prices mean more gross profit dollars (at the same rate) for handling costs.) The proper answer is unclear because everything is changing together.
Managing store inventories is focused on “presentation stock,” which represents most of the inventory in the selling area. Manufacturers increase case packs and assortments in order to create the largest possible presence on shelf. Too often, this perverse game is bolstered by economic incentives that encourage the retailer to take on questionable product variations in order to receive stocking allowances.
The uncertainty that this climate creates makes it difficult for retailers to “do the right thing.” Ahold deserves credit for giving it a try, but they must be very careful to look at items from several perspectives. Total warehouse, or region sales on DSD items cannot be used to make these decisions. The selection of what items to cut must be made on a store by store basis and in addition to individual item sales it must consider the “shopping basket characteristics” of the consumers. This must rely on frequent shopper data to understand that a particular item like baking powder is a slow mover, but is most popular among the big basket consumers. These are the folks you don’t want to lose.
Another aspect of this whole thing could be to work with manufacturers to go back to more “mixed case” containers. The inability of many retail ordering systems to handle them, has reduced the number of situations where manufacturers supply assorted cases of products. Maybe retailers and manufacturers can work together to figure out how to integrate assorted cases back into the supply channel. Another option may also be to consider ways to reduce case packs, but this still leaves slotting and handling costs.
Shelf space is prime real estate and it cannot be taken up by no-velocity items. Culling sku lists is always a good idea. Increasing facings and shelf presence is the best way to maintain image. Seeing bulk fillings inspires consumers to buy. If Ahold buys more of a certain sku, vendors should be happy as they are making volume allocations. Consumers looking for low velocity items will suffer because of this strategy but overall it is a good operational move for Ahold. They just need strict merchandise execution at the store level for this to succeed.
Removing unproductive items is always a good thing. However, there are more definitions of unproductive than sales/linear foot. One example–a retailer might keep a variety of specialty mustards that don’t sell a lot because it gives the retailer an upscale or variety positioning. This is another way to keep shoppers from switching to a limited-assortment retailer and should be considered a productive use of space. From the tone of the article, Ahold is ignoring the positioning aspect in favor of the financial aspect.
Discontinuing items and filling the space with a greater number of facings of top sellers is not a good strategy:
• Unless the prices are always amazingly lower than everyone else’s the consumer has no motivation to shop a store that carries only the exact same assortment that every competitor in every channel of trade already carries.
• Many items pale by comparison in unit velocity when compared to a P&G or other mass markets leading brand item. However, it’s often that one niche or specialty item that is truly the tie-breaker for any given consumer on whether or not she shops any given store.
The mentality of using strictly IRI and Nielsen rankings to determine which items to carry is a flawed approach because it relies completely on the past, and on the “me-too,” and it discourages points of differentiation, forward thinking, and entrepreneurialism…and causes a shopping experience to be extremely boring.
It sounds like Accounting is making the decision not Merchandising.
It is well known that less than 200 of the 35,000 items sell one or more cases per week per store in the typical supermarket. When retailers build big stores, they must fill them with items. When a retailer decides to only carry fast moving items, they start the downward spiral to a limited assortment format. They are also likely to lose some customers that shop the store for specific items.
This type problem should not happen with a real category management approach.
I remember doing a study with a client that made a forecasting engine a few years ago in which we analyzed the data of every order over $500 at three stores for a two-week period. As I recall, the study covered about 1,200 orders.
We ran a correlation of the products purchased in the set, as well as a comparison to the store’s overall t-log data. We found that the large orders had a lot of commonalities to each other and with the average store orders in that milk, eggs, butter, soda, bread, cereal, snacks, etc. The interesting results were in the area of what the large orders had in common with each other but not with the average store orders. Several items, including some which were selling only a case or two a month at the store, were almost exclusively purchased by the group of large orders.
I remember Coleman’s Powdered Mustard was one of the products in this category, with nearly 10% of the $500+ orders buying the item. So what will happen if Stop & Shop and Giant Foods stop selling Coleman’s Powdered Mustard? Will those $500+ per order customers do all of their shopping at another store?
Ahold is making a serious mistake and angering loyal customers in the process.
Why should I shop Giant/Stop & Shop if they don’t carry the products I normally purchase?
They are going about this the wrong way. If they want to convert to limited selection stores, they should be open about it and say so.
That leaves more of the pie for its competitors like A&P/Super Fresh and Pathmark along with Acme, Shop Rite, and others, who have not cut back on product shelf depth and selection, which matters most to certain customers.
Personally, I think this is why online stores have surpassed brick and mortar in customer satisfaction this year. I see this trend in more than just grocery–compare the in-store vs. online assortment of dishes at Bed Bath & Beyond for evidence of tighter, higher volume assortment in store, and wide selection online. The problem with grocery is that the online half of that equation is not widely available in the US. It’s much more risky to edit your in-store assortment if you can’t make favorite products available through other channels.
It makes me wonder what the future grocery store format is going to look like. What if you went to a store that was filled only with fresh–produce, meat, dairy, bakery–and the rest you could order online from home the day before and then pick it up in the store when you went to pick out your fresh items? Or you ordered center-store stuff through a kiosk in the store and had it delivered to your house? Seems like that eliminates the two biggest problems for mutli-channel for grocery: the fresh problem for online (I want to pick the best fruit for myself) and the SKU proliferation problem in stores….
This appears to me to be Ahold’s way of spinning the fact that they don’t have the best personnel doing the buying and category management. Centralizing and consolidating these functions will often result in inexperienced buyers and category managers trying to to oversee markets they have little knowledge of. The final result is a store full of items nobody wants. Look at what Ahold did to Tops as proof.
Ahold, like A&P, Safeway, Kroger, etc, will never have a price image. It would be impossible with their high labor and rent costs to be price competitive with stores like Wal-Mart or Aldi. Just like they will never offer the quality and service levels of a Wegmans or Whole Foods. They are stuck in the supermarket hourglass.
I think I can almost guarantee that same store sales at Ahold’s USA stores will continue to be negative after growth and inflation is factored out.