September 12, 2007
POS Cuts at Retail Hurting Vendors
By Tom Ryan
According to a study from IRI, CPG companies are facing a “merchandising crisis” as retailers have cut back significantly on point-of-sale display space at a time when manufacturers need it most, given the declining effectiveness of traditional advertising vehicles.
“CPG companies are buffeted by the twin problems of advertising ineffectiveness, combined with the loss of in-store display options as retailers are taking charge of branding the consumer shopping experience,” said IRI Retail Solutions and Strategic Consulting President Thom Blischok, in a statement. “CPG companies must demonstrate that their products and merchandising programs fit into the retailer’s comprehensive growth strategies.”
According to the CPG Merchandising Trends 2007: New Strategies for a New Retail Environment report, traditional merchandising, including displays, feature ads and price reductions, is still prevalent across CPG products. In nearly two-thirds of CPG categories, 30 percent or more of volume is sold with merchandising support. But, activity is slowly declining, according to the report. Within grocery stores, for instance, 60 percent of categories experienced declines in overall merchandising activity, and the number of grocery store displays has decreased almost 10 percent in just two years.
Further, no category appears to be immune to this trend. Even heavily-merchandised, expandable categories, such as carbonated beverages and cookies, had significantly fewer displays this year than last. Private label products, it must be noted, have seen comparable declines in merchandising activity relative to branded products.
“Retailers are placing heavy restrictions on the number, size and characteristics of displays,” said Mr. Blischok. “Merchandising now needs to be much more closely aligned with overall retailer growth strategies. Account-specific merchandising plans will be required, driving a much greater need for collaboration between retailers and manufacturers.”
IRI also found that merchandising support continues to drive volume sales. Among two-thirds of CPG categories, average volume increases from merchandising support are 50 percent or higher. What is alarming, however, is the fact that merchandising lift is slowly deteriorating. Nearly three-quarters of CPG categories experienced a reduction in the average volume lift achieved through merchandising versus last year.
“As prime merchandising opportunities, such as front-of-store displays, diminish, average lift will continue to erode, prompting more experimentation among manufacturers with new in-store marketing vehicles, a stepped-up investment in merchandising innovation, and a greater need for pre-testing and monitoring of merchandising executions,” added Mr. Blischok.
Discussion Question: Why are retailers cutting back the frequency and space devoted to displays? What are the implications of this action?
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Well-run retailers carefully restrict POS displays because the clutter can become overwhelming. Certain radio stations reduced commercial time per hour when they found audiences turning away. Spam might’ve been fun when people got 1 message a day, but 175 per day means you throw all of them out without reading any. Successful retailers are great editors. They edit their assortments, their advertising, their location types, even the types of people they hire. Certainly they edit their displays.
I’m struck by Stephan’s observation about CPGs showing up in non-supermarket environments–Liz and Anne picked that up as well with their references to channel-agnostic brand tribes and shopper-centric research and creative development.
Together, those references took me back to the day a few weeks ago that my son and I did a week’s worth of frozen-food buying in, of all places, Target!
So of course a savvy supermarket, especially on the high end, is going to do its utmost to edit the selection and brand the in-store experience as primarily Dierbergs, or Ukrops, or Publix, or whatever.
Trader Joe’s and, actually, Target itself, have been teaching them how to do that for years, precisely because supermarkets were getting killed when all they were was these cluttered aggregates of national branding messages.
What’s tough is, how do you create brand awareness and, more important, trial, when advertising effectiveness is at an all-time low and sinking fast–and important segments of the audience are so busy they’re not only not watching much television, they’re not consuming much in the way of any media at all?
Retailers also need to track whatever promotions they do and provide proof of evidence to manufacturers with Sarbanes-Oxley in effect. Many of the retailers do not want to go through the trouble and/or expense of doing the documentation and may be restricting the number of promotions that way. Or, from the other perspective, manufacturers may be unwilling to do the placements if the retailers refuse to do the documentation necessary. Or, the retailers may be using the space for private labels. Or, retailers are using space to increase shelf space for new products.
There are a number of reasons why the retailers are cutting back on promotion space. Until manufacturers know why the retailers are cutting back, it will be difficult to address the problem.
Ah, the lost art of the elaborate display.
I personally look forward to special displays in large food markets.
A&P, over the years, has done some exceptional displays, in its largest stores, centering around holidays and special events. I will never forget Jane Parker Christmas fruit cake displays or for Thanksgiving, stuffing mix piled high surrounding a paper mache turkey, or cartons of soda and chips artfully displayed as a football playing field and spectator stands for Super Bowl weekend.
I think customers still are receptive and enjoy these displays and product promotions. As long as store managers can devote staff to these creative displays, they will continue to grace large supermarkets throughout the year.
There are several factors at play here. First, some POS is being cut back due to clutter. Too many displays makes the store look confusing to the customer and takes away from the image the retailer is trying to project. Second, some categories are no longer candidates. These products are being sold in supercenters and clubs which have forced EDLP pricing in all channels. POS will not have much impact, so why do it? Third, many CPG companies have not considered the retailers’ target market, only their market, in the development of POS materials. There is simply a miss-match. Last, some retailers have decided it’s more profitable to sell merchandise than sell retail space.
Retailers can and should be cognizant of where and when their shoppers want information in and around the stores, Manufacturers can help fund the research to get that information. In collaboration, could they not work together to please the consumer by developing both informational and promotional solutions for categories that are shopper centric? For some categories, it may mean more in-store presence, for others it may mean more external messaging. The key to success is to learn and then act in a shopper-centric manner. Brand equity can be accomplished for both parties with appropriate creative development.
I would be cautious about the lifts cited in this report. No mention of whether it is just a promotion-week lift vs. base sales or if it takes into account mortgaging. The numbers cited suggest it does not take into account mortgaged sales, thereby hyping the impact of a display. The tone of the summary makes it sound like manufacturers have a right to display space. I think it’s great that stores are taking control and manufacturers need to justify their inclusion–it’s called accountability.
They’re cutting back because they’re not getting the return–in this case profits per square foot of selling space.
It’s the old 80-20 rule. Retailers–at least those smart enough not to see slotting fee and case allowances as a profit center–realize they don’t need to carry a lot of items that are on the shelf, especially those that use up prime POS locations. You simply can’t put 10 pounds of stuff in a five pound bag. (I cleaned that up a little for the purposes of decorum.)
Frankly, the fact that display space is at even a greater premium might work to everyone’s advantage. Certainly to consumers who are tired or trekking through aisles and aisles that carry five of the same thing with a different label; for retailers who are looking for a better ROI; and for manufacturers, for whom increased competition might spark real and sustained innovation.
One reason for the cut back in displays is the amount of money retailers can earn from shelf placement. In days gone by, displays were dedicated to those items that were going to be on sale and needed the added holding power to prevent an out-of-stock. Today retailers know that there are very few items that can’t be managed from the shelf, thus freeing up display space for other items. These “other items” include impulse items the customer would not normally have on their shopping list.
For CPG companies, this does create a real issue due to the decline of traditional advertising and the hesitation on the part of retailers to build displays, use POS, etc. This is one reason why the packaging itself is quickly becoming the most important element of the marketing mix for a wide number of CPG products.
Ideally, consumer advertising, in-store displays, and targeted internet shopper knowledge of products on promotion–new, and/or special offerings–would assist grocers and CPGs and other suppliers in maximizing their results.
In the world of multiple channels of advertising, the so called ineffectiveness of advertising is definitely a point-of-contention! The main issue in advertising is having the advertising seen by the core user. As we know, with multiple means to advertise–and especially through the internet alternatives–that has been a challenge!
The issue with the supermarket industry’s display space restriction, in a range of acknowledged alternatives, may be nothing more than the grocer upping the cost parameters to CPGs and other manufacturing sources. This makes sense with the grocery industry’s need to maximize revenue, especially with the center store offerings.
Also interesting, the grocers may be giving their upscale private label brand’s products more in-store support. Makes sense, with higher margins realized!
The real opportunity is for the supermarket and CPGs partner to maximize the two business entities’ efforts with the email shopper base information that the supermarket has, e.g. sending a complementary direct mail piece. Some supermarkets are augmenting this mentioned effort with the the CPG’s advertising and its in-store display action.
Finally, and most critically, with the continuing increase in non supermarket outlets offering CPGs’ products, the direct mail piece becomes a competitive advantage! Hmmmmmmmmm
It should come as no surprise that retailers are taking in-store opportunities for themselves–to brand the experience as well as promote their private label.
The way I see it, CPG has two options (beyond riding the national brands as far as possible on traditional marketing vehicles). First, create wireless brand tribes that are channel agnostic. Second, create co-brands with retailers (if you can’t beat em, join em).
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Well-run retailers carefully restrict POS displays because the clutter can become overwhelming. Certain radio stations reduced commercial time per hour when they found audiences turning away. Spam might’ve been fun when people got 1 message a day, but 175 per day means you throw all of them out without reading any. Successful retailers are great editors. They edit their assortments, their advertising, their location types, even the types of people they hire. Certainly they edit their displays.
I’m struck by Stephan’s observation about CPGs showing up in non-supermarket environments–Liz and Anne picked that up as well with their references to channel-agnostic brand tribes and shopper-centric research and creative development.
Together, those references took me back to the day a few weeks ago that my son and I did a week’s worth of frozen-food buying in, of all places, Target!
So of course a savvy supermarket, especially on the high end, is going to do its utmost to edit the selection and brand the in-store experience as primarily Dierbergs, or Ukrops, or Publix, or whatever.
Trader Joe’s and, actually, Target itself, have been teaching them how to do that for years, precisely because supermarkets were getting killed when all they were was these cluttered aggregates of national branding messages.
What’s tough is, how do you create brand awareness and, more important, trial, when advertising effectiveness is at an all-time low and sinking fast–and important segments of the audience are so busy they’re not only not watching much television, they’re not consuming much in the way of any media at all?
Retailers also need to track whatever promotions they do and provide proof of evidence to manufacturers with Sarbanes-Oxley in effect. Many of the retailers do not want to go through the trouble and/or expense of doing the documentation and may be restricting the number of promotions that way. Or, from the other perspective, manufacturers may be unwilling to do the placements if the retailers refuse to do the documentation necessary. Or, the retailers may be using the space for private labels. Or, retailers are using space to increase shelf space for new products.
There are a number of reasons why the retailers are cutting back on promotion space. Until manufacturers know why the retailers are cutting back, it will be difficult to address the problem.
Ah, the lost art of the elaborate display.
I personally look forward to special displays in large food markets.
A&P, over the years, has done some exceptional displays, in its largest stores, centering around holidays and special events. I will never forget Jane Parker Christmas fruit cake displays or for Thanksgiving, stuffing mix piled high surrounding a paper mache turkey, or cartons of soda and chips artfully displayed as a football playing field and spectator stands for Super Bowl weekend.
I think customers still are receptive and enjoy these displays and product promotions. As long as store managers can devote staff to these creative displays, they will continue to grace large supermarkets throughout the year.
There are several factors at play here. First, some POS is being cut back due to clutter. Too many displays makes the store look confusing to the customer and takes away from the image the retailer is trying to project. Second, some categories are no longer candidates. These products are being sold in supercenters and clubs which have forced EDLP pricing in all channels. POS will not have much impact, so why do it? Third, many CPG companies have not considered the retailers’ target market, only their market, in the development of POS materials. There is simply a miss-match. Last, some retailers have decided it’s more profitable to sell merchandise than sell retail space.
Retailers can and should be cognizant of where and when their shoppers want information in and around the stores, Manufacturers can help fund the research to get that information. In collaboration, could they not work together to please the consumer by developing both informational and promotional solutions for categories that are shopper centric? For some categories, it may mean more in-store presence, for others it may mean more external messaging. The key to success is to learn and then act in a shopper-centric manner. Brand equity can be accomplished for both parties with appropriate creative development.
I would be cautious about the lifts cited in this report. No mention of whether it is just a promotion-week lift vs. base sales or if it takes into account mortgaging. The numbers cited suggest it does not take into account mortgaged sales, thereby hyping the impact of a display. The tone of the summary makes it sound like manufacturers have a right to display space. I think it’s great that stores are taking control and manufacturers need to justify their inclusion–it’s called accountability.
They’re cutting back because they’re not getting the return–in this case profits per square foot of selling space.
It’s the old 80-20 rule. Retailers–at least those smart enough not to see slotting fee and case allowances as a profit center–realize they don’t need to carry a lot of items that are on the shelf, especially those that use up prime POS locations. You simply can’t put 10 pounds of stuff in a five pound bag. (I cleaned that up a little for the purposes of decorum.)
Frankly, the fact that display space is at even a greater premium might work to everyone’s advantage. Certainly to consumers who are tired or trekking through aisles and aisles that carry five of the same thing with a different label; for retailers who are looking for a better ROI; and for manufacturers, for whom increased competition might spark real and sustained innovation.
One reason for the cut back in displays is the amount of money retailers can earn from shelf placement. In days gone by, displays were dedicated to those items that were going to be on sale and needed the added holding power to prevent an out-of-stock. Today retailers know that there are very few items that can’t be managed from the shelf, thus freeing up display space for other items. These “other items” include impulse items the customer would not normally have on their shopping list.
For CPG companies, this does create a real issue due to the decline of traditional advertising and the hesitation on the part of retailers to build displays, use POS, etc. This is one reason why the packaging itself is quickly becoming the most important element of the marketing mix for a wide number of CPG products.
Ideally, consumer advertising, in-store displays, and targeted internet shopper knowledge of products on promotion–new, and/or special offerings–would assist grocers and CPGs and other suppliers in maximizing their results.
In the world of multiple channels of advertising, the so called ineffectiveness of advertising is definitely a point-of-contention! The main issue in advertising is having the advertising seen by the core user. As we know, with multiple means to advertise–and especially through the internet alternatives–that has been a challenge!
The issue with the supermarket industry’s display space restriction, in a range of acknowledged alternatives, may be nothing more than the grocer upping the cost parameters to CPGs and other manufacturing sources. This makes sense with the grocery industry’s need to maximize revenue, especially with the center store offerings.
Also interesting, the grocers may be giving their upscale private label brand’s products more in-store support. Makes sense, with higher margins realized!
The real opportunity is for the supermarket and CPGs partner to maximize the two business entities’ efforts with the email shopper base information that the supermarket has, e.g. sending a complementary direct mail piece. Some supermarkets are augmenting this mentioned effort with the the CPG’s advertising and its in-store display action.
Finally, and most critically, with the continuing increase in non supermarket outlets offering CPGs’ products, the direct mail piece becomes a competitive advantage! Hmmmmmmmmm
It should come as no surprise that retailers are taking in-store opportunities for themselves–to brand the experience as well as promote their private label.
The way I see it, CPG has two options (beyond riding the national brands as far as possible on traditional marketing vehicles). First, create wireless brand tribes that are channel agnostic. Second, create co-brands with retailers (if you can’t beat em, join em).