April 6, 2009
R&FF Retailer: What are some ways to avoid pantry loading and cannibalization?
By Warren Thayer, Editorial Director, R&FF
Retailer
Through a special arrangement,
presented here for discussion are excerpts of a current article from Refrigerated & Frozen
Foods Retailer magazine.
Jon Hauptman, partner, Willard Bishop, notes
that pantry loading in today’s increasingly competitive market isn’t necessarily
bad, and that most supermarkets are better off if the pantry loading is
done at their stores rather than at a competitor.
“There’s a lot to be said for shopper
engagement – encouraging shoppers to spend as much as possible at
your store, even if it means they are pantry loading,” he said. “If
you get shoppers to shop your store more intensively, you also reduce cherry
picking as a percentage of sales.”
Frank Dell, president, Dellmart & Co.,
agrees that pantry loading can help keep shoppers away from your competitors’
stores – although products with short shelf lives aren’t great candidates.
But if you really want to avoid pantry loading, he says, go with frequent
promotions, put a limit on customer purchases and don’t make your pricing
red-hot.
Pantry loading can be fine, according to
Derek Smith, vice president of retail industry marketing, DemandTec, unless
you’re getting practically zero margin and cutting into full-margin sales
in the future. Recently, he’s done some analysis of multiples pricing,
and how shoppers respond to it.
“Using transaction-level data, we can
see what happens in each cart when you run these multiples. Let’s say that
I regularly buy six yogurts at a time. But then, there’s a special at four
for a hot price. So maybe I buy only four that time around. You may actually
be getting a reduction in units by putting on a deal like that,”
Mr. Smith said.
Using transaction-level data and comparing
it against history, you can see if the average units per basket changed
based on multiples pricing, he notes. If you collect the right data, you
can also see how many new buyers you’ve gotten, and how much your steady
buyers purchased during the promotion.
“The opportunity is to understand the
true expandability of consumption within a category. Pantry loading is
not a bad term if consumption increases,” said Donald J. Stuart, managing
director, Cannondale Associates. “If we are simply loading for the
sake of loading and extending the purchase cycle then this is something
that should be minimized unless the only goal is to steal short-term share.”
Discussion Question: What are some ways to
avoid pantry loading and cannibalization? Is pantry loading a healthy
or unhealthy promotional outcome?
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Discussion Questions
Poll
Pantry loading is a good thing for supermarkets and should not be avoided, even though it definitely does NOT “reduce cherry picking as a percentage of sales.” When shoppers load their pantries they load them with sale items, i.e., cherry picking. Pantry loading and cherry picking are practically synonymous. Also, consider the lesson of 2-liter soda containers–the more we have, the more we’ll consume. A loaded pantry encourages consumption, which encourages additional store visits and sales. (Supermarkets should strike deals with local appliance retailers to offer discounts on freezers.)
In yesterday’s Sacramento Bee, the featured story in the business section was titled, “Discount-hungry shoppers shake up grocery business,” the introductory article in a weeklong series. In it, our buddy Phil Lempert was quoted extensively–more on that below. The irresponsibly alarming headline implied that sales at local supermarkets were falling or significantly changing in some fashion (e.g., “shake up”), but without providing support data of any kind. The text was more forthcoming, however, mildly offering consumer tips for getting “more from your food dollars.” I’m hoping that subsequent articles in the series will offer real supermarket sales data in dollars, item velocity, and traffic. This would tell us if shoppers are reducing their consumption or simply buying cheaper goods while maintaining their consumption. Additionally, I’d like to know if restaurant sales are falling or increasing compared to supermarket sales, and by type of restaurant. In other words, are consumers eating less or trying to pay less for the same volume of food?
Now for Phil Lempert’s excellent comments. Interestingly, he advocates “more and smaller grocery-shopping trips” because, “We want to go shopping for a week, and we just load up. And when you take a look at that process, we buy things that we don’t need.” He reports following a shopper who, about halfway through an extensive shopping trip, said “I get tired and then I just throw anything in the cart that comes to mind that I know my kids are going to eat.” A very telling, pantry-loading anecdote that our retailer sense suggests would probably be supported by quantitative research. On the other hand, Phil’s recommendation is the opposite of pantry loading and, if widely adopted, would truly “shake up” the grocery business.
I have always believed the only real reason for a manufacturer to run a trade promotion is to generate pantry loading. It didn’t matter if it was plastic bags, paper plates or contraceptive sponges, the more products that the consumer had in the home, the more the consumer used. The only greater sin for a manufacturer than a retail out-of-stock is a pantry out-of-stock.
I find the yogurt example quite bizarre, and in fact it weakens Mr. Smith’s position. If someone’s normal consumption pattern is six units, why would they cut back to four and risk running out at home or require an additional trip to the store. It would be hard to convince me this yogurt consumer would not buy eight rather than the normal six, or even 12 units.
I find even the worst case for pantry loading suggested by Mr. Stuart that some pantry loading merely extends the purchase cycle and doesn’t increase consumption is very acceptable for a manufacturer. At worst, the extension of the purchase cycle prevents the consumer from brand switching on the next shopping trip.
There are several definitions for the word healthy. Is this used in terms of the consumer or the retailer or both? Promotions that are designed based on consumer preferences and demand that draw in consumers who will buy more than the promoted items and encourage return visits is healthy for both the retailer and the consumer.
The key here is, what does the consumer want? Considering the uncertainty of the economy, consumers are buying a little more than they need at the grocery store each week to stock their pantries. Grocers who examine the categories that are growing at a faster rate than the total store will find that these items/categories are likely shelf stable and are used on a daily basis.
Pantry loading for many represents steps to create an insurance against possible loss or reduction in income. Just as savings have increased in the U.S., so have the pantries of many households.
Retailers who understand this will encourage this behavior through promotions and other marketing techniques. Selecting the right items at the right prices is always the challenge. This is not the time to examine last year’s promotions and copy forward (a common practice in the industry). It’s critical that retailers understand current consumer behaviors and leverage that understanding to build better promotions based on that knowledge.
You cannot sell anything at full retail anymore, and if you are not extremely competitive on a staple item–shut your store down!
Consumers buying on a hot deal is now the norm, and the trick is to have them shop the perimeter while they are in your store. Gross margins on perishables are strong in all formats, so if you are willing to sacrifice a little margin, a stock-up sale on pork loins and ground chuck will yield some good profits.
You don’t take percentages to the bank. You take profit dollars, so gear up the perimeter with good deals, and the folks will buy!
Pantry Loading and cannibalization are not necessarily one in the same. If you run a promotion where you inticing your competitors customer to try your product, they may stock up on your product and end up becoming a loyal customer. This is obviously the goal.
Cannibalization, on the other hand, actually cuts into profits. This happens when your loyal customers would have bought your product regardless, but instead, they bought several quantities at a reduced price this month, so they don’t need to buy any next month.
By integrating Point-of-Sale data with promotional spend and even syndicated/DMA information, you can gauge lift versus cannibalization by incorporating a baseline. POSmart does this form of integration. The key is that it requires the data to be integrated and synchronized with your internal data. It is not just a one-off report but a true promotional analysis application. Gaining market share as well as percentage of pocket book are the goals.
When a store offers an attractive promotional price on a desired item that a customer uses frequently, the customer is inclined to double up and the pantry retains that prize. Where’s the surprise?
When a grocer offers a hot promotion he/she should analyze carefully whether the promotion is swelling his customers’ pantries or growing his business. Rationalizing that “If I don’t do that my competition will” is a suspect strategy and expandability of consumption based on transactional data can have its pluses and minuses too.
Competition and common sense are hard twains to meld.
Those of us who do promotion analysis for a living might disagree somewhat with Dr. Weitz. Some categories see use-up regardless of quantity–if it’s there, we’ll eat it. Snack foods are a great example of this. Products with much longer shelf lives, on the other hand, show large sales bumps when promoted and, quite often off-setting, deep troughs afterwards, making the promotions unprofitable. Canned goods, including veggies, pet foods, and base soups were all subject to this pattern.
Consumer behavior research finds that when consumers stock up on a product, consumption of the product increases. When products are readily available in a family’s stocked-up pantry, the awareness and desirability of the products increases. Thus, stocking up on promoted items increases consumption rather than simply shifting it in time.
Any retailer who is concerned about “Pantry Loading” has lost focus on the key elements in their scope of business. The majority of customers do not do this for their shopping, nor should a retailer be concerned about this. For those customers that do, they do not do this for all of their purchases, and retailers should focus on this. By maintaining a balanced offering, with great product prices, no out of stocks and customer service that brings upset customers back to the store for repeat business, any retailer will have a proven business strategy that maintains a focus on the core competencies of retail.
Is pantry loading a bad thing for retailers or CPGers? Have you ever been in a Costco?! Those rivers of customer carts aren’t empty. For traditional retailers, on point to watch is the margin on heavily promoted items. Consumers hate limits imposed by retailers, which is an automatic alert to the razor-thin margin on those items. There is good, consistent success with “10 for $10” and similar promos. Keep the margins acceptable (Like Costco, BTW) and drive home the value to the customer.
This is Fast-Moving Consumer Goods (FMCG) we’re talking about, remember. Volume is what it’s all about. Pile it high, and watch it fly!… If you have the right items and the right price, of course.
To address this question one must recognize that pantry loading has a number of motives depending on the individual customer’s history and habits. Of course, consumers worried about inflation (that would be anyone who remembers grocery shopping during the Carter years) will be tempted to vigorously stock up on non-perishables at this current economically uncertain time. Along the same lines, savvy shoppers who are aware of “the incredible shrinking product syndrome” that is now shamelessly being executed by producers, may decide to add to their larders at the “old” size and price before it disappears. Each time these consumers feel they have outwitted “the man” is exactly like earning money in a savings account for them.
But there are other reasons too, often related less to price. Customers who got into the habit of making fewer trips to the store when gas prices were so high came to realize that fuller carts and fewer visits to the checkout counter brought with it less stress in their lives. Customers who are ticked about regular out-of-stocks for a product their family loves will grab the shelf bare when that product is miraculously available.
My point is that certain segments of the population are inherent pantry loaders (albeit not for identical reasons) and will find a way to do it and meet their needs regardless of the retailer’s overt actions. Retailers must protect their margins, but honestly, don’t you want the pantry loaders buying at YOUR establishment rather than somebody else’s?
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Pantry loading is a good thing for supermarkets and should not be avoided, even though it definitely does NOT “reduce cherry picking as a percentage of sales.” When shoppers load their pantries they load them with sale items, i.e., cherry picking. Pantry loading and cherry picking are practically synonymous. Also, consider the lesson of 2-liter soda containers–the more we have, the more we’ll consume. A loaded pantry encourages consumption, which encourages additional store visits and sales. (Supermarkets should strike deals with local appliance retailers to offer discounts on freezers.)
In yesterday’s Sacramento Bee, the featured story in the business section was titled, “Discount-hungry shoppers shake up grocery business,” the introductory article in a weeklong series. In it, our buddy Phil Lempert was quoted extensively–more on that below. The irresponsibly alarming headline implied that sales at local supermarkets were falling or significantly changing in some fashion (e.g., “shake up”), but without providing support data of any kind. The text was more forthcoming, however, mildly offering consumer tips for getting “more from your food dollars.” I’m hoping that subsequent articles in the series will offer real supermarket sales data in dollars, item velocity, and traffic. This would tell us if shoppers are reducing their consumption or simply buying cheaper goods while maintaining their consumption. Additionally, I’d like to know if restaurant sales are falling or increasing compared to supermarket sales, and by type of restaurant. In other words, are consumers eating less or trying to pay less for the same volume of food?
Now for Phil Lempert’s excellent comments. Interestingly, he advocates “more and smaller grocery-shopping trips” because, “We want to go shopping for a week, and we just load up. And when you take a look at that process, we buy things that we don’t need.” He reports following a shopper who, about halfway through an extensive shopping trip, said “I get tired and then I just throw anything in the cart that comes to mind that I know my kids are going to eat.” A very telling, pantry-loading anecdote that our retailer sense suggests would probably be supported by quantitative research. On the other hand, Phil’s recommendation is the opposite of pantry loading and, if widely adopted, would truly “shake up” the grocery business.
I have always believed the only real reason for a manufacturer to run a trade promotion is to generate pantry loading. It didn’t matter if it was plastic bags, paper plates or contraceptive sponges, the more products that the consumer had in the home, the more the consumer used. The only greater sin for a manufacturer than a retail out-of-stock is a pantry out-of-stock.
I find the yogurt example quite bizarre, and in fact it weakens Mr. Smith’s position. If someone’s normal consumption pattern is six units, why would they cut back to four and risk running out at home or require an additional trip to the store. It would be hard to convince me this yogurt consumer would not buy eight rather than the normal six, or even 12 units.
I find even the worst case for pantry loading suggested by Mr. Stuart that some pantry loading merely extends the purchase cycle and doesn’t increase consumption is very acceptable for a manufacturer. At worst, the extension of the purchase cycle prevents the consumer from brand switching on the next shopping trip.
There are several definitions for the word healthy. Is this used in terms of the consumer or the retailer or both? Promotions that are designed based on consumer preferences and demand that draw in consumers who will buy more than the promoted items and encourage return visits is healthy for both the retailer and the consumer.
The key here is, what does the consumer want? Considering the uncertainty of the economy, consumers are buying a little more than they need at the grocery store each week to stock their pantries. Grocers who examine the categories that are growing at a faster rate than the total store will find that these items/categories are likely shelf stable and are used on a daily basis.
Pantry loading for many represents steps to create an insurance against possible loss or reduction in income. Just as savings have increased in the U.S., so have the pantries of many households.
Retailers who understand this will encourage this behavior through promotions and other marketing techniques. Selecting the right items at the right prices is always the challenge. This is not the time to examine last year’s promotions and copy forward (a common practice in the industry). It’s critical that retailers understand current consumer behaviors and leverage that understanding to build better promotions based on that knowledge.
You cannot sell anything at full retail anymore, and if you are not extremely competitive on a staple item–shut your store down!
Consumers buying on a hot deal is now the norm, and the trick is to have them shop the perimeter while they are in your store. Gross margins on perishables are strong in all formats, so if you are willing to sacrifice a little margin, a stock-up sale on pork loins and ground chuck will yield some good profits.
You don’t take percentages to the bank. You take profit dollars, so gear up the perimeter with good deals, and the folks will buy!
Pantry Loading and cannibalization are not necessarily one in the same. If you run a promotion where you inticing your competitors customer to try your product, they may stock up on your product and end up becoming a loyal customer. This is obviously the goal.
Cannibalization, on the other hand, actually cuts into profits. This happens when your loyal customers would have bought your product regardless, but instead, they bought several quantities at a reduced price this month, so they don’t need to buy any next month.
By integrating Point-of-Sale data with promotional spend and even syndicated/DMA information, you can gauge lift versus cannibalization by incorporating a baseline. POSmart does this form of integration. The key is that it requires the data to be integrated and synchronized with your internal data. It is not just a one-off report but a true promotional analysis application. Gaining market share as well as percentage of pocket book are the goals.
When a store offers an attractive promotional price on a desired item that a customer uses frequently, the customer is inclined to double up and the pantry retains that prize. Where’s the surprise?
When a grocer offers a hot promotion he/she should analyze carefully whether the promotion is swelling his customers’ pantries or growing his business. Rationalizing that “If I don’t do that my competition will” is a suspect strategy and expandability of consumption based on transactional data can have its pluses and minuses too.
Competition and common sense are hard twains to meld.
Those of us who do promotion analysis for a living might disagree somewhat with Dr. Weitz. Some categories see use-up regardless of quantity–if it’s there, we’ll eat it. Snack foods are a great example of this. Products with much longer shelf lives, on the other hand, show large sales bumps when promoted and, quite often off-setting, deep troughs afterwards, making the promotions unprofitable. Canned goods, including veggies, pet foods, and base soups were all subject to this pattern.
Consumer behavior research finds that when consumers stock up on a product, consumption of the product increases. When products are readily available in a family’s stocked-up pantry, the awareness and desirability of the products increases. Thus, stocking up on promoted items increases consumption rather than simply shifting it in time.
Any retailer who is concerned about “Pantry Loading” has lost focus on the key elements in their scope of business. The majority of customers do not do this for their shopping, nor should a retailer be concerned about this. For those customers that do, they do not do this for all of their purchases, and retailers should focus on this. By maintaining a balanced offering, with great product prices, no out of stocks and customer service that brings upset customers back to the store for repeat business, any retailer will have a proven business strategy that maintains a focus on the core competencies of retail.
Is pantry loading a bad thing for retailers or CPGers? Have you ever been in a Costco?! Those rivers of customer carts aren’t empty. For traditional retailers, on point to watch is the margin on heavily promoted items. Consumers hate limits imposed by retailers, which is an automatic alert to the razor-thin margin on those items. There is good, consistent success with “10 for $10” and similar promos. Keep the margins acceptable (Like Costco, BTW) and drive home the value to the customer.
This is Fast-Moving Consumer Goods (FMCG) we’re talking about, remember. Volume is what it’s all about. Pile it high, and watch it fly!… If you have the right items and the right price, of course.
To address this question one must recognize that pantry loading has a number of motives depending on the individual customer’s history and habits. Of course, consumers worried about inflation (that would be anyone who remembers grocery shopping during the Carter years) will be tempted to vigorously stock up on non-perishables at this current economically uncertain time. Along the same lines, savvy shoppers who are aware of “the incredible shrinking product syndrome” that is now shamelessly being executed by producers, may decide to add to their larders at the “old” size and price before it disappears. Each time these consumers feel they have outwitted “the man” is exactly like earning money in a savings account for them.
But there are other reasons too, often related less to price. Customers who got into the habit of making fewer trips to the store when gas prices were so high came to realize that fuller carts and fewer visits to the checkout counter brought with it less stress in their lives. Customers who are ticked about regular out-of-stocks for a product their family loves will grab the shelf bare when that product is miraculously available.
My point is that certain segments of the population are inherent pantry loaders (albeit not for identical reasons) and will find a way to do it and meet their needs regardless of the retailer’s overt actions. Retailers must protect their margins, but honestly, don’t you want the pantry loaders buying at YOUR establishment rather than somebody else’s?