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GROCERY: Retail Case Study: Ready, set, grow

The supermarket dairy department, one of the most heavily traveled areas of the store, has been merchandised in the same way for years, but with an array of functional yogurt products in demand and little space for additions, in some supermarkets today dairy is a department of discontent.

To fix the problem, Cub Foods, with help from the Dannon Co., has reinvented its dairy aisle to improve the shopping experience—and add space for the burgeoning yogurt category.

Among food categories with more than $2 billion in grocery sales, yogurt is one of the fastest growing. It has enjoyed a 33 percent increase over the past five years, says Jim Murphy, s.v.p., sales at White Plains, N.Y.-based Dannon. "There aren't many categories in the supermarket that have as much potential as yogurt," adds Murphy. "The yogurt category is right in the bull's eye of health and wellness at a time when consumers are seeking ways to improve their diets."

Yet while growth over the next five years is projected at $1.1 billion, he notes, "Investment in the category may determine how high this growth can go." To that end, Dannon is eager to help grocers intensify shoppers' longstanding relationship with the category, he says.

One potential obstacle: space allocation. New functional yogurts like Dannon's Activia and DanActive are helping to grow the category. "Before Activia, there was no need or requirement for daily yogurt consumption," explains Murphy. But the challenge is that the category is growing at a rate almost double that of refrigerated grocery shelf space (6.3 percent annual yogurt growth, vs. 3.9 percent annual shelf space growth). This rapid growth and lack of shelf space to accommodate it combine to create out-of-stocks, which are frustrating for shoppers and costly for grocers.

"When you compare the true margins of dairy, they are twice that of dry grocery," observes Murphy. "Turns in dairy are three times that of dry grocery, while dairy space is typically three times less than that of dry grocery."

Dannon is working to solve the current dilemma in many supermarket dairies where, as new items become available, other items that might be good sellers are forced out because of lack of overall space.

Tapping global best practices

Dannon is wielding the global experience of its parent company, Group Danone, to leverage and understand global best practices in dairy. Says Murphy, "If you travel to Spain, France, Argentina—the category is brought to consumers in a more robust manner."

From this global perspective, Dannon considers the United States an emerging market, explains spokesman Michael Neuwirth. "In the U.S. we consume about 11 pounds of yogurt per capita per year. This is only about one-sixth the amount consumed in the most developed market globally."

Dannon wants to achieve what Murphy terms "the three factors for success" in the category. The first factor is availability—having the right assortment on the shelf when consumers shop.

"The yogurt category tends to have out-of-stocks that, at 16 percent, are currently the highest of any grocery item and twice the total grocery rate," he notes.

The second is improved visibility to aid the customer shopping experience, and creating a more "shopable" yogurt aisle is the third factor for success.

"Consumers consider the yogurt category to be difficult and confusing to shop--these are their words, from focus groups," says Murphy. "The dairy aisle can be cold and dark, not as warm as, say, the wine aisle and other areas where much work has been done to improve the shopping experience."

For over a year, Dannon has dedicated a group of experienced senior merchandisers known as "The Shelaf Obsession Team" to work with grocers to modernize yogurt and dairy aisles in stores across the country. In partnership with retailers such as Cub, the team is helping expand yogurt sections by an average of four feet, equating to an estimated $1 billion in uncaptured growth, according to Dannon's Neuwirth.

Cub's conversions

For Stillwater, Minn.-based Cub Foods, working with Dannon to revamp the yogurt section aligned well with its perpetual mandate to deliver the products its customers want, according to spokeswoman Lee Ann Jorgensen. The Supervalu-owned chain, with 75 units in Minnesota, Wisconsin, Illinois, and Iowa, has for years been reconfiguring its stores to give more space to certain growing categories.

"We see this yogurt reinvention as a continuation of what we were already doing," notes Jorgensen. Cub's goal for the project is to add more excitement to dairy, and increase shoppers' consumption of yogurt, she adds. "The conversion allows for more product holding power, therefore reducing the chance for product being out-of-stock."

V.p. merchandising Mike Witt says he sees "several opportunities for Cub in this dairy department conversion. Over the last five years, Cub Foods has devoted more and more space to the dairy section to increase our selection. Several cheese and orange juice resets have increased sales in the past.

"This new yogurt design will enable Cub Foods to continue leading through innovation: the reset welcomes the customer to spend a few extra seconds in the department," continues Witt. "We hope to translate that time spent into increased sales."

Dannon and Cub Foods began working together on the project in April 2007. The first Cub location to debut the new reset is its Burnsville South, Minn. unit, which was completed in May. Other resets are ongoing.

At the heart of the revamped department at Cub, a 20-foot core yogurt set with a dedicated organic section greets customers.

Yogurt sets at Cub's stores used to range from 12 to 20 feet, but "now we have sets ranging from 20 to 32 feet at the Burnsville South store," says Jorgensen. "The new set with an entire case devoted to probiotics is new for us. The color scheme in the yogurt area is very different from what we have in our stores now."

The yogurt section is organized by function--digestive health, immunity, weight management, etc.--rather than by brand. Different colors in the set differentiate the yogurt product by benefit, including colors that are specific to the products themselves, such as Activia green, so identification from a distance is easier. Cub Foods' signature colors are also used in the new set.

Creative signage throughout the department provides education about yogurt. "Most of our advertising tries to raise consumer awareness of yogurt's benefits," observes Dannon's Murphy. "We are taking the same concept that we use on television and syncing it to the store, which should have a multiplying effect in enhancing the consumer's ability to shop."

Cub cross-merchandises nonrefrigerated grocery items with yogurt via a promotional end cap display in the new set. It can feature items such as Kashi cereal, granola, and other cross-promoted items that synergize well with yogurt consumption, says Murphy. In addition, a refrigerated "yogurt showcase" end cap displays yogurt items on promotion.

During peak times, associates man a portable sampling station, answering questions, handing out recipes, sampling yogurts on promotion, and continuing the education process, adds Murphy. Cub is one of several grocers testing the kiosk. "We spend a significant amount of money on traditional sampling promotions," he says. "With this sampling station, we can take it to the next level and make it much more about education and more tailored to that specific grocer and the needs of that store's geography."

Each new set is slightly different, as Cub and other grocers add their own features. One feature specific to Cub is a proactive health kiosk, which promotes probiotic yogurts and drinks. Cub and Dannon placed the kiosk in the center of the dairy department to disrupt traditional traffic flow and encourage customers to spend more time learning about probiotics.

"By featuring these products at the kiosk, Cub Foods will increase customer awareness to drive additional sales," explains Cub Foods' Jorgensen. "We are excited about being the first in the country, maybe even the world, to add this new look to our dairy department. We will monitor our customer shopping patterns over the course of time, and evaluate whether this is the right thing to do in all of our stores."

As Dannon's Murphy sees it, the dairy department must continue to evolve to grab the growth on the horizon. "The revamping of the dairy aisle is about breaking down walls and breaking down paradigms," he concludes. "We must change how we analyze the yogurt category and think about how we can grow this category beyond the four walls that we have."
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