A Share Of The Space
Don't sacrifice profitable GM products in the frenzy for fresh.
As supermarket operators seek to fight for every penny today's hard-pressed grocery shoppers are willing to spend, some may be tempted to reach for the Easy Button as they seek to differentiate themselves from the competition.
The Easy Button?
Often, the strategic solution reached by many executives is to strengthen fresh departments, increasing offerings of produce and related products in an effort to respond to shoppers who are eating at home more frequently and who say they're trying to purchase more fresh fruits and vegetables, including organic and locally grown products.
Thus, in store after store, chain after chain, operators are trying to meet that demand and as they do, many are revamping store layouts to accommodate those added SKUs of fresh products as well as additional foodservice offerings that also are often a part of that strategy.
Where do they find the space for these new and expanded offerings?
All too often, the solution is to reduce space for general merchandise (GM) products, says Mark Deuschle, VP, business development at Global Market Development Center (GMDC), based in Colorado Springs, Colo. By hitting that "Easy Button," GMDC cautions, retailers are actually sacrificing net sales and profits.
"Reducing GM might be the easy decision to make in adjusting space," says Deuschle, "but that is not to say it is the right decision. As supermarket operators consider readdressing center store, we think GM deserves a share of that space, and we think we can make the case with the facts."
New Study Underway
To provide retailer executives with those facts, GMDC is nearing completion of a new study designed to provide solid data that will help them to quantify the value of GM within their stores, and its overall contribution to the bottom line. The study, being conducted by Minneapolis-based Radian, a management consulting firm in the retail industry, will be in several phases, with the initial phase scheduled to be published in September.
Consumers will reward retailers that provide a good assortment of GM products that they need, rather than forcing them to make another trip to Target, Walmart or Home Depot for batteries, light bulbs or cleaning supplies, for example, Deuschle contends.
"There are a number of companies that do a good job with GM," he notes, citing H-E-B, Harris Teeter, Kroger and Wegmans. "For some reason, they perform better. It's hard to claim that GM is responsible, but we believe the consumer gives credit and rewards companies that provide these products."
To bolster its case, GMDC is examining the overall contribution of GM products to net margin and to profit by linear foot of space.
"Our study will provide the numbers, but we believe GM contributes more than two times its fair share of net margin to sales, compared to fresh, which contributes less than its fair share when everything, such as spoilage and labor, is factored in," Deuschle says. "Some product areas, such as greeting cards, for example, contribute far more than two times — perhaps five times its fair share of net margin to sales."
But in addition to providing profitable sales, GMDC and companies that produce GM products believe that retailers that maintain a commitment to GM can avoid losing customers — and grocery product rings — to mass merchandisers that also sell food. Moreover, some suppliers say that with creativity and the right commitment to merchandising, their center store sales are doing well, despite the pressure on space.
Don't Walk Away from Profits
"All too often, center store is becoming more of a wine, cheese, beer and liquor opportunity, and some of those categories actually lose money," says Rick Chambers, president of Rome, N.Y.-based Big Time Products LLC, which sells a variety of gloves used for cleaning, gardening and other types of work. "That forces customers to go to Walmart, Home Depot or Target to purchase these types of very high-margin products. You're walking away from millions in business, collectively."
Chambers points out that the retailer's profit margin on his company's products can be at lest 50 percent, but says many stores have "surrendered" those sales to big-box and home center competitors.
"We do understand the need for grocery stores to focus on food; that's why they are in business, and that's why shoppers come into their stores," says Melanie Manning, manager of marketing services at ShurTech Brands, an Avon, Ohio-based manufacturer of Duck Tape, painters' tapes, packaging and specialty tapes. "But we are seeing that traditional GM stores are adding grocery items, so there is a risk that supermarkets may lose people who just pick up groceries at those other locations when they are looking for products such as ours. Just logically, there is more risk there."
However, Manning says innovation in the GM category is helping to generate interest both on the part of consumers and retailers. "Those sales aren't being taken away from other categories, they are incremental sales that are taken away from other activities that people have decided to forgo," she explains.
Marketing, Promotions are Key
James Hagarty, senior director of sales at Cleveland-based American Greetings, points out that the greeting card category "continues to be one of the strongest drivers of true profit, and is positioned to be a valuable growth category for grocers moving forward."
"Many of our grocery partners have adopted the practice of centralizing the card departments within the center store, adjacent to registers," he notes. "This creates tremendous awareness and positions the department efficiently within a shopper's overall trip. Having the right size for the card department is also essential, as a larger presentation obviously assists in attracting shoppers while also giving them a more comfortable setting to browse. A strategically placed, well-merchandised, attractive card department is the most effective in-store marketing tool that a retailer can deploy. Our category is heavily influenced by impulse sales, so this can really deliver incremental sales."
Supermarket operators also have an opportunity to capitalize on the fact that many specialty shops are finding themselves in trouble. "We know consumers are moving away from specialty shops to meet their greeting card needs, and this offers our grocery partners the chance to drive traffic by attracting these migrating shoppers," Hagarty says.
Total Strategy Needed
These examples illustrate GMDC's strong belief that rather than just hitting the Easy Button and cutting back on GM products to make room for fancier displays of veggies or wine, a holistic plan — a total store strategy — should be developed that considers the profit contribution, and the impact on consumer loyalty, of products in all categories, including general merchandise.
"General merchandise does matter," says GMDC's Deuschle. "GM can help fix those declining numbers, and should be included in the conversation. It is innovative and fun. And it brings in profits."
Best Practices for Kitchenware Sales
Brett Bradshaw, president of Rancho Cucamonga, Calif.-based Bradshaw International Inc., offers the following best practices to retailers that want to increase sales and profits from kitchenware products:
■ Merchandise a kitchen shop and create a destination using fixturing and signage that help the consumer shop this category, and tell them that you’re in this business by offering plenty of variety and "good-better-best" options in key subcategories
■ Cross-merchandise: Take advantage of the high-impulse nature of the category, find the fixture that works for your stores, and get these products tied into the produce, liquor, deli and meat departments
■ Plan and Promote: Plan out the year in an annual marketing calendar. Successful strategies include in-line percent-off sales, meal deals such as "Breakfast on Us" promotions, and floor displays or end caps of innovative items with corresponding ad support and demos.
■ Analyze and Measure: Use scan and causal data to determine what's working and what's not, and update planograms and promotional calendars accordingly.