Front End Facelift

Retailers from several channels gathered to discuss the challenges and opportunities at the front end checkout during a recent Progressive Grocer roundtable.

The front end checkstand is a key factor in a shopper's overall view of a store, and more often than not, a consumer's experience in this area determines whether she'll make a return visit. As a result, retailers see it as an opportunity to leave shoppers with a positive last impression of the store.

This is no easy task, however.

With limited selling space and so many activities happening at the checkstand, determining the ideal configuration, product assortment and operational processes for the front end is a challenge faced by all retailers.

Such were the topics discussed at Progressive Grocer's recent roundtable, held in June during ECRM's Checklane and Front End 2010 event in Aventura, Fla. The roundtable, sponsored by Bellevue, Wash.-based Coinstar, featured buyers and category managers from several retail channels, including Rodolfo Cantu, food buyer, HEB Mexico; Tim Hale, VP of sales and client relations, Coinstar, Ray Jones, managing director, Dechert-Hampe & Co., Northbrook, Ill.; Tim Fernback, manager of direct store delivery, Rite Aid Corp., Harrisburg, Pa.; Yassmin Mireles candy, fiesta and checkout buyer, HEB Mexico; James Murdoch, space planner, camping, impulse and front end and BBQ, Academy Sports & Outdoors, Katy, Texas; Carlos Osada, general merchandise buyer, HEB Mexico; Stacey Roberts, director of merchandise presentation, Camp Hill, Pa.-based Rite Aid Corp.; and Elaine Shaffer, senior category manager, Unified Grocers, Inc., Commerce, Calif.

PROGRESSIVE GROCER: Retailers are inundated with new products every year. How do you determine which to place at the front end checkout?

YASSMIN MIRELES: We have some candies, snacks, beverages, general merchandise, and some health and beauty products, like sanitizers, at the front end. But we're seeing if we can add other kinds of products, maybe cakes or fast food.

CARLOS OSADA: I have about 45 percent of the checkouts, because I buy candies. But the baker buyer wants to put their cupcakes there, and the fast-food buyer wants to put sandwiches, and the frozen buyer wants to install a freezer for ice cream. We're in the process of figuring this out. I'm not sure about the ice cream, though. I used to be the frozen buyer, and I know the shrink is high on ice cream. And it's very seasonal.

RAY JONES: We work with Mars Ice Cream, and have tested some frozen items at the front end. You'll find during the summertime, most retailers in the north don't want to install equipment that is only going to be operative at certain times of the year. For your climate, you'd have to look at the demand for ice cream. In the U.S., the demand for ice cream is higher towards the summer. And the further north you go, the shorter the season is. Retailers don't want to install the equipment if it's basically going to be sitting idle for parts of the year.

Now, what we've found in our research — we did one study in 2002 and another in 2009 — is that there's been a huge change in the beverage category. We're at the point now in the beverage industry where there's so many variations in non-carbonated beverages and energy drinks and waters. We've found that the biggest growth at the checkout has been the number and variety of beverages available there.

STACEY ROBERTS: We've seen the same thing in our coolers, and we place them at the checkout where we can. Bottled water and energy drinks are huge.

JONES: And usually, the vendors buy those coolers. So, the Unilevers and Nestlés and Mars of the world will provide those coolers to you if there's enough business there to justify it. So, you might want to talk to your vendors about it.

OSADA: We're looking to buy our own equipment — coolers that serve dual functions for both frozen items and beverages. [To Jones] If you have the option of having ice cream or beverages at the checklane, which one would you prefer to have?

JONES: Beverages. They have much higher penetration. We look at things in terms of three dimensions. Penetration, which is the percentage of people who buy a category; the frequency with which they buy it; and how impulsive it is. Many shoppers buy beverages frequently and on impulse, so they are the perfect products for the checkout.

ELAINE SHAFFER: We ran a promotion where we actually had warm water at the counter, and people bought it on impulse. That was surprising.

JAMES MURDOCH: We're selling our private label bottled water along with another brand of water, and they're doing very well. We do a palette of cases in front of the checklane, with the price point right on top.

PG: What's the strangest or most unique item you've merchandised at the front end?

SHAFFER: We have vampire teeth right now. Our issue is space. We have very little option for GM-type products.

JONES: The hottest product right now is hand sanitizer.

MURDOCH: Silly Bandz are hot right now at our stores. [Editor's note: Silly Bandz are small rubber pieces of novelty jewelry that come in a variety of shapes that includes basic forms, as well as holiday, seasonal, animal, music, fantasy and sports shapes. They are designed to hold their shape when not in use.]

JONES: Timing is important with items like that. Sometimes you can find something that will work for a while if it's very timely.

MURDOCH: It can be tricky. Fads — they're born, and they die. And the trigger point is figuring out when that peak is, and getting out of it right after the peak and right before it dies. Then you've got to pull the product, make sure you don't buy any more, and make sure you don't have a surplus on your hands.

JONES: That's like home videos. Nothing sells better than a new-released video. But if you buy too much of them, nothing is worse for your inventory, because you get stuck with it. At the checkout, the only thing that really works is a few new titles.

TIM HALE: That's right. With the video category, you're managing disappointment. You don't want to have a 100 percent in-stock possession with a new release.

PG: There is a lot of debate as to whether the front end checkout should be run by one dedicated manager, vs. several category managers. [To Murdoch] James, you mentioned you went from several different people managing the checkout or buying for the checkout, to one. Can you tell us about that experience?

MURDOCH: The reason we made the change is that we had many stores putting different products on the front end, and it was difficult to determine from which area of the store the products were selling. Was it coming off the main lane inside the store? Was it coming off the front end real estate? So, turns were off and stock levels off.

PG: How do you determine that now?

MURDOCH: We have our consumables and our impulse items. That's our classification at Academy. The checklane items aren't anywhere else in the store now. We don't have candy out elsewhere. We don't have the little keychain flashlights anywhere else. We don't have the Silly Bandz anywhere else. I'm working with Energizer for our battery assortment. We have batteries on a vendor end cap in the store near the flashlights. In our stores, it's relatively easy to see what type of batteries is selling at what time of year. Our peaks are from July through September, and then they die down. They pick up during hurricane season, Christmas and Memorial Day.

I do this space planning through JDA for floor planning and for category management. What I'm noticing is how different front end layouts impact sales. Because, if you have 10 registers in a store, for example, you have to run them efficiently. Where's your traffic flow going? Where are they putting these cashiers on a slow time peak? Where are they putting these cashiers when the store has heavy traffic? What stores are heavy and what stores are light, and in what time period? So, in theory, where are we going to put these impulse products? Where are we going to put the candy? Beef jerky? Gum? Electronics? That's a challenge that we face every day, and just having a layout that's consistent in every store is rather difficult. But we need to find a happy medium.

JONES: Batteries are always the hardest one for us to measure, because they're in so many locations throughout the store. I've found batteries in as many as 12 locations in some stores. And since they're cross-merchandised in so many places, it's difficult to measure sales. People tend to over-SKU a lot of things, like batteries. Batteries are almost always over-SKU'd at the checkout. You only really need about four to six battery SKUs. Another example is lip balm. You can have one or two items that will kind of cover the waterfront.

ROBERTS: We have lip balm in several locations. We have it in skin care, we've got it in cold, and we've got it at the checkout.

JONES: It's a great performer from a cube standpoint, because it's so small.

OSADA: We have several category managers involved with the checkout. Basically, it depends on the categories. For example, for snacks and beverages, it's one buyer, and we have a good relationship with him, so it's easier to work together to plan the checkout assortment. But it's probably easier to have a single person manage the checkout. Sometimes the suppliers influence what is displayed at the checkout.

JONES: We did an analysis of payments from manufacturers and how they worked, vs. the profit, and found that on average, 87 percent of the profit that a retailer makes from the checkout comes from selling product, not from placement fees. We do a lot of work in magazines, and I can't tell you how many times somebody has put Muscle magazine instead of People magazine, because somebody gave them a placement fee. Now, it doesn't take a genius to figure out that People magazine is going to overwhelm that placement fee in two weeks. We're not telling people to avoid placement fees. What we're telling them is, look at what sells and display what sells, and then charge placement fees for products that don't sell that well at the checkout, because that's what should really be paying the placement fees.

OSADA: The problem is, in some cases, the buyer can make more from the placement fees. In Mexico, on the pharmacy side, suppliers pay a lot of money for publicity. The buyer, even though he doesn't get to his budget sales, with the income that he gets from the vendors, he makes up for it. So he doesn't mind if he doesn't; he prefers to get that money from the vendors.

ROBERTS: Our biggest challenge at the checkouts also comes from our different footprints. We have just under 4,800 stores, and they range from 6,000 square feet up to 13,000 square feet, and even larger on the West Coast. And we've got so many different checkstand types that it's very difficult to manage. The predominant category at our checkout is candy, so we were working with 20-something category managers. Everybody wants to get space. It's getting the right assortment and the right mix, and the vendor support to get the right item, especially those that predominate at registers.

We also do a lot of cross-merchandising there, and it's a challenge getting the stores to stock and balance it.

TIM FERNBACK: And we plan to add more items that aren't already up there, instead of duplicating every third or fifth register, as well as mix general merchandise with candy to get a nice assortment.

The Shopper Experience

PG: We've talked a lot about the front end as it relates to products, but what about the shopper's experience? What are you doing to provide a positive shopping experience at the checkout, since it's the last impression they have of the store?

MURDOCH: I believe when you're checking somebody out, it should be a hassle-free experience for them. You want to make the customer feel welcome that they're there — just casually talking to them and saying, "Thank you, here's your total, have a good day." Too many retailers try to push for an extra sale, and it's frustrating to a lot of people.

JONES: One of the things we've learned from interviewing consumers about their checkout experience is that the checkout has a much larger impact on the customer's overall experience than we previously thought. And if you don't treat them right at that final point, it can ruin the whole experience.

MIRELES: We've designed the checklane with a low profile so you can see the rest of the checklanes, and I think it's more comfortable for the shoppers. It also helps reduce shrink.

OSADA: We also offer cashiers incentives based on their performance. We'll reward them based on shoppers' comments, transaction speed, and also things like how friendly they are.

SHAFFER: We also have an incentive program where management will recognize associates, and our customers can recognize associates as well.

JONES: Walgreens has a program called "I See Three." If there are three people in a line, they'll announce, "I see three," over the intercom and someone will come and open up another register. One of the things we've learned, which is interesting, is retailers — more so in grocery than drug — give the worst service to the best customers. It's the opposite everywhere else. If you're a frequent flier, you get in a quicker lane at the airport. Banks also have preferred lines. But when you go to check out at the grocery store, the better the customer you are, the more items you have, the more money you're spending, guess what? You get the worst service. So we've actually recommended to people that they should really try to reverse this process and have a special lane for their best customers.

MURDOCH: You're right. There are special lanes for 10 items or less, or 20 items or less. But nothing for 20 items or more, which are the people really making you money. And the self-serve checkout has ended up becoming more of an alternative to the express lane, as it's mostly people with six to 10 items.

That's why we don't have special lanes at Academy. We have the same lanes for everybody. And while we have four associates who are cashiers, we also have other people who know how to run a register and can help out in a pinch.

JONES: We found that magazines play a role in the experience as well. In addition to being an impulse item, people tend to be more satisfied when there are magazines there, because they'll browse through them while waiting. Because, if you divide your checkout time into the wait and transaction times, you need to give them something to do during the wait time, because, if they're kept busy, they don't think they're standing there as long. And it doesn't have to be a magazine; it can be something else that people can get some entertainment value out of.

ROBERTS: Like Trader Joe's — when you're in line there, it's so much fun to look around, because there is always something that is new and eye-catching.

PG: There is also the area between the checkout and the exit to consider. Coinstar has done a lot of work with retailers in this area, for which it coined the phrase "The 4th Wall." [To Hale] Tim, can you tell us about your initiatives in this area of the store?

TIM HALE: The definition of The 4th Wall is that post-register area before the exit. What we did was apply category management to the front wall in a cohesive way, and apply automated retail to these programs. The key is, how do you get incremental sales out of this area? For one thing, it adds labor savings to your retail environment. You should be reducing shrink as a result of this, but then also get that incremental shop.

So, for example, with Coinstar, we're counting about $3 billion worth of coin and converting that into currency of some matter. Part of that — roughly 45 percent of those dollars — is being spent within that store. It also brings in additional visitors. I think there's about a $15 incremental basket ring, once you're doing that. It's the same thing with redboxes. You have a rental and a return, two visits. And the fact is, it now becomes a destination, so people are planning to come into your stores.

We see self-service as a huge opportunity for retailers. I've seen statistics saying that about 36 percent of retailers today plan on some self-service program in the next 12 months. The majority of consumers say that they want to use self-service for many different reasons, such as the desire for convenience, or privacy, which is one of the big issues.

Now you also get the incremental trips from self-service. In our surveys and the work we've done, we found that 86 percent of consumers say that they're more likely to do business with a company that offers self-service. It's actually an improved shopping experience because of the speed, flexibility and convenience in that user's mind. It also appeals to the retailers that want to be seen as innovative. Many of them are turnkey solutions and can improve the retailer's bottom line. So, you can generate a higher margin per square foot using a kiosk solution.

Our redbox DVD kiosk are in about 22,000 locations, and are replacing the brick-and-mortar video stores. And one out of six rentals comes from a grocery store. The 4th Wall program is a turnkey solution, so there's no out of pocket.

"There are special lanes for 10 items or less, but nothing for 10 items or more."

—James Murdoch

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