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Last month I wrote about a new report released by the Grocery Manufacturers of America entitled Full Shelf Satisfaction ... Reducing Out-of-Stocks in the Grocery Channel. One of the important recommendations in that report was to implement space allocations for each category that reflect effective assortments and tailored planograms. This month I'd like to examine this opportunity in greater detail.
For more than 20 years, the industry has had software tools that supported space management. The end game is the same today: to allocate space to products in proportion to their actual sales and/or to their sales potential. Throughout this 20-year period the software has grown in its sophistication, yet the potential is still not being realized from an investment in space management. Today the biggest priority is to develop and implement store-specific planograms instead of planograms that are used for a logical cluster of stores. The store-specific plan is developed to optimize the ability to meet the unique customer needs of each store.
Clearly, not every category needs this granulation. When I have discussed this with category managers or directors of space management, they usually identify DSD categories as one of the most logical targets for store-specific planograms. This certainly is supported by the results of the GMA study. Other categories that appear to warrant this analysis are those that attract specific ethnic groups and those that carry a number of local brands.
Two days per store
What is really involved in developing a store-specific planogram? One industry expert told me that it typically takes him two days of time to develop a plan for each of the company's almost 100 stores. It is not difficult to use the current generation of space management software to allocate space according to demand. The more complicated issue occurs when you want to allocate space to create demand. This will occur for new products and for products that the category manager wants to promote, or which are not achieving their movement potential when measured against results in the marketplace.
Most of the people I interviewed said that after a new planogram is completed and sent to the stores, they allow a minimum of 30 days for the stores to execute the reset using labor from the leading vendors in the category. Typically, a retailer will assign vendors to stores based upon their share of the category's sales, e.g., if a vendor represents 40 percent of the sales it is assigned to reset 40 percent of the stores. Then, after a reasonable time, usually 90 days, the results are measured against the projections of sales and profit improvement that were developed during the planogram process.
Developing a store-specific plan is only a small part of the effort. No store has a budget that allocates labor to resets, and even with the significant contribution of vendor labor, it still takes awhile to get a new set implemented. Most planograms are sent from headquarters to the stores with a new set of shelf labels for all the items covered by the plan. This is a good idea in concept, but in reality it usually falls far short of what is needed. Let's look at the problems associated with these shelf labels.
In many states, the labels carry retail prices. They arrive in a package with the reset information and stay in that package until the store and the supporting vendor can coordinate the day and time for the actual reset of the category. Since resets can take four weeks or more between completion of the planogram and the execution at store level, many shelf labels will be out of date before they are needed.
This problem can be resolved in one of two ways. Some companies have label printing done at store level, so they can print a new set of labels for a category on demand. If this is true in your store, the critical question that must be asked is whether the file you use reflects the scan file or the authorized products for the new planogram. If it is the scan file, then it probably contains data for many products that are no longer carried by your store. This means you are going to print many labels that won't be needed for your new planogram. It also presents another issue.
If you can develop a store-based item master file that contains the items in your scan file and identifies those that are still authorized for each specific store, I have a terrific application for you to sustain shelf sets. You will need to carry both the item code and the UPC in this file. The application works like this. Each week a series of categories are scheduled for shelf checks, not unlike the normal price checking done by the store's scan coordinator. In fact, the best person to do this work is your scan coordinator because that person normally focuses on the shelves and the labels.
For each of these designated categories, the scan coordinator scans every shelf label and the UPC on one package of each item on the shelf using the store's wireless backbone and portable terminal. This should take no more than 20 minutes per category. As a label or product is scanned, a "check" is placed on that item. When the scan is completed the file is ready for reporting items authorized that are out-of-stock or without shelf labels, as well as items discontinued but with shelf labels and/or inventory. As a bonus, the file can easily be transmitted to the category manager for his review.
A reset always introduces some items that are to be discontinued. When an item is discontinued in a store, there is always a time lag to allow the existing inventory of the product to be sold before it is removed from the shelf. I find that the typical process does not address this issue adequately. In most chains a package of shelf labels is sent from headquarters every week along with the weekly price specials. This weekly package should include a label for each discontinued product. The discontinued label should not include a bar code for ordering. It should also have at least one other distinguishing component to make it clear to the store employees the reason for the discontinuance, e.g., discontinued from your store, or discontinued from the warehouse or supplier. This coding is very important to let the store know how to react to the recommendation and to handle future customer questions about the item.
Once you have reset a category, the next systemic issue to be considered is how to maintain that new set. This problem is particularly complex in the categories supplied by DSD vendors. We all know that it is to their interest to encroach on another vendor's shelf space to give more room for their own items. One of the suggestions from the GMA report is to cover the new planograms in acetate and post them in the back room of the store for the use of all vendors in these categories. In this way, the playing field is leveled and all vendors can see the authorized set and make the corrections required.
Another great idea is to incorporate more data into your shelf label that can be captured automatically to let headquarters know the labels and the set are being maintained. Hannaford Bros., based in Scarborough, Maine, is planning to implement a 2-D bar code on its shelf labels that is used with wireless handheld terminals. This permits the retailer to incorporate a great deal of data into the bar code and capture it with no additional labor as products are ordered. All of the data is retrieved into the order entry terminal as each label is scanned and at the data center it is split off from the order stream for use in other applications. From data captured in this manner, Hannaford can identify if a price label is out of date and automatically reissue and correct the label.
There is an ongoing issue for everyone involved in space management, and that is to determine when a reset is completed and how to measure the results. The measurement of the impact of the reset can begin only then. Most of the people I spoke with said they wait anywhere from 60 days to six months after a reset before they measure the results. It is arbitrary to wait any time period if you don't know when your stores have executed the new plan. The ideal situation is to track each store's efforts and then respond in an appropriate time frame. You could automatically know when a reset is completed because the 2-D bar code identifies the planogram that was used to issue the labels.
Measuring results is a lot more complex. Sales could be impacted by seasonal and promotional programs. One way to measure change is to compare before and after to trends with syndicated data for the category. The only issue is the category definition. All other measurements tend to be more subjective or are simply sales comparisons. One important aspect of a new plan should be to reduce out-of-stocks. If you are not looking at this area, you are missing something important about your category's performance. A correctly planned category should reflect demand, particularly for those products that are important to its total sales and profits.
Every retailer looks for ways to improve business. We all know that the bottom line is that we can do it if we serve our customers better than our competitors. Full shelf satisfaction is a term that tries to address the concept of having the right items and the best in-stocks for your customers. I hope these comments help you to achieve that goal.