Christmas Stocking

Will you be getting enough this Christmas? Enough product on the shelves, enough store-by-store feedback and enough return on your promotional investment? asks Roger Brownlie

Christmas comes but once a year, which is something of a shame for the drinks trade. The additional sales would be more than welcome, but it would also enable drinks companies to manage store availability rather better than at present. Christmas sales peak later every year, with the majority of spend in the last week. The Christmas period can account for 40 to 60% of a larger retailer’s turnover, and the time to get ready for Christmas is not December, but now.

Store availability, or more precisely non-availability, is a huge issue, and one that is costing the drinks industry dearly in missed opportunities. While availability is critical at Christmas it is also essential during any promotional campaign for consumers to be able to take full advantage of special offers.

At a recent IGD (Institute of Grocery Distribution) conference, the logistics director at Asda, David Cheesewright, said the 300 supplier attendees were “obsessive” about availability. But being obsessive is precisely what is needed during this current era of low margins and intense competition between retailers. So, are you being obsessive? Are you ensuring that your agreed availability and promotional activity is being implemented? Moreover, as a supplier to the off-trade, are you getting a return on your investment?

Category mismanagement

Since the early ‘90s the virtues of category management have been widely documented. It can drive total category growth for retailers and suppliers, ensure on-shelf availability and provide a better understanding of consumers’ needs. But, despite its popularity and proven success, it is still not delivering its potential. So what is going wrong?

The IGD believes there are two main problems. First, consumers’ needs do not always top the agenda in the industry, where reacting to competitors often appears to be the driving force behind decision-making.

Alex Anson, trading director for wine at Thresher Group says, “If you look at some of the prices, they must be below cost. It’s open war and promotions are the front line of this war. What must be remembered is that multiple retailers are using wine and beer as key footfall drivers. It’s not baked beans or clothing, it’s booze.”

Second, the industry is still launching new products that duplicate previous innovations and add cost and complexity to the market.

Karen Bevan, programme manager at the IGD, says, “Fundamentally, category management is not a complex process. Different retailers may sell the same product in a different way, as may suppliers, yet it is all about selling products that consumers want and need. What is critical is that both retailers and suppliers think about implementation and execution, and keeping it simple.”

The IGD surveyed 165 companies on implementation and compliance levels. The results showed that a large number of companies do not measure implementation, signage or promotions. Of those that do, many companies experience poor compliance levels in-store. Alex Anson says, “All too often I think buyers don’t give detailed importance to these big trade drivers. Half of a buyer’s time should be dedicated to promotions. It’s not an additional activity that comes in after the listing. It is totally fundamental.”

According to the IGD, poor range implementation can lead to a number of consequences that affect the total category performance. Delisted products could still be on sale and these could take sales from higher performing and higher margin products. Individual brands could be affected, having a knock-on effect for suppliers for future brand plans. Consumers may not have the optimum product choice, leading to dissatisfaction. If new products are not on shelf, future distribution decisions will be affected and a supplier’s return on investment will be lower than anticipated. Finally, outof- stock products leave consumers with a poor impression of the retailer and supplier that can lead to product switching and even retailer switching.

High risk strategy

“If you get it wrong,” Anson says, “you have a lot of cash and stock tied up and you can completely destroy a brand and you can disappoint a lot of customers who thought they could walk into your store and get a great deal. It has massive impact on earnings but it also has a high risk.”

An IGD survey looking at 45 seasonal lines found that the pressures of seasonal demands knocked 10% off availability by retailer, supplier and category. However, beers, wines and spirits performed best with 95.1% availability and frozen goods the lowest at 84.1%. Martin Oakes, group logistics director at Somerfield, says, “What the Christmas specials have highlighted is that the industry should be focusing further on seasonal availability. Seasonal events are now key in the industry calendar and customers expect the products they want to be available at these times.”

Consumers clearly want to buy drinks at Christmas more than at any other time of year, and the smart retailer and supplier will want to make it as easy as possible for this to happen. Research by the in-store marketing consultancy Store-check over the past few years highlights some key areas that need to be addressed.

The IGD has found that only around 50% of centrally negotiated shelf facings are actually properly implemented. Most shoppers go straight to the shelf for their regular product, so getting the shelf facings – and shelf position – right is absolutely vital for success all year round. If your current facings are not right, then you have little hope of hitting targets when sales pressure hits.

So the first move is to make sure you are getting the right facings in the right place. Getting this wrong will cost you every week in lost earnings. One easy way to improve your sales is to use store-by-store EPOS (Electronic Point Of Sale) data.

Just by looking for stores in the EPOS data that are not big sellers for a category will uncover stores where sales shrinkage probably means that the store’s computer believes it has enough stock, but the consumer is looking at an empty space, or one filled with another product. Colin Harper, managing director of Storecheck, says, “We compare the store-by-store EPOS sales with what we expect the store to do, bearing in mind the size and location of the store. We can then pick out the large stores that put your product on the bottom shelf, for example, and ensure all stores comply with agreements and sell to their potential.”

Increasingly, though, in the run-up to Christmas, stores cannot cope with rapid salesincreases across all categories. This is made worse by the trend to ensure Christmas success by implementing the deepest possible cuts to product prices. If there is difficulty keeping product in stock anyway, it must be asked whether you would not make the same amount, or more, with a less ambitious promotion. Rob Barker, managing director of the shopper behaviour specialist Shopper Insights, says, “Recent research shows that at below £10 for 70cl, Gordon’s Gin flies off the shelf and is often out of stock in many stores. This may seem successful but many destination shoppers who were willing to pay more than £12 for a bottle were often disenfranchised. This caused dissatisfaction, non-purchase or switching behaviours.”

Promotions play an important part in most category strategies and are critical to the successful launch of new products or increasing volume sales. But according to the IGD survey, 37% of retailers and 21% of suppliers do not measure the implementation of promotions. Given that promotions are very costly to run, these figures seem worryingly high.

Promotion at Christmas, though, is still a good time to get people to try something new, so expanding your market at that time can have real benefits. If you are going to promote, however, you must make sure there is enough stock in the stores from day one.

According to Harper, “Sufficient stock is vital for two reasons. The first practical reason is that if you have too little stock, the supply chain is unable to supply the following week the demand that was unfulfilled in week one. Then, psychologically, managers will be keener to allot additional space to shift products they still have in serious quantity because they know they will not have to worry so much about later supply issues. The penalty for failing to do this is that the rise in supply to the store is too slow, and there will be a seriously curtailed second week of the promotion.”

Chart one shows the profile of a promotion that both increased sales for properly supplied stores across the course of the following year but still lacked enough stock to make the second week the best-selling. The upper line shows stores where a replenishment team placed whatever stock was available on the shelf from back stock. How do you know what ”enough” stock really is? This is in some senses the hardest call. Here you need to look back at previous history in order to look forward. Colin Harper suggests that retailers should “identify stores that have behaved properly on previous occasions, and identify the uplift within these stores”.

Allocations, which should be in the order of the first week’s sales, mean that stores have at least a fighting chance of getting product on the floor in sufficient quantity for stock systems to get it right in the second and subsequent weeks. But if you base allocations on the average uplift across stores, when half the stores fail, then the best you can expect next time is a repeat of the average, and all the stores will struggle to keep up with demand.

If retailers are convinced that the supplier is keen to sell through all of the stock, then they can be much more willing to invest at the outset. “So creating a joint responsibility in this area can be really helpful,” Harper suggests.

Some would argue that the issue of poor availability at Christmas represents only the most visible element of a far-reaching problem. Barker comments, “Wine in many offlicences and supermarkets now tends to be merchandised well, often using permanent POP (Point of Purchase) design to encourage shoppers to trade up and enjoy their shopping experience. Isn’t it strange, therefore, that often the same care and attention is not given to spirits?”

POP, where possible, for wines, beers and spirits, can increase sales by up to 30%. Missing POP means missing sales. Storecheck identifies poor display issues, which include missing POP or missing locations, by comparing a store’s actual sales with the sales that would be expected. The top line of Chart three shows sales with POP, the bottom line without, for an EDLP (Every Day Low Price) offering.

However, sympathies must go to many smaller retailers risking a prominent shop-floor display of eminently “liftable” spirits, as opposed to keeping them behind the counter. Colin Harper says, “Our call centre was talking to a manager of a small Somerfield store about the success of a Christmas spirits shipper, when the manager threw down the phone. When he returned, it was to explain that he had just had to chase someone trying to escape with a bottle of Gordon’s without paying for it.”

Nevertheless, additional space is a must-have for Christmas success. Chart two shows a mid-year promotion, demonstrating the effect of space and additional replenishment, taken together and separately. Unsurprisingly, the top line shows the effect on sales of a gondola end plus additional replenishment. This is where an external team (in this case the Storecheck team) visited stores to place additional stock from the back, onto the shelves, at peak sales times. The bottom line shows stores with no additional space or replenishment. Possibly most interesting are the two, almost identical, lines in the middle. One is a normal shelf display – where regulars expect to find it – with regular replenishment. The other is a gondola end, reaching newer consumers, but without replenishment.

Give and take

Christmas is a time for giving, but not giving it away. Six out of 10 suppliers asked in a recent Storecheck poll said they were under pressure to deliver proper return on investment (ROI) from their in-store spend. Three out of four felt the amount they would be asked for by retailers was expected to increase. So unless your sales are going up, your return must go down. However, at the moment, only one in six of suppliers feel they have enough ROI information to be able to say that the instore money is spent wisely. So the five out of six not spending wisely now are likely to be subsidising the one in six who is. To understand ROI you must ask for EPOS data by store and talk about performance-based relationships in terms of getting the additional space you deserve and using your investment in the stores. ROI must remain a principal goal unless you are willing to sacrifice a product line as a loss leader.

If you do keep a close watch on how your promotion is implemented, it might make the difference in the New Year between looking back on a job well done, or looking for another one.

Promotion plan:

• Plan at least eight months in advance and make sure that your facings are in the right place – and at their maximum. 
• Your promotional discount should be only as strong as it needs to be – making it stronger will reduce availability and profits.
• Check your stock supply to stores. A really strong promotion can sell out before day one from staff sales alone! 
• Make sure you keep good records and use store-by-store data to establish the potential for all stores by looking at the good ones.
• Check store lists thoroughly in advance. There are two types of lists used for negotiated additional displays – the stores included, and the stores excluded. Don’t get them the wrong way round.
• Remember the large stores can often cope better with increases in their sales than slightly smaller stores. If you make sure that the largest stores have the locations and POP (Point of Purchase) in place, they may need less attention than middle-sized to small stores.
• You can use Christmas to grow your new brands, so if you invest more than you really expect to get back in Christmas sales, make sure you spend it wisely.
• Where you had an enddisplay last year, or an off-shelf display, did you get enough uplift to repay your space costs?
• Finally, what about the effect of POP design, which can add 20 to 30% additional sales.