Building Sales in Center Store: A Roadmap
By John Thompson, former Managing Editor

"I am very, very concerned about the future of sales, particularly in the center of the store,” said consultant Harold Lloyd, in opening a discussion on strategies to build sales in the center of the supermarket.

Noting the decade-long erosion of sales in this area, Lloyd pinpointed three main causes for this sales decline. He identified these as consolidation in the industry, something he said “you cannot do anything about,” and the alternative formats, by which, he emphasized, “I don’t mean just Wal-Mart. There are also convenience stores, the internet, and restaurants.”

“The third factor,” said Lloyd, “is something you can do something about, and that’s lifestyle changes. You can take advantage of the consumer’s price sensitivity by staying price competitive, meeting the needs of the time-starved shopper with service, home meal solutions, home delivery, meeting the health and wellness needs of the aging consumer, and giving the educated consumer more knowledge about what they’re eating.”
“Make signage better and more informative,” he urged, “Don’t just say, ‘bananas—49 cents.’” Instead, he recommended signage that spells out the health and nutritional value of the product, and consequently presents to the shopper an image of value.

Regarding price competitiveness, Lloyd pointed out, “You can be price competitive without lowering prices. It’s the perception; the customer may be price sensitive, but the customer isn’t knowledgeable about all prices.”
But, he warned, “Don’t put price specials on manufacturer’s signs. The customer will think it’s the manufacturer that’s giving them the money, not the store.”

Bud Hamilton, vice president, customer business development, Procter & Gamble, presented a positive picture of how independents can successfully compete with the mass merchants and alternative formats by focusing on top-line, value-perceived items. His focus was on P&G products, and he acknowledged, “Do I want to sell more P&G products? Absolutely. But I can’t succeed if you don’t succeed. My job is to focus on top-line growth through the independent retailer/wholesaler channel to sell more P&G products. My recognition/reward system tied to this channel. If the channel can’t be successful, I can’t be successful.”

Top-line growth, he stated, requires superior center-store execution in the form of retailer pricing strategy, merchandising display, and product initiatives including new items and UPC changes.

The importance of the center store, he said, lies in its role as:

• Key to the shopper’s store selection

• Key influence on traffic flow

• Key to retail financials
• Key top-line growth opportunity

“Are the mass monsters nibbling away at the supermarket pie?,” asked Hamilton, presenting a slide reproducing the January 2000 cover of Progressive Grocer, which featured a bevy of fierce-looking monsters labeled Wal-Mart, Kmart, and Target gorging themselves on a pie.

He advised retailers and wholesalers to consider the following nine large center-store categories, categories that represent $17 billion in annual retail sales:

Said Hamilton, “Food stores have lost $3.4 billion in sales, in just these nine categories, in the last nine years of the 1990s.”
“What’s driving this migration of business from supermarkets to the mass merchants?” he asked, and pointed to three factors: retailer pricing strategy, merchandising and display, and product initiatives.

Referring to a P&G survey, he reported, “Asked why they’re going to mass merchants and club stores to buy products they used to buy at the supermarket, 93% of shoppers interviewed responded either lower prices or large sizes, which in itself is a price-related reason. So, 93% of shoppers are going to the competition because of price.”

In all nine categories, he said, display frequency was much higher, about twice as long, in mass merchants than in supermarkets, and the best mass merchants ran displays about four times as long as did food stores.

Hamilton faulted supermarket operators for a “defeatist attitude” when it comes to prices, indicating that the typical thinking is, “I can’t be competitive on cost” and “I can’t be competitive on price.”

He also noted a lack of well-defined display strategy, due to retailers being focused on short-term manufacturer incentives and multiple fixed displays.

What is needed, he said, is a focus on specific SKUs that have high household penetration, large annual purchases, and high purchase frequency. Consumers of such items, he stated, are more likely to know the item’s quality and prices, and be less likely to make substitutions.

Focus on the Known Value Items
Known value items (KVIs) can help create a value image for the store. “This concept isn’t new,” stated the P&G executive. “You’ve practiced it for years on milk, eggs, and bread in the perimeter. Now, the mass merchandisers are effectively using known value items in center-store categories to create their own, competitive value image.

“You have to identify the known value items. For example, one brand per size—Tide in the 100 oz. package—accounts for 20% of sales in the laundry detergent category. Other known value items, none of them Procter & Gamble brands, are the 37.5 pound box of Purina Dog Chow, Tylenol, Listerine mouth wash, and Cheerios.”

1. Pricing Strategy

To be competitive, the retailer’s pricing strategy needs to be based on KVIs said Hamilton. He advised:

• You don’t need to be competitive with the mass merchants and clubs on all items.

• You don’t need to match the mass merchants and clubs penny for penny on KVIs.

• But, you do need to get to an acceptable range, say 5% to 9% on these known value items.

• And, you do need to communicate your KVI prices to shoppers via all media.

• You also need to communicate total store value on top of KVI prices.

2. Display Strategy

The display strategy needs to reinforce the image of competitive pricing on KVIs and the availability of large, value-sizes. It needs to create excitement.

Hamilton presented an analysis of three new P&G items, Febreze, Swiffer, and Dryel, which he said would generate a combined $1 billion in incremental sales in one year. That combined sales figure would be bigger than total annual sales for the hair conditioner, hand-and-body lotion, chilled drink, peanut butter, light-duty liquid, and mustard and ketchup categories.

In addition, he predicted that, with $250 million in incremental profits, the new P&G products would exceed the first-year retail sales of such major launches as Budweiser Ice Draft and Nicorette, both of which generated $189 million in incremental profits in their first year.

3. Speed to Shelf of New Items

The P&G executive noted that 30% of incremental sales can be attributed to the successful introduction of new items, and that those retailers that are first-to-market with a new item maintain higher shares. However, he said that slow, layered decision making and communication, the lack of a consistent evaluation system, and misaligned reward systems are barriers to speed-to-shelf of new items. What’s needed, declared Hamilton is:

• An evaluation system to identify tier-one items.

• Ensure that tier-one items are on the shelf as close to first ship as possible.

• Ensure display behind tier-one items throughout the first year after introduction.
• Communication of their availability and value to consumers.
• A reward system consistent with the evaluation system.Better use of technology, including the new UPC consumer package code.

Regarding UPC, Hamilton reported that a recent analysis of UPC changes on 12 P&G products found that 10 of the 12 lost market share in the post-change period. The losses in the retail distribution channel ran as high as 23%, and the P&G executive concluded, “Other channels managed better.”

This loss of shares, he indicated, is an opportunity in reverse. He urged independent retailers and their wholesalers to recognize that opportunity, and take action to remove the barriers in evaluation, communication, measurement, and rewards.

“If nothing else,” he advised, “identify and manage the big changes well.”