CSD: Category Management for C-Stores

Discussion
Mar 07, 2011
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Through a special arrangement, presented here for
discussion is a summary of an article from Convenience Store Decisions magazine.

Dealing
with primary wholesalers, multiple DSD (direct-store-delivery) vendors and
local foodservice providers stocking a limited amount of space, some c-store
chains are looking deeper into category management.

"I think recognizing
the potential of the store from the standpoint of destination categories and
merchandising the stores to capitalize on high-margin impulse categories like
candy and snacks is important," said Kit Dietz, president
of Dietz Consulting.

There are, Mr. Dietz emphasized, some big in-store opportunities
available since candy and snacks deliver — candy particularly — the
highest margin and true profitability in the center store.

Operators also need
to make sure they have the best-selling SKUs. The top 50 SKUs, which only represent
about six-tenths of 1 percent of all of the SKUs in the convenience channel,
drive 32 percent of the business.

There are "significant gaps" in
the best-selling SKUs in the marketplace, Mr. Dietz added. "That’s
not to say that only independents are missing it; some of the big chains miss
it as well. When it comes to the biggest opportunity to improve profitability,
that comes from finding a distributor that is able to deliver high-quality
planograms that are developed not only by looking at national data, but regional
data, and from looking at individual retailers’ movement
in the store."

Many retailers also tend to concentrate on price rather
than the total cost of acquisition, noted Steven Montgomery, president of b2b
Solutions [and a RetailWire BrainTrust panelist]. "Price
is what they see on an invoice. Total cost includes all the elements of cost
that go into a purchase. This could include cost elements such as terms, return
policies, order quantities, delivery and a host of support services."

One
of the best ways to remove cost from the supply chain is to control the number
of vendors making deliveries to your stores. This is an area 7-Eleven has been
heavily studying of late. The results of a pilot program the chain is running
in California could have a significant impact on how goods are delivered to
c-stores across the country.

"We have worked with retailers who have vendors with overlapping items," Mr.
Montgomery said. "One of our recommendations is to consolidate vendors
whenever possible."

From the years of work he has done with candy and
snack manufacturers within the distribution community, Mr. Dietz has found
that companies are continuing to adapt to the realities of the marketplace. "They
are starting to recognize that this is a limited-assortment channel, highly
impulse-driven, driven by instant consumables. We haven’t done a good
job of rationalizing assortment, and there are some true opportunities there."

Discussion Questions: What’s the biggest benefit c-stores can gain from category management practices? Does category management work differently for c-stores and other small formats versus big boxes?

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9 Comments on "CSD: Category Management for C-Stores"


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W. Frank Dell II
Guest
10 years 2 months ago

For way too long, c-Store operators have relied on their wholesaler for what items to stock. Most wholesalers have not invested the time and money to create a wining selection and presentation. Even the chains have been more concerned with collecting the cash than selecting the items. Years ago I promoted the idea of category management for c-stores. I have yet to see what is really needed. I estimated the average c-store could increase sales by 50%. Too many items need weekly dusting.

Ben Ball
Guest
10 years 2 months ago

Definitely agree with Mr. Dietz that consumer driven assortment is the number one opportunity for c-store operators. Recent client project work completed in the ice cream novelty category showed a very significant upside to implementing a consumer driven assortment in the category versus the traditional “manufacturer exclusive freezer” approach. Even with the reality of “free freezers” and “annual placement incentives” factored in — giving the consumer what they want still made more money for the retailers studied.

Herb Sorensen
Guest
10 years 2 months ago
“The top 50 SKUs, which only represent about six-tenths of 1 percent of all of the SKUs in the convenience channel, drive 32 percent of the business.” I am very sympathetic to the big head/long tail problems discussed here and recognize the clear benefits that category management can bring to the SKU chaos that this quote brings into focus. It is this same chaos in the supermarkets that led them, 20+ years ago into category management in the first place. We are finding that ignoring category management, for us, and focusing primarily on ITEM management, at the individual store level, opens the door to very substantial increases in sales and margin. Item management is properly an overlay on category management, and is very much shopper driven, while category management is much more merchant driven, and is dominated by the supplier/retailer relationship, with a nod to the shopper. The suggestion of limiting DSD suppliers, more than one of which may represent some identical SKUs, parallels the category captain approach for the larger stores. There is nothing… Read more »
David Zahn
Guest
10 years 2 months ago

My sense is that the answer is in the “white space” between and among the answers above: Mr. Dell is right that it is needed in c-Stores, but what is exactly is “it?” The nature of the business is currently different from other outlets. Ben is on to something when he points out that manufacturer sets alone will not get there. Herb reminds us that it is still a dollars and cents (sense) business sold by “item.”

I would piggyback on what Herb said and point out that people purchase items, but are actually buying a solution or a “job” to be accomplished. I think the distinction is a key to understanding how Cat Man can influence c-Store performance.

Think of “centers” within the store or ways of meeting the shopper needs/desires (emotional). Perhaps it is “refreshment,” “RTE Meals,” “treats,” “HH cleaning,” “staple goods,” etc. Then, what “belongs” where and how it is merchandised would flow from there.

Ed Dennis
Guest
Ed Dennis
10 years 2 months ago

Well if you look at the c-store product mix, it would seem that that usually there are franchised DSD vendors and one candy/tobacco vendor. Who are you going to do away with? You can cut back SKUs easily in the tobacco category, but then you have to give up the lucrative tobacco contracts. Cutting back on DSD items doesn’t do much for you because it is almost all guaranteed sale. The fact is that c-tores don’t invest in labor. They suffer from high personnel turns. If they need more operating revenue then just raise the cost of fountain drinks by 10 cents a cup and be done with it. Trying to apply sophisticated marketing practices in this environment begs failure.

Dan Frechtling
Guest
10 years 2 months ago

Kit Dietz makes important points about destination and impulse categories in the convenience channel.

The nature of destination and impulse categories are indeed different for c-stores. Fuel, for example, is a destination category for many stores. Food and beverage are impulse categories. Increased use of signage static and digital, window and pump have become commonplace to spur conversion of fuel-only shoppers.

C-stores face acute competition from dollar and drug stores. The increasing presence of dollar stores and the addition of grocery categories to drug stores provide alternatives, particularly to occasional shoppers. To grow basket among the frequent shoppers who comprise 80% of transactions, merchandising strategies that drive impulse purchases can be critical.

Applying the concepts from Dr. Herb Sorensen’s “Zero-Based Retailing,” the small format and clear sightlines provide an opportunity for convenience retailers to apply the hunting approach (persistently making offers) to convert more impulse sales.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
10 years 2 months ago
As manager of two 7-Eleven stores while in college, and later as national ad manager for all 7-Eleven stores, I can offer my stamp of credibility to all of the comments here today. Some very insightful observations. Ed Dennis’s comments reminded me of when the average tenure of a 7-Eleven clerk was 34 days. I don’t imagine it’s much different today. As soon as we hired them, we started to fire them. Also back then, we stocked our stores with an assortment of items that we believed were appropriate and necessary as emergency or fill-in items, with the accompanying insult pricing. Band-aids, PB&J, canned olives, and Marshmallow Fluff come to mind (yes, Frank Dell, we did a lot of dusting). Today’s availability of 24-hour conventional stores has pretty much eliminated that notion. C-stores operated by franchisees typically outperform company-owned stores for two reasons: First, franchised stores are usually family-operated, cutting down on shrink and benefiting from in-store experience and consistency. And second, unlike company stores which have merchandising plans, they usually have only a minimal… Read more »
Dave Wendland
Guest
10 years 2 months ago

Three big benefits from employing thoughtful and objectively-based category management: 1) shopper satisfaction (finding the things they want when they want them); 2) incremental sales (better category navigation and assortment planning will lead to market basket growth); and 3) sustainable best practices (reliance on others to control your destiny is seldom the preferred path).

C-stores have definitely progressed attracting customers back into their stores with on-the-good food service and pleasant environments … it’s time to add sophistication to the category management process.

Matthew Keylock
Guest
Matthew Keylock
10 years 2 months ago

I echo the comments here. I would add that care should be taken in identifying the right SKUs. Best-selling SKUs across the market may not be the right SKUs for every store. Furthermore, best-selling SKUs may also be highly substitutable at a consumer level. Consumer needs will be better met by looking beyond standard category management metrics to include cross-category and consumer metrics too.

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