CSD: Sweet Opportunity

Discussion
May 14, 2009
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By Bob Gatty

Through a special arrangement, presented here for discussion is an excerpt of a current article from Convenience Store Decisions magazine.

If manufacturers, distributors
and convenience store retailers would embrace some basic changes in the
confectionery category and work more closely together, they could realize
a potential bonanza of hundreds of millions of dollars in new profit, according
to a new joint industry study.

That is the message of the soon-to-be released "Convenience, Candy &
Profit," study developed by industry expert Kit Dietz, of Dietz Consulting
in Huron, Ohio, under the joint sponsorship of the American Wholesale Marketers
Association (AWMA), the National Association of Convenience Stores (NACS)
and the National Confectioners Association (NCA).

According to the year-long study, if the nation’s 146,000 convenience stores
and their distributors worked together to make sure the top 50 SKUs in candy,
gum and mints–the "core brands"– were always in stock, as much
as $358.8 million in new candy sales could be generated. Numerous other steps
that could generate even higher sales and profits–in excess of $500 million–are
also identified.

Mr. Dietz pointed out that profit margins on candy products are already strong–often
50 percent or better. For the first 11 months of 2008, total dollar sales
of the top 100 confections SKUs in the convenience channel increased by 3.6
percent compared to the previous year. Convenience chocolate sales were up
4.6 percent; non-chocolate, 5.1 percent; and gum, 4.4 percent. Only mints
showed a decline, down 12.9 percent.

The study uncovered major
opportunities available through improved manufacturer, distributor and
retailer collaboration directed at broadening the scope of category management
to include:

  • Keeping core brands in stock
    at all times.
  • Improving in-store product
    placement.
  • Understanding and responding
    to consumers’ typical shopping practices to maximize prime selling areas
    and secondary multi-vendor merchandising opportunities.
  • Improving execution
    of new item strategies.
  • Improving exit strategies for
    poor performing items.

Having the proper balance
of focus on core brands and new items is an important component of effective
category management, according to Mr. Dietz, who said distributors can
help retailers develop and execute the most profitable candy plan-o-gram
for their stores instead of relying on manufacturers, whose natural bias
is to promote their own brands.

"The retailer is the ultimate decision maker and this process provides
a solid basis for developing the optimal planogram for their stores; and
to determine how implementation and execution will take place," said
Mr. Dietz, pointing out that there exists a significant opportunity to increase
candy sales and profit among the growing number of independents.

While many independents do an excellent job of category management, many
are unduly influenced by product cost and the search for deals, instead of
using a more strategic process provided by the distributor aimed at long-term
success.

"Just because a retailer might be able to get a cheaper price at a club
store, those products might not be the ones that will generate the most sales
and profit," Mr. Dietz said. "At
the same time, they will consume space that could be devoted to the best
selling core items or exciting new items being heavily promoted."

Discussion Questions:
What do you think of the suggestions offered in the study for maximizing
confectionery sales? What suggestion will make the biggest impact? Which
one is the most overlooked?

Please practice The RetailWire Golden Rule when submitting your comments.

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7 Comments on "CSD: Sweet Opportunity"


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David Zahn
Guest
12 years 14 hours ago

The confection category is essential to the convenience channel and the suggestions obviously all make sense. None of them is objectionable or misguided. The issue is the sophistication necessary to use the data required to more completely capture the insights not readily apparent. Aside from looking at the gap on the shelf and determining that the product is out of stock, the data used to track independent store sales is not sufficient to customize planograms, ordering, pricing, etc. So, what is left is to rely on costs, vendor deals, and best guesses based on experience.

The biggest issue is remaining in stock on the best sellers. In part, the reason that does not happen is because the other things are not occurring properly (new items, exit strategies, secondary placements, etc.).

David Biernbaum
Guest
12 years 13 hours ago

No disrespect intended to the American Wholesale Marketers Association (AWMA), the National Association of Convenience Stores (NACS) and the National Confectioners Association (NCA) but 146,000 C-stores are not going to work “together” to control inventory levels of gum, candy, and other confectioneries. I’m a huge trade association guy of more than 30 years, and believe very strongly in the purposes and services that trade associations provide. However, I think that sometimes the sponsored studies conducted often overlook that competitors within an industry don’t often work “together” to accomplish customer loyalty. In a competitive market one retailer will exploit the other one’s weaknesses to build their own market and following.

Steve Montgomery
Guest
12 years 13 hours ago
The study results are not surprising in that the actions highlighted are those that have proven to be effective for not only the candy category in c-stores, but all categories with the possible exception of the multi-vendor endcap. It is a litany of category management Best Practices. The issue for the industry is not what to do, but actually getting it done, i.e., execution. Of the five actions listed the most important is having the core items in stock. Candy is no exception to the 80/20 rule. With the increased pressure on inventory turns we find far fewer instances of product being out on the shelf but with inventory in the back room. However, this does mean stores have to be better able to manage the order cycle to avoid no having the product anywhere in the store. At least if it is in the backroom, there is the hope it will find its way to the shelf. The industry most often fails at new item execution and exit strategies for poor items. New item… Read more »
Doron Levy
Guest
Doron Levy
12 years 13 hours ago

I’m really not trying to be obnoxious here, but this ‘report’ is basically the daily to-do list for cashiers at a major pharmacy chain in Canada. Confection is the last impulse item to be presented to the customer. It’s your last chance to capture that extra dollar from the customer. Of course there should be focus on it. Especially with all the new products and alignments going on.

One thing I would add is to check rotation! Candy bar codes can be difficult to understand and I recommend having a Candy Captain who is trained by the vendors to read codes and understands freshness. When we think of expiry dates, the first reaction is dairy or fresh food. As a un-registered chocoholic, getting a candy bar that is stale is a real downer (and could lead to violence and seizures). Put rotation checks on your daily to do list. Please….

Joan Treistman
Guest
12 years 12 hours ago

Sometimes people have to hear from others what they could or should have observed on their own. If this study and its common-sense results are what it takes for the retailers to be more successful, then so be it.

These best practices don’t require a major outlay of funds. There seems to be no or very little risk involved. At the same time the stores are increasing sales, customers will be more satisfied. And whoever conducted the study made some money too. In this economy a win, win, win situation is to be applauded. I may be on a sugar high, but this all looks positive to me.

Ralph Jacobson
Guest
12 years 12 hours ago

Hmmm, are they serious with these five key findings? As stated by others here, these “best practices” apply to all retailers, or any type…even apparel. If we start with just the first recommendation of keeping core items in stock, the whole retail industry would see a significant bump in revenue. Such simple ideas, but obviously too complex to solve easily, otherwise we wouldn’t still be talking about them.

An impulse item like candy has always been a driver of great margins and taking advantage of placement through a store, any type of store, can generate better results. The current economic climate, as well as other factors, can help drive these sales.

On the collaboration topic, I agree that changing old habits has been hard to accomplish, however, monetary incentives can help.

Mark Lilien
Guest
12 years 3 hours ago

The candy study’s suggestions are well-known basic tactics for any retailer and any category. Studies really pay off when they report something new that’s actionable.

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