FD Buyer: More Smaller/Regional Brands at Grocery?
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Dairy Buyer magazine.
In an August survey, FD Buyer asked a number of supermarket frozen and dairy retail executives to rank a variety of statements on a scale of one to 10, with one being "disagree strongly" and 10 being "agree strongly." One explored whether an increasing amount of smaller/regional brands would be heading to the food channel.
Specifically, the statement was, "I will seek more smaller/regional brands to gain differentiation in the year ahead." Responses bunched at the high and the low extremes, but the average came to 5.2. Not many retailers are neutral on this one — you either believe this is a good idea or you don’t. Retailers were about evenly split on whether local brands outperformed the nationals.
One naysaying retailer who voted with a "1" said SKU rationalization is still ongoing, and "I only carry locally relevant regional brands with five percent or greater brand share." Another pro-local regional retailer who voted with a "10" said, "Larger, consolidated retailers cannot stay close to the customer."
Said another who voted seven, "Part of our marketing campaign is supporting local, so some small vendors are in one or two stores near their farms. This goes against SKU rationalization, but supporting local is an important differentiator for us."
FD Buyer also asked three editorial advisory board members of the magazine to weigh in on the statement.
Bob Anderson, formerly of Walmart and now president of Store Brand Consulting, Rogers, AK, was most doubtful, voting a "2." Said Mr. Anderson, "Unfortunately, small and regional brands may take the biggest hit here for several reasons. If it were up to me, I would push these versus carrying more national brand SKUs, as they add better value and point of difference."
More optimistic was Dan Raftery, president of Raftery Resource Network, Antioch, IL, who voted a "7." Said Mr. Raferty, "I’d be inclined to carry these, so I can differentiate from competition and become known for quality products."
Johnny Harris, formerly of Harris Teeter, now president of Johnny L. Harris Consulting, Fort Mill, SC, likewise saw advantages to promoting local products. He said, "This is necessary when a retailer moves into a new market. It is imperative that they carry local milk and ice cream products." But he was less confident that a shift would happen, voting "5."
Discussion Questions
Discussion Questions: How can retailers find the proper balance between SKU rationalization and greater differentiation? What should guide their decisions regarding smaller/regional brands?
These are not necessarily in opposition, as the responder in Warren’s survey claimed. SKU rationalization can certainly accommodate smaller/regional brands if they fill a role or niche in the category. The key in SKU rat is to reduce duplication and non-productive SKUs. No reason a more specialized product that is more local can’t fill holes in an assortment mix.
The usual metrics used in SKU rationalization often do not take into consideration the human element of the shopping experience. Not all consumers are so vanilla that all they want to buy are the top national branded SKUs in any given category. Consumers have a strong desire for variety, differentiation, specialty, and niche. In a bad economy you ask? Yes even more so! SKU rationalization frequently creates sameness among every retailer within a given channel and it creates a boring and disappointing shopping experience for the consumer.
It’s a question of goals. As stated in the article, some retailers put a priority on carrying local brands, others do not. Perhaps setting aside a certain amount of shelf space for local/regional brands would help the brands find an audience and would help the retailer differentiate.
We work with a large number of small food brands. Having access to retailers without slotting fees and marketing allowances would great help their businesses, and their energy and passion could bring a new environment to stores.
The key to success is being able to understand the role of different brands/SKUs in the mix at a much lower level of granularity than traditional financial or product metrics. This is only possible with shopper data. Even demographics and attitudinal research can’t give you what is needed.
With shopper or customer metrics, you can look at a new level of resolution. You can see individual household loyalty to a product at different price points, substitutability, repertoire and which products fulfill particular shopper niches. Without this view you are “flying blind” as David Reid once said (Tesco Chairman).
I suspect some of the larger retailers in the survey are flying blind in SKU rationalization because they don’t have this data. Alternatively, if they have it they don’t know how to use it properly, or don’t use it because they are still incentivized by 2-dimensional metrics (e.g. financial-oriented or share).
Smaller players may not have the data either, but they do have a first-hand and more intimate knowledge of their customers so can make these decisions better without the data.
So “let the customer decide” should be the answer, but only a few businesses are equipped with the sophistication to do this.
Decisions have to be customer-centric. What does the consumer in the RTA favor? What makes you unique vs the competition or what are the items that are point of entry in targeting the RTA?
One should look at how chains successfully target the Hispanic consumer segment for an example. While retailers carry the most popular national brands, they also carry the brands targeting the Hispanic consumer with features such as flavor palate, packaging, or brands from country of origin — this applies not only to food items but also and especially to OTC, and health and beauty. An analysis of retailers catering to Hispanic consumers vs those who don’t in the same RTA will indicate greater traffic and a positive impact on all items including national brands.
Localization should be a priority for any retailer. Merchants and managers must know their local market. Are there brands that the locals prefer? What’s the cultural makeup of the immediate selling area? Retailers who understand the local aspects of their market will do much better than their competition who does not.
There is a push for locally grown and originating products especially in the grocery category. Customers are being more receptive to local suppliers as well. As long as pricing and quality are in check, going local is the best way for any retailer.
It is important to be different than the competition, but it is more important to offer merchandise that customers want to buy. Regional and small brands are good to stock if a retailer’s target market wants them. This means a high market share for a regional brand could be from consumers that shop other stores. Too often, national brands try to buy regional brand shelf space and expanding private label crowds out regional brands. No hard or fast rule works except satisfying the target consumer.
Of course, due to limited and expensive space, F&D products fight for display. The problem is not giving individual store managers sufficient flexibility to tailor their F&D offering for their shopper base. Corporate buyers rely on volume and volume discounts for their annual performance reviews and bonuses, and also for the amount of pre-paid allowances they can scam from distributors while not delivering. It’s a science, an art, and downright theft. I’m writing from experience.
Some years ago I was responsible for placing Mrs. Fields Frozen Cookie Dough in supermarket frozen sections. Our customers were fanatical, often contacting us for direct shipments of cases of the product. It was the identical product produced in Mrs. Fields cookie shops worldwide, no preservatives, and it was great.
But supermarket chains demanded exorbitant placement fees for our frozen cookie dough and mostly did not perform. One major chain claimed they didn’t know that the product was frozen and stored it in their dry warehouse until it spoiled. Another chain, BI-LO, sold the product at a discount (from us) for every unit sold during the discount period. Interestingly, 98% of our product was sold at a discount according to BI-LO’s records. That’s how the game is played.
If SKU rationalization is corporately-driven, it’s doomed to failure.
The retailers must keep “emotion” out of the assortment decisions and base ongoing SKU rationalization upon movement. It always makes sense to introduce new item, however placement in the store is key. I feel national brands should be merchandised alongside local brands and private label brands, to give the shopper an easy, simple choice. If after a reasonable test period the velocity of products don’t meet specific criteria set by the retailer, (e.g., one case movement of each item per week per store, etc.) then those items not meeting the criteria should be eliminated. The only slow-moving items that should remain on the shelves should only be truly unique items that have no substitute.
I frankly don’t know exactly how many SKUs need to be in “the long tail,” and what is the best way to manage that. But I am quite certain that “the big head” is massively mismanaged. Let me explain.
I buy a few books a month, mostly from Amazon. I figure that anyone with 50 million books will probably have the ones I want. This is the main role of the long tail — to ATTRACT shoppers to the store — not to SELL them. Most retailers tragically use the long tail to bury the big head (what shoppers mostly want to buy,) hoping that in their search for what they want, they will buy more, possibly something from that vast selection-sales-impeding-screen they offer. (See The Misguided Bobbing of the Long Tail)
The problem is endemic in retail, and the disease was caught 100 years ago when the responsibility for SELLING was ceded to the self-service (sell yourself) shopper, with the mantra, “Pile it high — and let it fly!” As valuable as logistics and merchandising skills might be, they are one giant step short of actually selling the few items shoppers really want to buy.
Each store must look at the item for a variety of different reasons, as some local foods have a strong following in limited areas. Smith’s hot dogs in Erie, Pa. dominates the category as well as some of their deli meats, but 50 miles away Sugardale is super strong. What is strong in your area, should be what you can promote vs. a national brand, and still make a good profit, so it is what I do everyday.
So, the constant creative tension between cold hard “rational” numbers and the reality of the individual human shopping experience remains in conflict. Having lived at IRI during an early Category Management wave (94-99) it was troubling to me that the local/neighborhood aspect of any particular location was oft times sacrificed at the altar of “at least 5% share” or whatever metric was being used. SKU rationalization was, of course, very well warranted — there was substantial inefficiency and waste in the system those days.
May I stick to a focus on food, as this conundrum in HBA hurts my head. With constant new product attempts, these skirmishes will never cease, But, have you noticed how many of these “small/regional brands” are in fact driven by a sense of local needs, local traditions, local recipes, etc. People I think inherently desire such choice.
What I wonder is have we simply grown some of our retailing systems just too large to be locally responsive to the proper degree. “Local” is a mega-trend in the US — people are struggling to find connections, in fact community is a powerful hard wired aspect of the human animal. Given the continuing reality that most of us still spend a huge portion of our time and dollars within a relatively short radius around our homes, it makes for an interesting dilemma. How many of us who are “on the road” too much end up in an eerily familiar setting when we exit our hotels and see the ‘same’ eatery’s, chain stores, snack places and everything else to meet our every whim? Aside from perhaps the local grocer sign — we could be anywhere USA. Is this a good or a bad thing — or simply “what it is”?
The question of the right “top-down” strategy to maintain relevance with any individual stores shoppers while attending to the increased profitability of “efficient” assortment is unfortunately beset with my typical answer to difficult questions — it depends.
In an age of ‘one size fits best’ for many things in our culture, I sense a bit of modest backlash building out there … not a groundswell but around the edges. We appreciate being able to enter a retailer (anywhere) and know/rely upon certain things … but even within that ‘philosophy’ I think we in the industry are certainly creative enough to still react and deliver a greater degree of local satisfaction, which I believe can breed a different kind of loyalty. Yes, I know there has been much progress; local is a common theme on the store edge. In center store? Perhaps not so much. Is there an opportunity there?
Right thing to guide how you determine the fate of stocking smaller/regional brands, I think it comes down to the customers you serve and the ease with which you please them. The degree to which you can actually connect with them which, I hypothesize, can be driven by the brands you offer. As always if this stuff was easy, anybody could do it!
Each SKU — whether regional or national — should be measured against the same criteria. And the biggest among them is whether or not the addition of the SKU brings value to the category and to the consumers shopping it. If not, regional or not, it is contributing to the long tail and should be considered for elimination.