Archive for Pricing

Five Important Questions Most Retailers Cannot Answer

Managing the retail business in 2016 has never been anything but challenging, but with the mountain of business intelligence data available today it has becoming equally challenging to determine which metrics are the most effective tools in that process.

question markWhen the retail business is growing, the important, ‘bankable’ metrics such as sales, profits, cash flow, labor and transportation efficiencies are reassuring numeric markers of success. Despite retailers continued reliance on these numbers, none of these stalwart metrics are sufficiently deep reaching to accurately provide a true diagnostic of the health of the business in today’s complex environment.

As a veteran of many “Monday Morning Retail Meetings”, I know personally that when sales are tracking the wrong way, it is usually theories and conjecture that serve as explanations, not empirical measurement. Also, many times a downward trend comes as a surprise, when in fact if the right diagnostic measurements were being monitored, pre-emptive steps could have been already in motion.

Encouragingly enough there are an entire new genre of metrics that have emerged over the past decade that can serve as ‘intelligent indicators’ of the health and vitality of the business. Use of these metrics begins with the retailer “asking the right questions” about their business these questions are of particular relevance to the bricks and mortar retailers, who have made significant investments in stores, inventory, and logistical support.

1. Are My Departments and Categories Getting Sufficient Exposure to Shoppers?
Whenever retailers look at shopper tracking studies in their stores, the number of key departments and categories that see only a scant few of the in-store shoppers typically astounds them. This is particularly true in larger stores (over 50,000 square feet). Simply put, you cannot sell something that no one sees. In fact, many of the highest margin categories in the store are typically visited by fewer than 10% of the shopper base. There are a variety of remedies for increasing shopper exposure, but it begins with understanding the lost opportunities of low traffic areas in the store.

If category sales are lower than is acceptable, before you make adjustments to pricing, promotions, and presentation in the store, measure the categories shopper exposure rate. If fewer than 20% of shoppers are exposed to the category, the fastest way to sales increases is to either move the category or more likely create secondary placements of the category in higher traffic areas.

2. To Optimize Exposure, Are My Categories and Products Positioned Optimally in My Stores?
Ask any retailer why they position various departments and categories where they do and you will hear anything from “that’s where they have always been placed’ to ‘perishable departments are more efficiently operated if they are on the perimeter of the store near back room work areas’, to that’s where they need to be for theft and security monitoring. While all of these reasons are viable, none speak to optimize the sales and profit of the department. None speak to the sequential order that makes the most sense to the shopper, which will enable the shopper to more quickly find the items they want and move on to the next purchase.

As a group, shoppers develop a cadence and flow in your stores that can be leveraged with the creation of selling events along the ‘dominant path’ that carries the majority of traffic in most all stores. If there are 10 product categories that are driving a disproportionate amount of business, insure they are position to be intercepted by shoppers on or near the ‘dominant path’ of the store.

3. Are We Selling the Right Mix of Items in Our Stores?
There are essential questions that should be asked continually in order to understand the efficacy of a retailer’s product offerings.

i) Of the top selling 20% of items in my stores, which items are growing in sales, flat, or shrinking?
ii) Of the bottom selling 20% of Items in my stores, which items are relevant and valuable to the overall mix and which should be discontinued?

The rationale for carrying items in larger, inventory intensive stores often falls to moneys or deals that are offered by manufacturers as incentives for shelf placement. As shoppers become more accustom to on-line purchasing, where filters and past purchases help shoppers make choices, slow moving items that clutter the shelves and make the shopper’s purchase decision more difficult are a luxury of the past.

Understand the ‘contribution of sales’ of each sku that is slotted on the shelf and determine a survival threshold for each product, one that dictates a certain level of relevance to your shoppers if it is to remain in the mix.

4. Are Shoppers Able to Efficiently Navigate Our Stores?

Most retailers have no clue as to how long the average shopping trip in their stores last or how fast the shopper buys during that trip. Both are important metrics and both will likely surprise the retailer upon their discovery. Length of trip is vitally important in that shoppers have a finite amount of time to spend in stores. Efforts by retailers to entice shoppers to linger or move into areas of the store that are not relevant to their current mission, typically do more to frustrate the shopper, than to place additional items in their basket.

Within the short, finite amount of time, the faster the shopper is finding their needs and making purchases, the bigger their basket size will ultimately be. The notion of helping shoppers ‘expedite’ their shopping trip is not only counterintuitive to most retailers, but flies in the face of the long accepted belief that the longer shoppers linger in the store, the more they will buy.

Measure, benchmark and strive to improve shopper ‘buying rates’ in stores. Shopping trip length, while it will vary upon the physical size of the store, is a clear indicator of how efficient your stores are for you shoppers. Do not be alarmed if shopper centric merchandising practices reduce the shopper’s time in the store. As long as they are buying faster and building basket size in less time, shorter trip lengths are a positive indication that you are connecting with your shoppers on their terms, which is how it should be. The faster the shopper buys, the more they will buy on any given trip. If shoppers are spending at slower rate, lower basket sizes will result. Set benchmarks on shopper time and spending rates and work to steadily improve through smarter, shopper-centric merchandising.

5. Are We Relying Too Much on Discounts and Promotions?

As a new store manager, a wise man once said to me, “Mark, anyone can give it away, but only a good merchant knows how to sell at a good profit”. Certainly deals and promotions can be very powerful tools, especially for retailers that are positioned as a ‘high-low’ merchant. However, too much of the business being sold on promotion can be a harbinger for bigger problems to come. First and foremost, too many or too frequent promotions serve to dilute the impact of any single event. Further and more critical to the life of the business, it could be an indication that the everyday pricing is out of sync with the shopper’s expectations and the competitive environment.

It is difficult for anyone to make grandiose generalizations about pricing and promotion to specific retailers, as their effectiveness is driven in large part to localized variables such as demographics, shopper income levels, and competitive environments. However, on the whole, retailers discount too much and rely too heavily on promotions to drive their business.

To my knowledge, know one in the retail industry has developed a sure fire method of measuring the amount of wasted ‘markdown’ a retailer investment in a merchandising program. Most retailers would tell you that they intuitively know that what the retailer can measure is how much of their business is sold on promotion/discount versus full margin. If I were a CEO or CMO I would asked this question every week with the knowledge that good merchandising, good operations and good service can work in tandem to reduce the reliance on deals to drive more profitable sales.

From MorningNewsBeat–Michael Sansolo Reminds Us That “Price” is Not Always King

Price Wars, Global Lessons

By Michael Sansolo

The incredibly important role food retailing plays in people’s lives was placed in sharp focus last week in a reverse price war taking place far from the US.

Last Friday, discussion of a potential arms deal with Iran dominated news around the world, and nowhere was that topic as important as in Israel. Yet there was a secondary story in one of Israel’s major newspapers that focused squarely on supermarkets – especially because last Friday was the start of the Jewish holiday of Passover, a celebration that itself focuses squarely on food.

Thanks to numerous economic issues, Israeli shoppers are doing something very strange these days, according to the newspaper Haaretz: They are simply buying less food. That in turn is putting a squeeze on the country’s food retailers, causing them to discount ever more heavily in a failing attempt to win back sales.

As any retailer in the US knows, such policies lead to an additional problem in the form of falling profits. Plus, when everyone is discounting, no one is special or is gaining sales. So productivity measures are falling everywhere.

Israeli retailers responded with a strange marketing tactic.

To explain, virtually the entire industry abandoned price merchandising for the Passover holiday. No price breaks on chickens (usually a centerpiece in Israel), or the holiday’s key food, matzo, or on any of a wide range of products shoppers specifically buy for the eight-day holiday.

According to Haaretz, the trend started with the nation’s largest retailers and everyone down the line quickly followed suit.

What’s more, the supermarkets stopped advertising because they had no sales to trumpet and wanted to save on the cost of marketing. After being immersed in a bitter price war with new discount chains, Israeli food retailing has essentially gone cold turkey. Haaretz said consumers were noticing now – and buying less for the holiday – and one can only imagine how consumers will respond in the long run.

It likely won’t be pretty. At some point, one retailer is going to break from the pack and the war will get jump started.

The celebration of Passover focuses on discussion of a series of historical questions, starting with, “Why is this night different from all other nights?” When the inevitable Israeli price war begins, retailers there should ask themselves, “Why is this price war different from any other?”

The answer is that it is not. Price wars almost never are.

Countless price wars have demonstrated the futility of a race to the bottom. In the end, virtually everyone loses and customer loyalty is reduced to one special at a time. Through the years the more prudent approach of reducing costs to enable price savings, while enhancing differentiation has shown to work much better.

Here in the US, we are coming off a dreadful economic period and we, too, have ample numbers of discount invaders. However, the chains most beloved by shoppers, at least according to Consumer Reports, are those that seemingly found a way to carve a new path. Companies like Wegmans, Publix and Trader Joe’s top the list, thanks to their well-earned reputations for unique and highly pleasing shopping experiences. And all three did a strong job featuring price savings throughout the Great Recession.

You’d think that lesson would be global.

MorningNewsBeat–Weis Simplifies Saving

Pennsylvania-based Weis Markets said yesterday that it is launching a Three More Ways to Save program that it said will offer discounts on more than 2,000 products in every store department.

The company said that the savings program will have three elements: a “lowest price in the market” guarantee on four weekly items, everyday lower prices on 1,000 items throughout the store, and a 90-day price freeze “on thousands of seasonally relevant items that will remain at these prices through April 13, 2014.”

• The San Diego Union Tribune reports that Baron’s Market, a four-store independent operating in the San Diego market, will open a new store in the town of Alpine, in a location formerly run by Fresh & Easy.

Baron’s has a unique approach – simplifying shopping by offering fewer options, a “curated selection of healthy and affordable foods, all tasted and approved by a committee of managers.”

An opening date has not yet been set.

• The Associated Press has a story reporting that the US Food and Drug Administration (FDA) is in the process of revising nutrition label requirements, saying that “knowledge about nutrition has evolved over the last 20 years, and the labels need to reflect that.”

No word on when the new guidelines might be released.

What’s

via MorningNewsBeat.

We Can’t We All Just Get Along?

Despite vehement denials to the contrary, retailers often unwittingly create silos within the corporate structure that at times foster more of a competitive rather than a cooperative environment between departments and business units. For those of us that have spent time behind the desk at a retailer, we can likely come up with a few our own examples of structural or even compensation-related situations that prevented internal cooperation. More often than not, each department has their own goals and objectives and very rarely do any of these involve partnering or sharing the limelight with another department.

corporate fighting

In my experience, Marketing and Merchandising are two internal disciplines that often find themselves in adversarial positions. It is not as if this situation has gone unnoticed. As one remedy, some retailers of sufficient size and demeanor have positioned a Chief Marketing Officer (CMO) in the C-Suite that governs both.  Quelling these inter-departmental skirmishes should be one of the key initiatives in a CMO’s annual business plan.  But more than peacemaking, coordinating the efforts of these two vital arms of the retailer is becoming a necessity to remain competitive.

Merchandising has traditionally driven the content of the weekly circular, the products and placement of products on the shelf and the all-important relationships with the CPG brands. Most merchandising departments are organized by defining the business in clusters of departments and with further granularity in categories. Within the management of these categories, the brand relationships are particularly coveted as brands still come calling each year with a pocket full of money to promote and discount their products within the retailer’s merchandising calendar.

Marketing, on the other hand, typically is charged with public relations, advertising, and shopper marketing and loyalty promotions.  Promotions typically involve accessing customer data, targeting and managing a loyalty program if one exists. Often, marketing has their own promotional budget, but is menial compared to the dollars that flow from the brands to their brethren in merchandising.   It is this area of promotions and shopper marketing that is often a major disconnect, not just for the retailer, but for the consumer as well.

The adage, “one hand does not know what the other is doing”, is hardly an overstatement when it comes to the bifurcated approach to the business that merchandising and marketing departments often practice.  The result often leads to ad hoc promotions from the marketing department that have little or nothing to do with the priority category imperatives of the merchandising department.  Merchants often dictate pricing and promotion strategies with no regard for the targeted programs and loyalty rewards that originate from the Marketing team.

CPG brands complicate the matter even further.  They are looking for customer data and post hoc analytics from the retailer, which is typically not found in the merchandising department where their trade dollars flow, but rather marketing.  If there is little or no cooperation and synergies between those the merchants and the marketers, brands can become frustrated and often take their “incremental” funds to a retailer that has figured out the process.

For those that remain mired in the traditional un-integrated approach, I offer a few suggestions as to how to begin to establish the important link between these two areas.

1. Marketing should be knowledgeable of merchandising goals and category level priorities.  Certainly understanding the “margin mix” process and the roles of categories is a first big step in aligning promotions with the priorities of the merchants.

2. Merchants should be asking for shopper level data or shopper segment information (if it exists), pertaining to their departments and categories.  Driving category level pricing and promotions in a smart targeted approach is a fabulous way to involve the marketing team as well as becoming more appealing to brand funds, that require post hoc analytics.

3. Both Merchandising and Marketing should agree to measure success with common metrics.  That implies that merchants should be knowledgeable of the shopper marketing metrics such as household spend, shopping frequency, and share of requirements.  The marketing team in turn should become fluent in understanding department and category sales and margin objectives, pricing strategies, and the role of store brands in the merchandising mix.

4. Communicate with each other via weekly schedule meetings that focus on plans, promotions, and optimizing brand funds.

5. Having a common analytic team to insure that all parties are getting the same version of the data can further develop integration between Marketing and Merchandising.  Surprisingly, this is often not the case among retailers with multiple databases.

As with any discussion topic, there are retailers that excel in integrating their merchandising and marketing efforts, however there are others that are still structured to promote unintended internal competition.  Fixing silos within the organization will pay big dividends for the retailer, their shoppers and their brand partners.  

 

 

 

JCP–Back to the Future??

In the life cycle of any retail brand there are watershed events that provide a venue for re-invention.  In the case of JC Penney’s, the venerable retailer is in the midst of one such opportunity.  Having recently fired CEO, Ron Johnson after the unsuccessful re-branding and merchandising campaign, JCP has predictably launched a “recovery campaign”, complete with an opening mea culpa and a plea for their shoppers to return.

We can debate the merits of such a strategy but on the surface it would seem to make sense to admit the sins of the past and ask for forgiveness, at least as an initial message.   The first salvo of messages in this recovery campaign has done just that.  But that’s the easy part of the process.  Now on to the task of winning back old shoppers and bringing in new ones.  But unless I have missed my guess on this one, JCP, new CEO, (which just happens to be the CEO that was fired in favor of Ron Johnson), will be tempted to immediately get back to being the Penney’s of old.

If that is true, all bets on a successful and sustainable recovery are off.

backtofuture-16an3nd

Clearly, the merchandising schema of days-gone-by of heaving “”percentage off” discounts, one day sales and day part sales should be considered in the mix of marketing elements that Penney’s uses to re-engage shoppers.  But if returning to the ways of the old is both the alpha and the omega of their strategy, they will be missing out on important opportunities.

  • First, re-invention of the retail brand creates an opportunity to embrace new merchandising elements whether they be new on-line services and policies,  new store-with-a store offerings, new co-branding relationships with famous brands.  “Something New”  not only can lure some of the old guard back through the door, but can serve to attract, new younger shoppers, who were not seemingly enthralled with the Penney’s of the past.   In short, big changes and big announcements, done thoughtfully,  provide real reasons for shoppers to return.
  • Secondly, and equally as important, this is an opportunity to re-invent the culture of the company, from the sales associates on the floor up through the corporate ranks. Becoming truly shopper-driven remains a marketing position opportunity that Penney’s cans cease, albeit not an easily achieved and sustained.  Solicit and listen to shoppers every step of the way.  Make investments into products and services that shoppers want and competitors are not providing.

Putting a finer point on the matter, Penney’s can either chose a path to recovery, or a path to re-invention.  If recovery is their goal, they will likely find themselves only slightly better off than today despite spending big bucks on media and message.  If true re-invention is the goal, innovation and shopper centricity will guide their decisions and the odds on not only surviving, but actually thriving ……increase substantially.

Supermarkets Doing Just Fine Says Kroger CFO | Retail & Financial content from Supermarket News

Supermarkets Doing Just Fine Says Kroger CFO | Retail & Financial content from Supermarket News.

Kroger’s CFO, Michael Schlotman reports that the traditional supermarket industry is “doing just fine” at yesterday’s investor conference in Orlando, FL.  I hope he is right.  Mr. Schlotman cites the viability of Wegmans, Hyvee, WinCo, HEB  and of course, Kroger as sterling examples of successful traditional supermarkets.  It is very difficult to argue with his logic or examples.

If we look deeper at his example retailers, they all share some very important business practices.  They are aggressive in capital investment, they have invested in human resources, they price competitively, they are deeply involved in local marketing, and consequently, they have all found a profitable niche in their respective marketplaces through innovation and differentiation.

One last comment about this elite group of retailers.  They all have taken the “long view” in terms of financial investments.  Not everything they do has to “ROI” immediately.  In fact, Kroger has taken “heat” from Wall Street for many of their investments in fuel programs and customer database marketing over the past few years.  Both of which are cited today as key elements of their on-going success.

I am still not convinced the traditional supermarkets as a group, are “doing just fine. Certainly those that take the long view and have a clear vision of what it takes to compete are positioned very well to continue to prosper.  However, dozens of other traditional chains continue to struggle, close stores, freeze wages, cut staff and continually retrench.  These chains would benefit from at least attempting to replicate the investments and practices of the successful few.  Easier said than done!

 

Consumer Spending in U.S. Climbs as Incomes Decline

Let’s face it, the rumors of yet another economic recovery flies in the face of declining personal income.  You do not need to be an economist to understand that no lasting recovery can take place until America gets back to work and businesses who are posting strong profits are motivated to grow and hire.

Consumers are spending, but for how long?  Those in retail need to brace themselves for continued margin pressures as consumers will look for deals and value in the near term.

 

mh

 

Consumer Spending in U.S. Climbs Even as Taxes Hurt Incomes – Bloomberg.

Taking “Price” Off the Table

For those of you in retail, I challenge you to survey your shoppers with a simple question….

           “If you could change one thing about our stores, operations, and services, what would it be?”

0809_LowPriceArrowFrom my experience over the years in retail,  the overwhelming answer to this query will be ‘LOWER YOUR PRICES’.  In fact, this response was so dominant our consumer surveys were designed to deflect this common response.  To do so we added the caveat, “Other than lowering prices, what would you like to see changed….”   Yes, we worked overtime to take “price” off the table and out of the discussion with our shoppers.   We assumed that lowering prices was something that shoppers will always ask for, even unreasonably so.  Further, we knew that lowering our prices was really out of the question, in fact we spent endless hours looking for ways to “smartly” raise prices to achieve margin goals.

So with “price” out of the discussion, we could then move on to ask our shoppers about aspects of our operation that we actually were willing and able to change.  The lurking danger of dismissing consumer sentiments should be self evident.  Competitors often find ways to accommodate your shopper’s wishes.   When they do, sales, market share, and store traffic reflect your indifference to shopper imperatives.  In fact, the emergence of Aldi, Walmart, and other “price” formats is a function of traditional retailers unsuccessfully attempting to take “price” out of the consumer discussion, into the headwinds of declining incomes and recession.

The stark reality is that those that have successfully relegated “low prices” to something less than a shopper headline, have invested heavily into services, product quality, and store facilities.  In the grocery channel, Whole Foods, Fresh Market, Wegmans, and even Publix are among the list of retailers who understand that if you are to be known for something other than “price” and known to the extent that “price” is no longer a consumer priority, you must make a commitment to create a shopping experience that effectively changes the subject.

No silver bullets here,  but my advice to retailers who struggle with meeting their shopper’s “price” expectations would be to chose one or two areas of your operation and build service and product quality programs around those offerings. As one example, if you want to be known for the best produce in the market, actually buy and maintain the best produce and train your associates to be knowledgable experts in both product and preparation of the product. Be consistent and talk about it incessantly.  Once credibly is established as the place to go for produce, you might be surprised how much you can charge for bananas!

 

Operation “Wallet Recovery”

I’ve heard it said many times by more than one supermarket retailer that they believe they have a very loyal shopper following.  Many of these same retailers are shocked when they discover that they are only supplying about half of these shopper’s grocery needs.  In fact, I have tracked the “wallet share” of several retailers with strong “loyalty” programs  only to watch a precipitous drop in their share of shopper requirements over the past five years, especially among their very best shoppers.

Yes, despite the best efforts of some very good retailers, they are losing their grip on their best shoppers. Certainly some this attrition is unavoidable.  New competitors  from other retailer channels are taking a bite out of the supermarket pie.  On-line retailers, Amazon for sure, are now selling shelf stable center store products on-line to a growing audience.  Big boxes and specialty retailers are taking significant share on both the “price” and the “fresh” pieces of the business.  Finally, with the lingering recessionary environment, shoppers have drastically expanded their “consideration set” for all their sources of grocery items as they have adapted a renewed “cost-containment” mentality.

Yet, growing the business for many supermarket chains is still possible, all the bleak aforementioned realities withstanding.  However, to be successful at winning back lost shopper share requires a plan that should include the following steps;

  • The first step in operation “wallet recovery” is understanding where the leaks are occurring and how big they actually are.  Both primary and secondary research will be needed in this step, but basic stuff, nothing terribly sophisticated needed to create this learning.
  • The second step is developing a strategy to recover this lost business, given the limited resources you have to do so.  This means not chasing every shopper, every dollar in every category.  It requires customer data, analysis and actionable strategies.
  •  Thirdly, the retailer must understand that winning back their shoppers share of wallet is an ongoing, never-ending process that must optimize limited resources and involve merchandising, marketing, merchandising and even human resources.  Consequently, great focus and commitment is required.

Customer loyalty is not dead, but it has changed.  It more elusive and less sustainable.  Successful loyalty marketing now requires new strategies and a focused, committed approach.  More to come on this topic.

 

 

 

 

The Cost of “FREE”dom….

Anyone who has spent significant time in the supermarket business knows that there is no such thing as a FREE anything.  Buy One Get One Free promotions are among the most costly promotions supermarkets offer,  FREE Turkeys at Thanksgiving are just about the most expensive promotion a supermarket chain can endure.  So is it also with federally mandated  no or low cost healthcare benefits and a host of other new regulations that must be incorporated in the P&L.

National chain restaurant operations and their franchisees have already gone public with counter measures to the new expected expenses.  Layoffs, fewer full-timers, reduced hours for associates, and even higher prices to consumers are among the early reactions we see restaurant chains discussing.

Supermarket chains are not immune to more of the same.  Look for subtle changes to service levels and higher prices to begin to be noticed.  These moves are unavoidable and in aggregate likely to be universal across much of the business world beyond supermarkets, risking throwing the economy back into a recession.  With recession or even a slow down, coupled with the devaluation of the U.S. dollar due to huge national debt, the landscape for supermarket sales and profit growth is tenuous at best.

These issues have been elevated in discussion in every boardroom since the re-election of the president on November 6th. President Obama has already stated that higher taxes for many who own small businesses and the continuation of a larger role for the federal government is very much on his agenda for his second term.  There is no doubt this will mean a challenging landscape for most traditional supermarket chains.  

Consumers will react to this as well. Expect that shoppers will continue to be increasingly conscious of price comparisons, deals, fuel programs and private label savings. Dollar stores, and other price formats will continue to flourish.  Those traditional supermarkets that can accommodate new pressures on their P&L, while somehow preserving services and customer experience, will once again posture themselves for growth when we do finally emerge from this financial abyss.  For those that are already struggling today, the impending new set of economic issues could be a death sentence.  It is times like these that strong senior management teams really earn their salaries.  IF they make the right moves, investments and expense reductions they will have increased their chances of navigating through this challenging environment.

 

 

mh

 

 

Sign of the Times: “New Lower Prices”

“New Lower Prices”…..”Prices Locked In Until Next Thursday”, “We’re Dropping Prices Everywhere”, “Consistently Low Prices”

Does all of this look and sound familiar.  You don’t have to shop very many stores before you see a new banner hanging over the aisle or a sign in the aisle, boasting about how suddenly, out of the blue, a retailer has found a magical way of lowering their prices. I maintain that so many traditional retailers are launching these new programs and promotions, that instead of invoking the excitement and trial intended, shoppers take a deep breath and keep moving down the aisle.

Too much of a good thing almost always dilutes the impact, and I think we are seeing just that.  The consumer isn’t buying much of this anymore (literally or figuratively).  All the banners and new signs that retailers spend millions on each year are wasted if the program that the signs communicate is not founded in a sold, sustainable, believable platform of reality.  Instead most traditional supermarket retailers cut prices only in desperation, a last dreaded resort.  Reactive price cuts almost always produce little or no sales bump, but do manage to negatively impact profit margins.

The culprits preventing successfully modifying a retailer’s pricing position are known to all of us, but primarily many retailers are just not designed to incur extended periods of lower margins rates.  After a few months of viewing graphs and charts with arrows going in the wrong direction, the order is given to begin to raise prices, lots of prices on other items in hopes of recovering lost profit. As a consequence, the retailer’s poor price position is worsened, not improved.

Modifying a retailer’s position on price is a task that goes well beyond hanging signs and shelf tags, it must start with rethinking the entire operation.  First the question should be asked.  “Is price really our problem”?  If you find you are perceptually 10-15% higher priced than the price leader in the market, the answer is likely, YES.  If not, perhaps other issues need priority attention before embarking on a new pricing program.  I recommend having a Price Monitor customer survey in place to track those important metrics.

The next question ought to be,  “Can we profitably operate on one or two percent lower gross margin”?  That’s right.  Real price cuts means selling for less, not moving the problem from one department or category to another and hope that the shopper doesn’t notice.  This means that EBITDA expectations should be adjusted down and for more than just a few months.  Price cuts should be viewed just as much as an investment as a remodeled store is.  They should be given time to payback.

Which leads to the final question, “What are the expected outcomes of the price cut investment”?  I recommend having clear objectives mapped out for both short and longer term.  Recovering lost market share, customer counts, increased basket size, improved dollars per square foot are all viable success metrics.

Changing long-standing customer perceptions takes time, financial investment, and consistency.  If there isn’t an appetite for all three, save the expense on all the signs, banners, and shelf tags…..they won’t matter.

 

mh

 

The Trouble with “Triple Coupons”

Many supermarket retailers could help me write this piece, as they have already (or should I say finally) discovered that offering shoppers the opportunity to cherry pick the store with coupon items causes more problems than the sales and traffic count these promotions create.  There are multiple reasons that such promotions have become increasingly ineffective, unless your goal is to drive a very short-term blast of unprofitable sales.

First and foremost, “triples”  appeal to the most cost-concious, price sensitive shoppers in the marketplace.  Most are already shopping predominantly at Aldi, Walmart, and even dollar stores for most of the grocery needs.  These folks are “students of cost containment”.  They have earned their Bachelor’s Degree in Savings  and are working on their MBA of Promotional Sciences.  In short, they know far more about how to manipulate the retailer  for  super-savings than the retailer could even hope to know about converting this group to loyal profitable shoppers.

Secondly, “Triples” and other traditional promotions do not lend themselves to becoming a proprietary, “ownable” promotion.  Any one can do it and negate any competitive advantage that such programs may yield.

Conversely, fuel programs and other such continuity/ points programs create a special currency that can be claimed as the retailer’s proprietary savings offering.  A clear example of such is the current doubling and tripling of fuel rewards points for those chains that have well developed fuel rewards programs.  The perceived value of such programs also many times exceed the expense of the program, particularly compared to triple coupon promotions.

Finally, there is little or no measurable lasting loyalty effect from triples and others promos like it.  The shopper segment attracted to these promotions will not return and do full basket, profitable shopping with the retailer unless they are heavily invented to do so.  In addition, FSI coupons tend to focus on a few center store and HBC categories….not really conducive to building loyal full basket shoppers.

Let’s face it.  The game has clearly changed.  This extended recessionary economy has fostered a new breed of shopper.  Couple this mentality with the great new technology and applications that enhance the tool box of those that shop predominantly for savings and the result is the shopper is now armed and dangerous.

“Price Shoppers” will never become your best and loyal shoppers (unless you happen to be a $400 billion chain headquartered in Bentonville, AK.)   While it is not a bad idea to reach out to this group  for incremental gains of their “share of wallet”, do it in such a way they play the game according to your rules,  rules that appeal and reward your best shoppers over a longer period of time and involve many departments and categories.

 

 

 

The More Things Change……

How true is the proverb “the more things change, the more the stay the same”….in the supermarket business?  Having the benefit of having witnessed four decades of variouis changes and new initiatives, I do have a perspective on the topic.   First, the bad news.  Supermarkets, compared to 40 years ago  are still square boxes, they still have aisles and checkouts, and spend billions of dollars on newspaper inserts and weekly circulars, and shoppers still tell us that visiting the supermarket is no fun.  And by the way, brands and retailers still shake their heads when they refer to the other’s business practices.

On the other hand, from my perspective, much has changed, at least in the way of amenities and technology.

I was introduced to the grocery business by my father, who ran his own store, “Kash is King”  for a number of years.  At the tender age of 15, complete with paper hat and apron,  I was cutting steaks, quartering chickens, making ground beef, and stocking shelves.  I still have vivid memories of the meat counter, the wrapping station, and the faces of our regular customers.  As with most small, neighborhood stores, we were not the cheapest, nor did we have the nicest facility…by far.  What we did have was customized service.

We knew our shoppers by name, what they liked, what they didn’t like and provided a little extra service, conversation, and would even deliver the groceries to their home if they were unable to come in.  We knew our shoppers and what they wanted and gave it to them when and where they wanted it!

Fast forward more than forty years…..

Stores are magnificent, but in most markets and for most supermarket retailers, dollars per square foot are in decline.  Over storing, competition from new channels and now the emerging popularity of commerce all put pressure on these magnificent stores.  Promotions and lowering of prices represent a piece of the answer, if executed smartly.  But in this economy and market conditions, promotions and low prices are not sufficient to change lasting behavior. 

Now for the more encouraging news.  The ingredients are out there, floating around just waiting for someone to put them all together in a nice package that could change the fundamental way shoppers, brands and retailers interact.  It takes data, (which most retailers have), affordable and ubiquitous technology, (that would be the mobile phone), and intelligent, relevant, and compelling content, (ok, this last component is still in the incubator).

Said another way, the first to crack the code on the mass marketing of the Kash is King model using technology, relevant content and shopper data will position themselves for lasting and profitable growth.

OK, at first glance, this sounds very intuitive.  I think about the old Steve Martin comedy routine describing the key steps of becoming wealthy when he begins with….”first, get a million dollars, then……..”

But very much like acquiring wealth, achieving competence in all three of these areas is a daunting challenge.  There are companies and practitioners that have become very adept at one and in rare cases, two of these elements, no one yet has brought them all together in a cohesive, manageable package.

As a consultant with many years of being a retail practitioner behind me, I understand how difficult it is to conquer this hill.  But I also know that it if we could do it 40 years ago, without a single MBA among us….we should be able to do it now!

 

mark

 

 

 

 

 

 

 

 

 

 

 

Strategy Matters

 

Managing by the Numbers Often Leads to Really Bad Numbers!

Let’s face facts, somehow along the way, the accountants have taken over much of our business. In some organizations they are calling most of the shots these days without having a basic understanding of what drives the business.  Instead of assuming their more traditional role of an internal service provider, most now are setting the direction for the business, sending out mandates, rules, and budget templates, everything on their timeline!!  If I can continue the whining just a bit more, we marketers now must “cost justify” everything we do, even though much of marketing is based on qualitative relationship building, sponsorships and community involvement….etc, etc.  Marketing Armageddon is here!!

As means of full disclosure, I am a business-marketing major that suffered (and I do mean suffered) through three mandatory finance and accounting classes some years ago at Indiana University.  In each of those classes I was painfully weary that someday I would need to remember the how to read a P&L sheet or understand the concept of  “net present values”.  But it was my fervent hope that those “accounting” moments would be few and far between.

But when it came time in my business career to interact with these accounting and financial tools, it became immediately evident to me that these numbers and techniques were actually very useful to a marketer or the care-taker of the brand. Much due to the fact that there are now means and metrics to measure most of the marketing efforts.  In fact, armed with customer data, I was in better shape to analyze and decipher program results and promotional investments than anyone in the organization.   But it also became very clear to me that how companies prioritize and position these tools and their metrics, has everything to do with what type of company they become…..or if they even survive!

Let me explain.   When companies are led by their finance and accounting department’s generated sales goals, margin

“Beans I understand, the rest of the store, not so much”!

rate requirements, etc.. in many cases these spreadsheet projections do not reflect the competitive landscape, nor the aggregate goals of each part of the business. In this top-down budgeting model there is little empathy for the economic impact of customer service, marketing, sponsorships, pricing, and all the other components of the brand affect those numbers.  When sales are built from a list of financial requirements, bad decisions are almost always the result.

I call it the Retail Law of Unintended Consequences (RLUC). The essence of the law is …..

For every positive manipulation of numbers on a spreadsheet to improve profit and grow sales there is VERY STRONG potential opposite negative impact that could damage customer service, employee morale, and the shopping experience”.

While short-term minded accountants, financial gurus, and efficiency consultants often dismiss these effects as necessary pain points to reach financial obligations or objectives, they (more often than not) find themselves wondering why their manipulations do not result in the intended profit gains prognosticated by their spreadsheets.

The answer to this dilemma is spelled out in the (RLUC)  It is well understood by good, long-standing, profitable companies everywhere. Cutting expenses, managing labor numbers, reducing store hours, without regard to the aforementioned consequences, will chase customers away, reduce sales and ultimately put the enterprise in a worse, not better  financial situation .

But there is hope.  Good senior executives, even some controllers and CFO’s  are learning to ask the right questions before advocating and implementing any alluring spreadsheet maneuvers.  Some of these questions are;

  • Are your financial goals reasonable given your marketing position in the marketplace, your competitive environment. etc?
  • Are your margin rates tenable given your competition and the shopping experience you offer and the lingering down economy?
  • What effect does the service or offering that is to be cut or eliminated have on sales?  Does it negatively impact a competitive advantage?
  • If expense reduction is advocated, how could this reduction diminish the “value proposition” you have with your customers, your trade partners, and your employees?

The list could go on for several pages, but the gist of the message is that even the smartest of retailers can sometimes become infatuated with consultants who make their living off of shaving expenses and the promise of enhanced EBITDA (on paper at least).  While some of these expenses could represent real savings and true efficiencies, many represent real opportunities for damaging your brand and suppressing sales.

Someone smarter than I told me a long time ago the best way for a retailer to “take more money to the bank” is by growing sales and customers, thoughtfully….not cutting services, hours, amenities, etc. But as in most things retail, a balance between more “artful” sales and customer-driven investments and the spreadsheet efficiencies is the optimal environment.  Also important is having the right checks and balances in the organization so that financial-based decisions are properly examined and vetted before being put into play.


This is my experience speaking…..love to hear from you.