No Room for Error
How paring down center-store categories could spur supply-chain profitability
OAK BROOK, Ill. -- In a slow-to-recover economy, against the backdrop of stagnant consumer spending and high fuel prices, convenience retailers whose stores carry the bestselling center-store items and maintain in-stock levels stand the best chance of staying in the black, according to Kit Dietz, president of Huron, Ohio-based Dietz Consulting.
Dietz recently collaborated with fellow industry consultancy Willard Bishop on a research project--the C-store Retail SuperStudy--designed to identify center-store profit opportunities by analyzing the operations of retail chains [image-nocss] throughout the country and the wholesale distributors that service them. Specifically, the study looked closely at activity-based costs as a way to "tell the full story" of category- and item-level performance, according to Dietz.
Among the findings: Across all c-store categories, the top 19% of SKUs contributes 80% of sales, and the bottom 50% of SKUs contributes just 5% of sales. Put simply, there is too much dead weight on store shelves. To mend the problem, retailers and their partners need to work together to pare down the slower-moving items undeservedly taking up time, resources and shelf space--eroding profit dollars as a result--and deny the temptation to tack on unproven new items that add variety but not value.
"We have these big distribution gaps on core SKUs," Dietz told CSP Daily News. "We've been talking about these issues for a long time now, and finally I think we're at a point where we have better data resources, better wholesalers and even better retailers than we did 10 or 11 years ago."
Although national and larger regional chains have the resources to commit to so-called "efficient assortment" of center-store categories, what about the industry's mom-and-pop retailers--the independents that collectively account for the lion's share of stores in the convenience channel?
"This channel has 90,000 independents who decide what they want in their stores," said Dietz. "A lot of time the independent retailers will get focused on the lowest cost of goods, and they think they're saving on a certain item. And as a result, the items they should be carrying get squeezed out by something they can make more margin on."
Single-store independents are especially vulnerable. Many choose to buy in bulk at mass merchandisers because they believe they are getting a good deal on something that closely resembles a bestseller. But in many center-store categories, customers are remarkably brand loyal.
"Buying cheap at Costco is not a good deal when it's not a bestseller and all it does is sit on the shelf and kill turns," said Marty Monserez, convenience channel leader for Cincinnati-based Procter & Gamble, which owns some of the bestselling brands in the center store. "We don't have any extra room in these small-box stores, so we can't afford to make a mistake. ... The consumer is not going to buy something they don't use and trust; he's not coming back to a store that made him buy something he doesn't like at a high cost."
He added, "There are now several data sources that didn't exist 10 years ago. Retail chains can tap into this data source from almost any manufacturer. ... Fundamentally, we need to get the best SKUs in the stores to meet consumers' needs. Once that's done, then we can focus on the edges," referring to noncore items.
If John Dalton, national sales director for the convenience channel for Minneapolis-based General Mills, has one seed of advice for retailers, regardless of their size, it is this: Engage leading manufacturers and enlist their help.
"Know and understand what's available in terms of information, and spend a good chunk of time understanding your own [data]," he said. "Then pick two or three things you are going to do now, whether it's looking at the salty-snacks category holistically--seeing warehouse brands and DSD brands as one, not as two separate categories--or otherwise continuing to look at the center store as a growth opportunity."
The C-Store Retail SuperStudy conducted by Willard Bishop in collaboration with Dietz Consulting included three geographically dispersed convenience-store chains based, respectively, in the Southeast, along the West Coast and in the Central/South region, as well as the distributors that service their stores. The SuperStudy analyzed 28 categories based on NACS category definitions, using three types of data: item-level performance data; cubic space data; and ABC data. For performance data, each participant provided 52 weeks of data, ending in 2010.
For more on the SuperStudy and ways retailers can boost their profitability in center-store categories, see the June issue of CSP magazine.