Four percent. That’s how many of your SKUs are driving 50% of your sales. That single digit, shared by Kit Dietz, illustrated a recurring theme at CSP’s 2011 Driving Impulse Sales meeting: Where new product innovation might have once reigned, core is now king.
Conversely, the bottom 50% of SKUs contributes only 5% of sales, and prompts this conclusion: “We need to rethink the store and the box based on how the consumer shops the store and perceives the store,” said Dietz, a longtime industry consultant and principal of Huron, Ohiobased Dietz Consulting LLC.
The reality, he said, is that the more space a product takes on the shelf, the less profitable it becomes—and 51% of activity-based costs are space-related. “So every square inch of your store space is vital to your profitability, and we can’t afford to get it wrong,” he said.
And while it is “not as simple as just slash and burn,” it’s particularly important to get the convenience channel’s limited assortment right. “Core SKUs drive a significant source of profitability and sales—and that’s underdeveloped in every category,” he said. “I’m not saying we shouldn’t have variety and variety’s not important, but it’s having the right variety.”
Candy Land
From cores to categories, Dietz and other experts addressed challenging roadblocks and financial opportunities.
In candy, for example, more than 7,000 items congest the c-store distribution system. That “astounding number,” Dietz said, “speaks to the need to better rationalize assortments and better understand where the core is and how much variety you need outside the core.”
The good news is that candy takes up less space than other categories; it has lower occupancy costs while still performing well. The category accounts for 26.3% of adjusted gross profit and 39.5% of true profit. And according to Dietz, part of that performance stems from retailers and distributors working together to set up category plans for candy, based on what the best items are for the category—a strategic alliance found less frequently in other categories.
“That is good category management; that practice has been very, very much instilled,” he said. “Everybody is understanding that if they can get better distribution on their core items, which is what consumers want, they’re going to drive profitability.”
This means that even the most prominent candy makers are scrutinizing their own portfolio to better match the need of the operator and consumer.
Pat Hesselmann, area sales director for Hershey, Pa.-based The Hershey Co., says his company has narrowed its focus on what Hershey calls a “big 33” of core items. Although the variety of more than noncore items is still important, the core drives true profit 4.5 times that of noncore products in candy, he said.
And, Hesselmann said, 75% of shoppers purchase candy at least once a week; 8% purchase it every day. “So take hold of candy’s profitability and impulse characteristics and focus on location, assortment, variety and effective promotions,” he said.
- Location. More than half (53%) of candy purchases are made on impulse, he said. “So what does that tell you? It should be in several locations if possible.”
Hesselmann recommends placement at the busiest aisle that leads down to the cooler area, and an aisle endcap to drive people from the front counter down the aisle. “It’s also important to note that in a primary location or down the aisle is where 69% of the candy purchases are made from; 31% are made on secondary location,” he said.
- Assortment and Variety. Hershey recommends a robust 12-foot set, with gum and mints across the top to lure shoppers down the aisle. King-sized, Hesselmann said, should occupy the eye-level position: “King-sized is a higher ring, and king-sized sales are skyrocketing.” Standard bars would go beneath.
- Promotion. Hesselmann said candy purchasers spend at least 75 cents more per ring than the average c-store shopper. Cross-promotions (such as a recent tie-in with Coca-Cola) and bundling helps drive that basket size.
At La Palma, Calif.-based BP Products North America Inc., executives have noticed a “snack culture” trend that is helping to drive sales, including in the candy category. One component of that is having bite-sized, affordable tastes available, and the company keeps baskets of fun-sized candy at the front counter.
“It’s very important to the customer now, because they just don’t have the money to go out and be as indulgent and spend in the way they had in the past,” said Jim Hachtel, senior category manager, center of store. “The fun size is good; it gives the folks a chance to mix and match,” he continued. “They want to get a taste of a couple of different candies, and they’re able to do that—and we’ve seen some success with that.” He said the candy category overall is appealing to today’s cost-conscious consumer while delivering affordable indulgences: “Folks can still treat themselves a little bit, but it’s a small end ring, so those are the things the customer is looking for.”
Gum in the Works
BP is also making strides in the gum category, said Hachtel, using prepack shippers as a driver. “Customers get an opportunity to take advantage of some of the packages that are out there and opportunities that are out there,” he said. “And we get to continue to promote the gum category, not price-promote, but we just get the product in the right place for our customers to be able to buy.”
But in truth, gum remains a sticky issue for many retailers.
In 2004, according to Crystal Pinkston, associate director of shopper research for Northfield, Ill.-based Kraft Foods Inc., gum’s growth rate soared an unprecedented 8.2%, nearly two-thirds of which was driven by c-stores. From 2009 to 2010, however, the convenience channel’s gum share declined 12.9%.
Pinkston blames gum’s fall on premium pricing during the recession, declining c-store trips and higher cigarette prices that compromised further discretionary spending. Also, other channels are winning shoppers with multipack offerings that cost less per unit. Pinkston was careful not to overstate the importance of gum. It is not, she acknowledges, a trip driver at c-stores. Still, there is ample opportunity to promote it “with some of the categories that are really a strength in convenience, as well as have a high affinity with gum, like coffee and beverage,” she said.
Kraft found that 43% of shoppers go to c-stores to buy a snack and 35% are seeking a cold drink. “Three-fourths of shoppers have told us that if they’re not visually reminded to purchase gum, they’ll forget,” Pinkston said. “So it’d be really important to make sure that gum is noticeable and that it’s in the right places so that shoppers are reminded to make that impulse purchase.”
Similar to what Hesselmann recommended for candy, Pinkston suggested gum be placed en route to key destinations and that there be secondary placements, with a focus on best-selling SKUs. The best primary location for gum, Pinkston said, is below the checkout, which can improve category sales by 6% vs. aisle placement due to improved visibility.
“It’s right there, people are waiting in line to check out, they see it, they’re triggered to say, ‘Hey, I need to buy this,’ ” she said.
Snack Attack
For snacks, Dietz said, vendor-managed categories can mean stores have no overarching plan. “Your DSD vendors come in, you negotiate the amount of space they’re going to get and put a plan and program together, but there is no overall thought generally for the mix,” he said.
“How do we segment the category to make sure we’re only offering duplications that matter, rather than duplications that are required?”
Meat snacks is one example that he’s seen “just hung anywhere” in the store, leading to item duplication without brand strength.
“It all starts [with]: How does the consumer shop the category, how do they make decisions about the category and how do we leverage that into highermargin opportunities?” Dietz said. He suggested thinking about the category holistically, as companies do with candy, rather than managing vendor by vendor.
It’s that holistic approach that BP’s ampm stores are embracing, Hachtel said. “It helps us use the space a lot more efficiently in terms of the products that we put in,” he said. “It’s allowed us to really divide the various snack categories and subcategories up and get them positioned a little bit better within the store. It lets us make really good choices, in terms of the products that we want to keep in the assortment and the tail that we want to trim.”
At ampm stores, plan-o-grams include 80% core products and 20% flex space to allow retailers to customize to their local areas. “Nobody knows that store like that local operator,” he said in favor of limited flex space. “There’s certain SKUs within every category that should absolutely be there, no matter what.”
And in the company’s confectionary category, 80% of sales are represented by 24% of the SKUs. An additional 590 SKUs, many brought in by franchisees, add only 2% to total sales growth. “It’s not only product that’s unproductive in terms of the space it’s taking up, but it’s also product that’s tying up franchisee money in terms of holding costs and so forth on these various products they’re buying that aren’t selling,” he said.
“So this is an educational process that we try to go through with the franchisees to make sure that they understand implications.”
Where’s the Beef?
For meat snacks in particular, Dietz believes there’s a core to be had. “But because of the size, efficiency and turn, there is an opportunity to really look at different segmentations and different flavors and different points of difference in meat snacks,” he said. “That doesn’t mean you need to carry six companies, but it means that you should not overlook some of the new varieties that are coming along.”
Dana Rohde, marketing director for Oberto Brands, Kent, Wash., shared Nielsen numbers that showed total meatsnack sales for the latest 52 weeks were $882 million in the convenience channel. “For meat snacks, convenience is our biggest category, and it is absolutely the focus,” Rohde said.
To maximize planned purchases, “It’s about having the top brands, and delivering the right mix of products consumers are looking for,” she said. Top brands include Oberto, Jack Link’s and Slim Jim; top flavors are original, teriyaki, peppered, spicy and BBQ, she said.
Perhaps challenging to some retailers is that meat snacks are less of a planned purchase. Sixty percent of jerky transactions, said Rohde, are impulse. Getting the product in front of customers through endcaps, floor displays, countertop displays, clip strips and bundling opportunities with high-affinity items can help exploit that opportunity, she said.
Need for Nutrition
Opposite of meat snacks, the nutrition category is more of a destination purchase than one of impulse, said Jim Powers, vice president of sales for Carson City, Nev.- based Forward Foods/Detour Nutrition.
Nevertheless, finding a home for nutrition products has been confounding. Powers suggests retailers “give it a home” near the vault or coffee bar as possibilities, because nutrition products generally are purchased with food or beverage. “I’m not going to suggest you guys re-merchandise your stores completely, but as you’re building the stores, it makes sense to use this adjacency because it will help you to sell more of both,” he said.
Since a “low-carb fiasco,” about six years ago, which launched products that didn’t sell, the nutrition category has almost doubled, due to better-tasting products, innovative nutritional benefits and nutrition bars now being used as meal replacements, he said. C-stores have picked up on a lot of the business, because stores such as GNC, found in malls, might simply seem less convenient, he said. “So it really is an advantage for the convenience stores, and those that have taken that position have helped the business grow.” Powers suggests promoting the segment with two-for pricing and other marketing steps: “It gets more and more customers used to the fact that you are in the nutrition business.”
Beauty and the Beholder
Another relatively small c-store performer with a niche upside is health and beauty care (HBC). Though generally ranking between eighth and 12th in top c-store drivers, HBC generates more profit while consuming less space than general merchandise, said Dietz. Liquid vitamins (energy shots), for example, produce 31% of sales and profit and use only 7% of the space.
HBC also serves as a tactical emergency fill-in category. “From a consumer destination standpoint, it might be a destination, but it’s a sometimes destination. It’s not their primary destination,” Dietz said.
Competition from the drug channel can make it even less of a destination for c-stores. But operators shouldn’t forfeit the business. “Don’t just cede them to the drug channel, because they’re taking your core categories to bring consumers in; don’t give them those other categories as well,” said John DiFalco, Procter & Gamble’s senior account executive/project manager for convenience and specialty team. He suggested offering multidose products and catering to female shoppers:
- Multi-dose Products. “We are concerned that some stores are moving only to single dose, and not stocking the smallest multi-dose product as well,” he said, sharing an example where stores benefited by carrying both single and multi-dose respiratory and stomach medicines. “You really do yourself a disservice if you only stock the single serve.”
- Feminine Ways. While the mindset might be that convenience customers skew male, the demographics actually angle more to females in the Northeast and in the South, DiFalco said. And those shoppers are more likely (24% vs. 14%) to shop c-stores daily vs. males. “We have a great opportunity to deliver some of these categories that women shop more frequently,” he said. In feminine care, for example, carrying the leading brand is essential. Relying on the No. 2 brand will undermine growth potential.
“You probably want to stock both if you’ve got space,” DiFalco said. “But if you’ve only got room for one, you need to stock the national brand—otherwise you’re sub-optimizing your result.”
Offering wisdom for all the categories discussed at the forum, as well as embracing his holistic ideology, Dietz imparted a dose of economic common sense that sounds simple but requires unyielding discipline and commitment to execute.
“[We need to] really look at what’s selling, what’s the movement and what is the profit-per-square-foot facing,” he said. “We need to apply those metrics to every category and really understand the consumer and each one of these minute segments.
Participants in the 2011 CSP Driving Impulse Sales: A Forum for Candy, Snack, HBC & General Merchandise, held July 12-13 in Rosemont, Ill.:
Retailers
BP Products North America Inc. (BP/ampm)
Cindy Badish
Jim Hachtel
Casey’s General Stores
Cindy Howe
Circle K Florida Region
Paul Oderio
Circle K Great Lakes
Jack Wiolland
Drake Petroleum Co. Inc./XtraMart
Robert Sanft
EZ Energy USA
Frank White
Mac’s Convenience Stores
Terry Frei
Pilot Flying J
Whitney Johnson
Royal Buying Group Inc.
Sharon Porter
Speedy Stop
Reece Mahlmann
TravelCenters of America
Erin Slater
Western Refining Inc.
Kristen Foegal Suppliers
Balance Bar Co.
Jonathan Ryckman
Convenience Valet
James Blosser
Michelle Sausen
Ferrero USA
Raymond Beadnell
Francine Fielding
Sara Williams
Flowers Bakeries
Richard Pajak
Forward Foods/ Detour Nutrition Products
Jim Powers
Jane Smith
General Mills
Kelly Fulford
Denise Holtz
The Hershey Co.
Pat Hesselmann
Ryan Kull
The Kellogg Co.
Kim Belson
Jim Johnson
Kraft Foods Inc.
Michael Cacioppo
Elizabeth Jarocki
Crystal Pinkston
Christopher Slack
Lindt & Sprungli USA
John Haley
NECCO
Steve Ornell
Oberto Brands
Lisa Austin
Dana Rohde
P&G Convenience and Specialty Team
John DiFalco
Promotion in Motion
Marilee Edwards
U.S. Nutrition Co.
Caroline Laramie
Overheard at CSP’s Driving Impulse Sales
It’s not realistic to expect convenience to carry everything. … And if we’re able to focus as a manufacturer and supplier, it helps you as much as it helps the convenience channel with their sales.”
—Sara Williams, Ferrero USA
“A lot of companies come to this channel with displays that aren’t relevant, displays that are too big, too expensive. As a manufacturer, if you’re not really aware of how the chain operates, the barriers can be very high.” —Steve Ornell, NECCO “Our customers continue to have more outlets to buy our products elsewhere, so how do we keep them coming to convenience stores? That’s a huge challenge.” —Caroline Laramie, U.S. Nutrition Co.
“Rather than walking in and saying what you want retailers to take, walk in and ask them what is it they’re trying to accomplish, because if they have a strong business plan, as a manufacturer, we can fit.” —John Haley, Lindt & Sprungli USA
“I would argue if you’re a chain convenience store and you’re focused on the core, and the guy on the other side of the street is a chain and he’s focused on the core, how are you different? … It comes down to who’s the best retailer.” —Jonathan Ryckman, Balance Bar Co.
“Within the last year, we discontinued 15 SKUs. … We’re all going to take a really hard look at our items and say we’re practicing what we preach, we’re focusing on the core and the importance of incrementality—so we’re committed to these items.” —Kelly Fulford, General Mills
“How does a retailer or wholesaler decide which one is core—the one that led the category, the one that has the high share or the knockoffs that keep fragmenting it out?” —Jim Johnson, The Kellogg Co.
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