Put it on the counter. Hang up more signage. Bundle it. Go big. Go small.
The ways to trigger more impulse sales are as varied as the categories themselves. But the stakes for retailers are only growing, as declining fuel sales keep more customers off the c-store lot and competition from other channels mounts.
It’s a challenge with which the more than two dozen retailer and supplier attendees of CSP’s 2014 Driving Impulse Sales Forum are quite familiar. And it is playing out against the backdrop of declining c-store shopping, according to research from The Nielsen Co., which shows baskets down nearly 3% and trips down 5.6% in 2013. To provide new angles to help retailers trigger more impulse sales, presenters at the forum, held in Chicago in April, led discussions on a range of topics, including the value of the Hispanic consumer, maximizing assortment and the state of some of the biggest impulse categories.
Hispanic Opportunity
In terms of their buying ability, the 52 million Hispanics living in the United States are arguably the most important demographic for retailers hoping to grow candy and snack sales.
On average, Hispanic households are younger and larger than those of non-Hispanics, said Roy Kokoyachuk, quantitative research director and managing partner for ThinkNow Research, Burbank, Calif., a firm that analyzes the motivations and habits of the Hispanic consumer. And these households’ buying power amounted to $1.2 trillion in 2013, larger than the economies of most countries, according to figures from the Selig Center for Economic Growth.
Hispanics tended to be more optimistic than non-Hispanics about the economy, Kokoyachuk said during a presentation about Hispanics’ snacking behaviors based on ThinkNow research. The firm segments Hispanics into three groups based on their level of acculturation, an approach that best frames purchasing behavior.
The more acculturated segment, which makes up 27% of the demographic, is more likely to be born in the United States, speak only English and consume only English-language media. The less acculturated— 16% of the group—are more likely to be born outside the United States, speak only Spanish and consume only Spanish-language media. Retailers need to home in on the level of acculturation of their Hispanic customers to best serve their needs.
For example, ThinkNow research shows that Hispanics tend to value quality and low prices the most in their shopping experience. “As Hispanics acculturate, low prices take on a greater significance,” said Kokoyachuk. This may be because these consumers are most familiar with their brand options and are able to compare and choose items with greater confidence.
Similarly, Hispanic consumers who are less acculturated are more likely to leave a store if they don’t see an item they are looking for in stock, likely because they are not as familiar with the alternatives to their preferred brand.
And while Hispanics overall are just as likely to buy candy near the checkout as they are in the aisle, the less acculturated greatly prefer the checkout—again, likely because they are unfamiliar with other brand options.
Hispanics and non-Hispanics show similar preferences for where they prefer to buy snacks when running an errand: C-stores rank third for both groups, behind fast-food restaurants and grocery stores. However, there are a few interesting differences within the demographic. Male Hispanics are twice more likely to choose a c-store for a snack purchase than female Hispanics are. And less acculturated Hispanics are more likely to prefer a ready-to-eat sandwich, fruit or yogurt than the more acculturated.
The bottom line: If your store has a large Hispanic consumer base, it pays to better understand their level of acculturation to best serve their needs.
NEXT PAGE: Score with the Core
Score with the Core
Harmonizing the center-store assortment can be an unwieldy task, especially considering the unique distribution arrangement in snacks. But by not doing so, argued Kit Dietz, principal of Dietz Consulting LLC, Huron, Ohio, the c-store channel is giving up millions in potential sales and profits.
In a presentation discussing how to optimize assortment, Dietz said that retailers, manufacturers and distributors need to do a better job of focusing on core SKUs and evaluating categories holistically. For example, 48% of SKUs at the local wholesaler generate 95% of unit movement, according to a Willard Bishop study. The fact that the bottom 52% of SKUs deliver only 5% in additional sales shows the room for improvement. Meanwhile, at retail, 66.8% of SKUs sell fewer than three units per week. “We need to focus on moving that number up by getting assortment right,” said Dietz.
He advised attendees that an activity-based costing (ABC) model, which determines the true profitability of an item or category after the costs associated with carrying it are factored in, can be a true game-changer for the industry. He also acknowledged that it was a complicated task, one that the average retailer likely cannot do without outside support because of the amount of data analysis required. But until a software or service solution comes along, one step in the right direction would be to manage the snacks category as a whole, instead of by its distribution method—warehouse vs. direct-store delivery (DSD).
By doing so, retailers would discover the true costs behind warehouse vs. DSD, said Dietz. For example, “Everyone thinks DSD is more profitable because there’s no labor,” he said, pointing out that the inefficiency of DSD lies in the multiple check-ins that retailers must endure with different vendors. It can also result in more profit-minimizing item duplications.
He suggested retailers consider their distributor’s multivendor endcap, which is stocked with the optimal assortment of snack SKUs for the store, as opposed to those that have the most supplier funding behind them. One retail chain that took a total category-management approach to snacks over a three-year period saw a 66% lift in gross-profit dollars and 57% lift in sales, said Dietz. “Let’s look at it as a category and not as a distribution system,” he said.
Bill Tencza, senior category manager for QuickChek Corp., Whitehouse Station, N.J., said his 138-store chain continues to manage warehouse and DSD snacks separately, in separate fixtures, mainly because of how it reorders warehouse snacks from its distributor, McLane Co., through its computer-assisted ordering system.
But retailers who keep DSD and warehouse separate can still optimize the individual sets. One way: adjust plan-o-grams to reflect the declining and rising fortunes of the categories.
“A lot of retailers are over-SKUed on gum,” said Patrick Hesselmann, c-store central area sales director for The Hershey Co., Hershey, Pa., which makes Ice Breakers and Bubble Yum gum, along with major chocolate brands such as Reese’s and Kit Kat, and nonchocolate brands Twizzlers and Jolly Rancher. C-store gum sales have fallen for the past three years and actually accelerated that decline to 6.8% in 2013, according to Nielsen. Gum’s share of c-store candy sales eroded below 30% for the first time last year.
Hershey recommends that shelf space for gum adjust to match its shrinking share: Give it 25% of the space, with the other 75% dedicated to growing segments such as king-size chocolate. “We have to address the problem,” Hesselmann says. “If you stay with the right philosophy, you can grow gum sales again.”
At RaceTrac Petroleum Inc., a strong base of tobacco sales has helped moderate the decline in gum sales, said Hilary Freedman, category manager for candy, snacks and frozen at the Atlanta-based chain of 670 stores. “We’re still seeing core flavors of gum holding down the fort,” although innovation is also helpful, she said. She cited in particular Sour Patch Gum from Mondelez, which “is bridging the gap between candy and gum.”
Similarly, in bars, the lifestyle segment is outperforming high protein, according to Lisa Quello, senior manager of category strategy for Kellogg Co., Battle Creek, Mich., which manufactures Kellogg’s Special K Protein bars. Nielsen data shows sales of “healthy snack” bars up 21.6% in 2013. “Consumers are reaching a plateau” with the high-protein segment, Quello said. Lifestyle bars such as the Clif and Kind brands are capturing sales from consumers looking for a natural energy profile. “Make sure you’re not over-SKUed in high performance,” she said.
NEXT PAGE: Fighting For the Counter
Fighting For the Counter
Most candy purchases at c-stores—or, more specifically, 69%—are made in primary locations, according to Meyers Research. To make that section more shoppable, Hershey recommends that retailers organize the plan-o-gram around the candy decision tree, which begins with the consumer’s decision of what type of candy to buy. This includes organizing candy vertically, so that chocolate and nonchocolate run top to bottom, and blocking UPCs by brand.
Tencza of QuickChek, in a “retailer show-and-tell” presentation, said his chain follows a vertical-assortment path for the candy set. In addition, a custom fixture with 55 facings is positioned to draw customers into the “smile aisle,” as QuickChek brands it.
Secondary locations offer another chance to engage, and for some customers, it may be the only chance. Data from Meyers Research shows that fuel customers are three to four times more likely to buy candy from a secondary location, such as a shipper or the coveted counter.
“Everyone wants to put everything on the counter; that becomes a challenge,” said Bob Strauss, founder of 7-Eleven MWFOA, Glencoe, Ill. Strauss, a 7-Eleven franchisee, says his sites are given some latitude in deciding what to place, but he wants data to drive what makes the most sense.
John Lutz, category manager for Pilot Flying J, Knoxville, Tenn., said that category managers pitch their proposals for counter items to a marketing team, which then makes the final call. But the 690-store chain usually does not pause to test a new product before rolling it out to all stores, said Lutz: “We try to move quickly.”
That first-mover advantage is also treasured by Thorntons Inc. “If someone tries a new item by you, there’s a higher chance they’ll come back to you,” said Tim Young, senior category manager for candy and snacks for Louisville, Ky.-based Thorntons.
Picking new items seems like a complicated task, and all of the retailers at the forum emphasized the importance of data and supplier commitment in making the choice.
“We need to know if [vendors] are heavily investing in big-box stores,” said Wade Hollis, senior category manager and buyer for Love’s Travel Stops & Country Stores Inc., Oklahoma City, which has more than 300 sites. “What are they doing on a national footprint in other channels?”
As an example, Hollis pointed out that when Kraft introduced its MiO water-enhancement product, it posed it as a flavor enhancer at big-box stores but as an energy enhancer at c-stores. It’s a nuanced approach that recognized the different shopping occasions and customers for the channels.
Intuition also plays a role in the process.
“If you like an item, it will probably do well,” said Freedman of RaceTrac. Inspiration for new items often comes from competitive channels, but it must fit the core c-store consumer. “You can’t win big if you don’t take risks. Everything can be undone.”
In Charge of Large
Retailers at the CSP Driving Impulse Sales Forum reported surprising success selling bigger package sizes, whether take-home sizes of snacks or novelty candy bars. QuickChek Corp. is rolling out displays of take-home beverages and snacks that are filled with bottled water, energy drinks, carbonated soft drinks and chips.
TravelCenters of America Corp., Westlake, Ohio, with its professional-driver base, also sees opportunity in large snack and candy sizes. According to Susan Moravick, convenience category manager, the truckstop chain has a “Buy Big and Save” promotion on four bulk items each month, including 5-pound bags of gummy bears and 2-pound sheets of Rice Krispie Treats.
And at Love’s Travel Stops, the Rice Krispies sheets and 5-pound Hershey bars are big sellers. According to Wade Hollis, senior category manager, there’s little fear about not selling through these items, which, in the case of the big Hershey bar, retail at $34.99. “We’re catering to the professional truck driver,” he said. “They come first, and we hope the car driver benefits.”
NEXT PAGE: Category Notes
Category Notes: Candy
Speaker: Joey Hendrix, The Hershey Co.
▶ C-stores overindex on one shopping occasion: grab and go, making it the only retail channel with one key driver, according to NACS research. Candy offers a way to maximize this strength, with a high purchase frequency and impulsivity, and higher-than-average gross margin and basket size.
▶ The convenience channel led all others in candy sales growth in 2013, with lift coming from a mix of new items, core items and seasonal, according to Nielsen. However, it was also the only channel to see a decline in trips (-5.6%) and basket ring (-2.8%) in 2013.
▶ C-stores are also outpacing other channels in dollar growth of seasonal candy, up 14.1% for the year ending 2013, according to Nielsen. The top 20 items account for 80% of seasonal sales.
▶ Impulse opportunity: To take greater advantage of the seasonal opportunity, focus on sales of instant-consumable seasonal candy first. Then consider novelty-size candy items. According to retailer loyalty figures shared with Hershey, nearly 45% of its 1-pound Reese’s Peanut Butter Cup bars were purchased with another item. The three most common: Another 1-pound Reese’s, a $25 gift card and a toy, for baskets that averaged more than $22.
Category Notes: Meat Snacks
Speaker: Stephen Oberto, Oberto Brands
▶ C-store sales of jerky finally surpassed sticks in 2013, up 5.6% in the 52 weeks ending Dec. 28, according to The Nielsen Co. However, this is about one-half the growth rate of all other channels and a break from two previous years of double-digit growth. To explain part of the difference in pace, Oberto pointed to the fact that competitive channels have placed jerky at their front-end checkouts.
▶ Better-for-you categories are growing at three times the rate of traditional packaged snacks, according to Nielsen. And consumers are demanding real protein. Sixty-seven percent of the population said they are seeking protein daily, according to research by Nielsen and The NPD Group, and yet meat snacks have only 25% household penetration, showing a big opportunity for growth.
▶ The trick for c-stores is to increase meat-snack purchase frequency and drive traffic into the store. A 5-point increase in this household penetration would equate to $250 million in sales.
▶ Impulse opportunity: Consider adding single-serve jerky to draw more customers into the category. According to Nielsen, 41% of jerky units and one-quarter of sales are from single-serve packages, which have a lower price point—$3.99 vs. $6.99 for a multi-serving package—and encourage buyers of lower-priced snacks to trade up.
Category Notes: Ice Cream
Speaker: Todd Root, Nestlé USA
▶ Eighty-three percent of consumers say they shop at c-stores for single ice-cream snacks, nearly four times that of other classes of trade, according to Nielsen research. While c-stores rang up $1.1 billion in ice-cream sales in 2013, this represents a 2% decline after consecutive years of growth.
▶ Ice cream’s household penetration of 92% is among the greatest of consumer packaged goods categories, but it is also a highly seasonal product, with consumption greatest during the winter months, especially for single-serve snacks, according to Nielsen. Women make up 71% of its buyers, and mostly buyers purchase for themselves. Millennials underindex as ice-cream buyers, likely for health-conscious reasons.
▶ While sales in categories such as candy are dominated by a small number of core SKUs, ice cream is much more fragmented, with 80% of sales coming from about 50% of SKUs. With this in mind, variety is crucial in the ice-cream freezer. Single snacks and superpremium packaged ice cream are driving c-store growth.
▶ Impulse opportunity: Highly visible point-of-sale (POS) signage is critical to successful ice-cream sales, said Root, especially because the category’s home is often at the back of the store. Place POS material such as cooler clings, channel strips and shelf danglers in high-traffic, high-visibility areas. It’s not necessary to promote a discounted price; retailers should see just as much lift just by promoting an everyday price, Root said.
NEXT PAGE: Attendee List
Attendees
Participants in CSP’s 2014 Driving Impulse Sales Forum, held April 29-30 in Chicago:
| Retailers | |
| 7-Eleven MWFOA | Bob Strauss |
| Daily’s/Twice Daily | Terry Messmer |
| Love’s Travel Stops & Country Stores Inc. | Wade Hollis |
| Pilot Flying J | John Lutz |
| QuickChek Corp. | William Tencza |
| RaceTrac Petroleum | Hilary Freedman |
| Royal Buying Group Inc. | Angela Angelilli, James Conrad |
| Sampson Bladen Oil | Ed Wazney |
| Thorntons Inc. | Tim Young |
| TravelCenters of America | Susan Moravick |
| Suppliers | |
| Convenience Valet | Dave Arensdorf, Doug Steffen |
| Dietz Consulting | Kit Dietz |
| Ferrero USA | Francine Fielding, Diana Kelly |
| The Hershey Co. | Joey Hendrix, Patrick Hesselmann, Ryan Kull |
| Kellogg Co. | Lisa Quello, Sandra Surratt |
| Nestle USA | Brian Malley, Duane Moore, Todd Root, Jason Suta |
| Oberto Brands | Joe Miller, Stephen Oberto, T.J. Powers |
| Tantus Tobacco | Joe Nicholas |
| ThinkNow Research | Roy Kokoyachuk |
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