Today's consumer has more choices on the shelf than ever before. Paired with growing private-label popularity, manufacturers are realizing that they must quickly differentiate themselves from their closest competitors by becoming more consumer-centric at the shelf level. In fact, an IDC Global Retail Insights survey indicated that the majority of retailers and manufacturers rank consumer centricity as a top-three success factor, and that there will be an increased focus on consumer centricity in the near term.
What does consumer centricity mean? This term translates into a company's ability to execute its top-level category plan down to an individual store. Traditionally, planograms are developed and executed for a group of similar stores - commonly referred to as cluster-level planogramming. However, this method is dated, as consumer buying behavior and space availability vary by individual store. Leading manufacturers that can create and execute store-specific planograms have developed a market differentiator and, as such, are realizing benefits that include better inventory management and increased sales.
Moving Away from Cluster-Level Planograms
Frito-Lay North America Inc., a leading maker of well-known snack foods such as Cheetos, Doritos, Lay's, Ruffles and Tostitos, changed its process so that a team of category managers at its headquarters in Plano, Texas centrally manage the creation of store-specific planograms for participating retail customers.
As an example, prior to switching from cluster- to store-level planogramming, Frito-Lay thought that it needed to stock one of its largest retail customer's stores with an equal amount of Doritos and baked-chip products. With a solution that can support the creation of store-level planograms, Frito-Lay discovered that it actually needed to reduce the amount of baked products going into the store by 50 percent. The manufacturer also realized it needed to increase the amount of Doritos being stocked on the store's shelves by 50 percent. Impressively, Frito-Lay reports an increase in sales growth of two to four points in stores that leverage its store-specific planograms versus a cluster-based category management method.
Maximizing Productivity, Taking Category Management to the Next Level
Developing store-specific planograms is not an easy and quick task without the support of an automated solution. There is a tremendous amount of data that must be analyzed that could potentially tie up significant resources and time. With cutting-edge technology, CPG manufacturers can produce thousands of store-specific planograms within minutes, increasing the ability to focus on other value-added activities such as closer collaboration with retailers and the management of promotions.
Companies can take their category management process to the next level by incorporating forward-view demand instead of historical POS or consumer insight data alone. Category managers can also analyze the effectiveness of previous planograms based on store-shelf performance and improve upon them. This includes evaluating factors such as product trends, how closely previous forecasts were met, as well as the productivity of the space allocated to a product or product family. Manufacturers that make this effort will improve shelf productivity and increase sales.
Previously, the manual creation of a unique, store-level planogram used to take Frito-Lay's team 30 minutes. When multiplied across a 1,000-store chain, this planogram approach became a daunting challenge. With a solution that automates the process, Frito-Lay's team can now generate a unique planogram in less than three seconds. This maximizes sales by meeting shopper demand in the market that a specific store serves.
At Dr Pepper Snapple Group, a leading bottler and distributor of soft drinks and non-carbonated soft drinks, ready-to-drink teas, juices and mixers, it used to take 10 people approximately 600 hours to generate cluster-level planograms for its retail customers. By enhancing the process, the beverage manufacturer now requires only two people and 40 hours of time to generate targeted, store-specific planograms. By consolidating customer, financial and performance data into a single database, Dr Pepper Snapple Group spends less time on planogram production. Instead, the company puts more focus on market trends, category analysis and growing its retail customer base.
Increasing Flexibility for Planogram Adjustments
Companies generally conduct two major category reviews each year on their products. This means that as new products are introduced, old products are phased out or customer spending shifts, there is little room for adjusting planograms to account for these changes. The entire planogram must be rebuilt from the ground up or less-than-optimal interim fixes are made - both of which cost time and money. The innovation that is now available enables incremental adjustments to be made in real time. As such, CPG manufacturers can shift inventory and product displays to meet changing consumer demands without disrupting the entire process. And, if needed, a category review can be added without requiring additional resources. The efficiency gains from this new innovation will enable leading CPG manufacturers and their retail partners to conduct more frequent and timely category reviews as needed.
Dealing with Private-Label Growth, Expanding Retail Relationships
Retailers have capitalized on the changing consumer's preference for value-based products by rationalizing branded products within a category while increasing the presence of their own private-label brands. To combat private-label growth scenarios such as this, category managers need to optimize the shelf productivity of their brands within the allocated space for everyday and promotional business. It is by far their best opportunity to protect their brand presence while growing the retailer's overall sales.
An automated process enables easy incremental adjustments and provides companies with the ability to gain a competitive edge. For example, Dr Pepper Snapple Group was able to quickly refresh its planograms in response to a recent decline in bottled water sales. Although the push to "go green" and the impact of a down economy were affecting sales, the company was able to quickly adjust product assortments in response to these market trends using an automated solution.
Additionally, achieving an in-depth understanding of each specific category is virtually impossible for retailers because of the wide variety of products and merchandise that they offer. Retailers rely on manufacturers to have their finger on the pulse of consumer demand to determine optimal assortments and product layouts for maximized sales. The flexibility to mass-produce tailored planograms that can meet the needs of retailers of any size enables manufacturers to enhance their appeal to both new and existing clients.
Closing the Loop on Planning and Execution
This paradigm shift towards automated planogram generation offers a variety of cost, resource and customer-service benefits across the supply chain in terms of both planning and execution. A category manager at Dr Pepper Snapple Group compared the switch to filling out a 1040 tax form manually versus the benefit of doing so automatically using intelligent online tax-preparation software.
Not only is automated planogram generation quick, easy and accurate, but it also opens the door to a variety of supply chain and business opportunities to drive market share and positively impact profitability as rapidly as possible. Manufacturers that leverage consumer insights to create store-level planograms can use that data to work collaboratively with other divisions within the company to improve product quality - from packaging to the product attributes themselves. Companies that take advantage of optimized planograms to close the loop in terms of planning and execution will benefit from even more efficient replenishment, avoiding over- or under-stocking and driving bottom-line results.
At JDA Software, Johnston is senior vice president of manufacturing and wholesale distribution, and Halim is vice president, industry strategies.
Source: JDA Software
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