Although considered the lifeblood of the business, the proliferation of new products often causes headaches for retailers and distributors and can be costly for manufacturers to get on the shelf.
ars to be change on the horizon. The new technologies available to analyze consumer demand for products will help ensure success in the market, it was said.
Also, the category management process as it is applied to nonfood will produce an efficient product assortment on the shelf. It will help retailers better track new product movement and its contribution to the category. If the products aren't moving, they won't be kept, said panelists.
This will ultimately change the way products get to market and could curtail the high slotting allowances that are now charged for shelf placement.
"This policy [slotting allowances] can exclude at least for 90 days a lot of good ideas from getting on the shelf," said Michael Thompson, vice president and general manager at Dare Foods, Marblehead, Mass. Further discussion on the proliferation of new products follows.
Achieving Efficient Product Assortment With New Products
SN: Over the last few years, variety vs. duplication and clogged distribution pipelines have become concerns. Do we have too many products? How do we balance static space with a dynamic vendor area?
PURIGRASKI: Obviously, we have too many products. That's where category management comes into play. Through category management we think we're going to have a lot more expertise in making sure we're putting the right products in the right stores with the right demographics.
We're now receiving electronic information that we didn't have before. In some ways, I am worried that we have too much information. That information is only as good as how it is used.
WIKOFF: A company like ours builds its reputation on having variety. Our customers really want it. But when you look at that movement, you find a lot of products that you can do without. No one will even notice if it's gone.
That is where the vendor community has to partner with supermarkets. There has to be trust. Mead will present a plan that says, "Here are some products you can do without and here are some products we need to expand." They aren't just Mead's products, but they do need to be category products.
The vendor should be the expert in their particular field. With 60,000 plus products in our stores, we can't be experts in every area and we don't have enough people at the retail level to do it.
SN: How is Millbrook dealing with the proliferation of new products?
SIGEL: Within the last couple of years, we've organized our purchasing and merchandising efforts by category management.
With all due respect to the manufacturers, traditionally it's hard for them to come in and advocate somebody else's product line. As a distribution service provider we're doing the best we can in hiring the expertise and bringing in a representation of items for the retailer that we think works. If we do our job, then the right sales are there per linear foot.
We have to get better at it because of micromarketing and demographics. It's going to be a sophisticated business considering the data technology and all things that one needs. It's going to take a lot of resources. No one is really there yet.
PURIGRASKI: Bob Sigel made the statement that you can't recommend somebody else's products. We feel we are going to have to do that.
Yes, it's very difficult to use a salesperson who has some 30 years of sales experience in his blood to go in and recommend somebody else's product. If category management is going to be successful, then that's what it's going to take.
What will happen down the road is it will cause some manufacturers to drop some products. If you aren't real good in binders, for example, and aren't competitive or making the best quality binders, you'll get out of the binder business and let people who are good at that do it.
SN: What has been Chesebrough-Pond's approach with new product rollouts?
MUSICO: Efficient product assortment is important to all of us. We've been more conscious of it over the years in terms of new product launches. We've launched just one stockkeeping unit new product and said that's all the consumer needs. Normally, you'd have flankers, flavors and types. We consciously said if there was really only one consumer need for a product, that's what we will launch.
Taking that broad-based approach, I think you'll wind up with the superfluous stuff thrown away.
In terms of sharing information, the consumer shopper cards can be invaluable in determining what assortment you should stock. Using those vehicles more effectively will help in getting the right product assortment in stores. If you combine data we have on categories and consumers with the local data that individual stores can gather from shoppers walking through the register and merge all that with today's electronic technology, we will know exactly what to stock on the shelf.
THOMPSON: Stores need new products and ideas in order to provide a variety in the shopping experience and eventually successful winners. All these products that are now successful had to be new at some point.
PURIGRASKI: The difference today is that a lot more manufacturers are spending a lot more time studying the products going into the market before they roll them out.
In the old days, you could put products out there that didn't do well and in a couple of years take them off the market or discontinue them and come up with another item. Today your electronic information can tell you very quickly whether the item is good or bad. The retail store owner is going to say, "This isn't moving. It isn't making profit, so get it out of my store." You can't afford to roll out products without knowing you are going to be successful.
SHOOLTZ: There is an element that hasn't been brought to the table. All the new products that come out are very difficult for any size store to handle. Every 90 days we'll try moving them. We make a lot of customers mad. We are really close to our customers. We try to listen to them.
Yet, that new product that is on the shelf and sits there with no movement is killing our sales whether it's health and beauty care, grocery or nonfood. In the second 90 days, if we don't get it off the shelf it really kills our sales. But there are a few customers who will buy it. We'll take it away and then upset them. That's a dilemma.
HIGHSMITH: The bottom line is you can get your store perfect in category management and have a perfect set. Then two weeks later two new items come out in that category. You almost have to try them because that's where the money and advertising are. I agree new products are the lifeblood of the business, but it's become a never-ending battle.
SHOOLTZ: We've taken steps to have "request" items in our wholesaler's warehouse. For example, Kellogg's Mueslix cereal. It is a great cereal, but it doesn't move enough for us. So we've taken it off the shelf and now we have a special request item in the warehouse, which means they buy small quantities and bring it in because we want some on the shelf in one store only, because Mrs. Consumer is coming in and wants it.
MUSICO: What can help in this area is that every manufacturer has an 800 number. We love people to call it. If there was a product retailers were merchandising that was discontinued, we'll move them into something else that is in distribution and is selling very well and still meets that particular customer's need.
Slotting Fees: Cost of Doing Business Vs. a Barrier
SIGEL: Talking about economics, it's almost like the retail community has imposed this barrier so manufacturers have to know what they are doing. Manufacturers are saying if we decide to introduce this new item and go national with it then this is what it will cost us if we want to get it in. So we better be right.
The retail community and wholesalers saw the tremendous costs they had to bear in all the items that were coming out and going in. When retailers finally got a grip on what these new items cost, a whole new era was initiated. They agreed to try new items but the system now required that suppliers pay X amount per SKU to get it in and cover the cost of putting tags up, cutting it in and getting it into the system.
As time goes on, this might change as people look at how funds are applied and the best way to get a product into the marketplace efficiently. But it will happen only when the manufacturer community is ready, willing and able to come out with the right item at the right time. Then we might be applying these funds more productively to help things get sold rather keep them in or out.
THOMPSON: That barrier you're talking about is a two-edged sword. If there is a price of entry then there is always somebody with big pockets who can pay. If someone has the money it doesn't mean it's a good product. This policy can exclude at least for 90 days a lot of good ideas from getting on the shelf and that is worrisome for many manufacturers who may not have 60% of the marketplace and the funding to get on the shelf.
WIKOFF: This approach has been tried but not consistently applied to people that can most afford it. These are also the people who have the largest number of products and have more clout. So slotting allowances have been waived in some cases. But the little guy, who is struggling, is forced to pay it.
This impacts on the retail level. The marketing funds aren't there to get products sold because we've depleted that smaller manufacturer's allowance that he had to pay in slotting fees.
I agree with Bob Sigel, we have to find a way to control the frivolous entry of products. But if we are going to do it, then it needs to be applied consistently to large corporations as well as the small guys, who may have a better product but not as much money behind it.
SIGEL: My sense is the bigger guys, who have deep pockets, can only have deep pockets for so long. Some people are beginning to realize this is a very inefficient way to do business. To get an item in at all costs isn't going to happen as much. Suppliers will be much more prudent about effective spending. They would rather apply those funds helping to sell a product rather than getting it in.
PURIGRASKI: I don't think there are many manufacturers today with deep pockets. Every manufacturer is struggling to make a profit just like those we are selling to because everybody is over-stored and over-manufactured too.
We spend a lot of money on research. We really fight paying [slotting fees] because there are other channels we can sell it to instead.
We've not done as well in food as in the rest of the channels because of this.
We spend a lot on design and testing, so we know it's a good product. In some ways the food people bite off their nose to spite their face. They aren't getting the best products, nor are they getting in early because of the way they want to do business. If you already spent your money on research, you're willing to help promote it to help the guy sell it through, but you're not going to pay slotting allowances to get it listed.
SIGEL: Supermarkets are at a disadvantage if they are going to insist on funding to get products in. That is a barrier of entry right there, especially if Staples, Office Depot or OfficeMax use the funds you allocate to promote your brand rather than just get it on their shelf.
WIKOFF: Your point is a good one. If you've done your research and homework, and you can show this is a tested product we are introducing, and not just some new idea your marketing guy thought up last week, then you've already committed those funds in a more profitable and beneficial way then just paying a slotting fee.
