The Value Improvement Program now under way at Stop & Shop and Giant-Landover stores in the U.S. involves a sophisticated and multidisciplinary approach to pricing, quality perception, costs and category management, but its effect can be summed up in a simple phrase: Less is more.
Less clutter in stores. Lower costs. Lower shelf prices. And one of the keys to making it simple: up to 30% fewer stockkeeping units per category.
While Amsterdam-based Ahold is one of the more high-profile practitioners of the craft of reducing selections in the name of a more concise consumer proposition, it won't be alone for long, observers said. Stripped-down selections are a growing trend in food retailing, particularly when part of an overall consumer-centric approach. In addition to price/quality-focused strategies at chains like Stop & Shop, the trend toward more tightly managed selections is manifested in convenience-focused concepts like Delhaize's Bloom and in smaller “express” stores such as Tesco's Fresh & Easy.
“In general, people are trying to do a better job managing the variety inside the store,” Paul Weitzel, managing partner of Willard Bishop Consulting, Barrington, Ill., told SN in an interview.
At Ahold, the VIP program, launched a little more than a year ago, seeks to improve price perception and quality perception while improving financial returns, according to Lawrence Benjamin, chief operating officer of Ahold, speaking in detail about the program in a recent conference call. Ahold as of mid-December had executed VIP in 10 separate categories — about half of all categories it planned.
Category management, Benjamin explained, was the “first pillar” of the program and its most visible aspect. As part of rigorous category reviews that preceded the VIP rollout in its first 10 categories, Ahold officials reviewed more than 29,000 products, he said. Based on those figures, officials decided to eliminate more than 7,000 of them.
The reduced selection in many cases accompanies lower costs, which Benjamin called the “second pillar” of the program. The savings flow from lower inventory costs and reduced shrink, as well as from labor savings. In labor-intensive categories like produce where VIP was rolled out, SKU reductions were as high as 30%, he said.
The program's “third pillar” is a comprehensive branding effort focusing on elements other than price, Benjamin said. This aspect of the program allows Ahold to present its tighter product selection as an improvement in overall product quality.
Though performance of VIP has varied by market and by category thus far, Benjamin said in late November that Ahold was approaching a “tipping point” where increased sales sparked by the program can be leveraged throughout the organization. Already, he said, identical-store sales at Stop & Shop have begun to show improvement as a result.
Weitzel, while declining to discuss the Ahold program specifically, said programs like VIP represent a fundamental shift in how retailers are approaching merchandising and category management. Chains today, he said, are realizing that tighter selections can drive improved sales performance.
“What we find in most of our studies is, when you manage variety a little tighter, sales tend to go up,” he said. “What drives that is better shopability. It's easier to find what you're looking for; and less variety provides more facings.
“Less variety doesn't always mean less space,” he added. “For retailers who already built the box, it means additional space for heavily promoted items or the big brands that need more shelf space. That can reduce out-of-stocks.”
Such improved performances are giving retailers the courage to take a more active role in managing their sets as a means of supporting their image and catering to specific customers and shopping occasions, even to the point where they reject marketing fees from products that don't support that positioning.
“What they're saying is, ‘We're not just going to take money from the vendor with the most dollars for this week. We're going to take money from the vendor who makes the most sense for us, based on our strategy,’” he said.
“In the past, that was impossible. If someone is going to give you $500,000 for an endcap, you'd be crazy not to take it,” Weitzel added. “Today the feeling is more that that's a one- or two-week view and may not be a part of what the company wants to do over the longer term.”