A year-old share group that includes two major food retail chains and five large CPG companies has identified gaps in implementation of merchandise plans and promotions at the store level that it says costs food, drug and mass channels approximately 1% of annual gross product sales, or an estimated $10 billion to $15 billion.
The share group, known as the In-Store Implementation (ISI) Sharegroup, believes that an industrywide effort, akin to the Efficient Consumer Response initiative organized in the early 1990s, will be necessary to address the shortfalls in store practices the group regards as pervasive in the retail industry. Share group member companies include Giant Eagle, Schnucks, Procter & Gamble, General Mills, Anheuser-Busch, Pepsico, Nestlé Purina, The Partnering Group, Driveline, RetailTactics and VSN Strategies. The group is self-funded by its member companies.
“These are costs in our industry that we can't afford to pay,” said Ray Smaltz, vice president of grocery category management for Giant Eagle, Pittsburgh. “If you want to remain competitive and establish a value proposition with the customer, you can't afford these inefficiencies, and have to get them out of the system.”
Smaltz especially bemoaned the persistence of conditions — such as out-of-stocks and item proliferation — the share group attributes to poor in-store practices. A recent P&G-sponsored report “says out-of-stocks are the same as they were 15 years ago,” he said. Related to the out-of-stock problem, the report said, is that 75% of inventory doesn't sell on an average day. “Do you understand how much inventory that is?” Smaltz noted.
The store-level implementation issues identified by the ISI Sharegroup, which details them in a new white paper posted at www.instoreimplementation.com, center around planogram compliance, assortment rationalization, Center Store space allocation, display and promotion compliance and speed-to-shelf of new items.
In particular, the group has set two initial priorities: the development of improved processes and standards for shelf management and the creation of better processes for what it calls “store capacity-based planning.” The latter refers to a store's ability to match its labor (both store and third-party) and space resources to the merchandising tasks it is expected to execute.
“As an industry, we have failed to collaborate to provide perfect implementation in stores of displays, planograms and of merchandising plans,” said J.P. Brackman, global retail presence manager, Procter & Gamble, Cincinnati.
Brackman acknowledged there might be cost implications — related to labor and technology investments — for retailers and manufacturers committed to making in-store changes. “But this is not about cost; it's all about the quality of implementations, which can pay for themselves,” he said.
IRI Sharegroup members interviewed by SN view their effort as a continuation of the ECR initiative, taking its emphasis on supply chain efficiency to the store level. “What the industry tried with ECR is contingent on whether things get implemented at the store,” said Joe Patti, vice president of retail planning and category management for Anheuser-Busch, St. Louis. “There's such a dichotomy between a great plan and one that produces results.”
Beyond the need for proper execution of in-store tasks, Smaltz pointed to other issues contributing to the creation of unnecessary store tasks. For example, he believes the flow of store deliveries is too erratic and needs to be made more uniform, preferably based on daily store orders.
This would have a beneficial impact on store labor and its ability to get necessary tasks done, as well as on space allocation, Smaltz said. Giant Eagle itself now orders 60% of its dry grocery products seven days per week. The chain recently spoke about its collaboration in this area with General Mills. (See “Giant Eagle Boosts CPG Sales Through Collaboration,” SN, April 14, 2008, Page 9.)
Smaltz also spoke of the need for store-specific planograms, which Giant Eagle plans to implement early next year.
Not surprisingly, retailers and manufacturers appear to be at odds over certain issues in the group's initiative. For example, while P&G's Brackman would like to see new SKUs flawlessly displayed in all of a retailer's stores, Smaltz points out the introduction of new items in the same category for three consecutive months puts a great burden on store employees. “It ties up tremendous costs,” he said. “We have a team of people running around doing non-value-added work.” Smaltz also criticized manufacturers for the large pack-size of cases, such as those that contain 12 or 24 items.
Rather than tackle these problems itself, the share group is hoping to stimulate discussion that would result in a broad industry consortium, including competing firms, that would publish best practices. It would be led by the major associations — the Food Marketing Institute and the Grocery Manufacturers Association — which were the prime organizers of the ECR initiative.
“It's critical if there is to be a broader initiative to get the associations involved in some capacity,” said Brian Harris, chairman of The Partnering Group, Cincinnati, who serves as chairman of the ISI Sharegroup. “We have spoken to FMI and GMA, so there's awareness and encouragement of our work on their part.” Neither association has made any commitment to date, said Harris, who is known in the industry as “the father of category management.”
In an email response to a query from SN about its interest in the group, Brian Lynch, director of sales and sales promotion at GMA, wrote, “GMA supports creative and collaborative efforts within the industry designed to help manufacturers and retailers alike maximize their return on marketing and trade promotion investments. Successful in-store execution of shopper marketing programs and trade promotions present an opportunity for manufacturers and retailers to better serve the shopper and drive sales at the same time.”
Claudia Peters, spokeswoman for FMI, said the association is open to discussion with the group, which said it had been in touch with former FMI executive Michael Sansolo.
Harris acknowledged that “task management” technology tools that facilitate implementation of myriad tasks at the store level are currently being applied in the industry. Hannaford Bros., Scarborough, Maine, recently discussed its use of a task management system provided by Reflexis Systems, Dedham, Mass. (See “Task Management Speeds Up Recalls at Hannaford,” SN, April 21, 2008, Page 94.) One of the founding members of the ISI Sharegroup, RetailTactics, Acworth, Ga., is marketing a tool to ensure that adequate store space is allotted to products and sections.
“Task management is critical, but if the tasks are wrong it doesn't matter,” Harris said. “The combination of business methods that make sense and getting the tasks done will raise the bar.” He added that the share group's initiative is open to any technology provider that offers value.