CENTRAL INTELLIGENCE

Stephanie Fagnani

Supermarket retailing is not a cloak-and-dagger affair, but keeping Center Store competitive against a new, aggressive generation of mass merchandisers, drug stores and warehouse clubs has become something of a life-and-death situation these days.

As alternate formats increasingly threaten the well-being and viability of Center Store, there is renewed emphasis by all participants in the supply chain to protect it as a preferred consumer destination. Price is only one aspect of the strategy. Other components of the defense include convenience, merchandising and accessibility.

SN convened a roundtable of experts -- a retailer's Center Store vice president, a professor of food marketing, a food industry consultant and a top-level executive at an association serving the consumer packaged goods manufacturers -- and asked them to evaluate the current state of affairs regarding Center Store merchandising, from flaws in execution, to the ideal future schematic:

SN: In envisioning the grocery store of the future, how does the ideal Center Store appear in terms of merchandising?

Stanton: The focus of the center of the store will be on meals, not food items. There will be a significant amount of space dedicated to merchandising all the ingredients to make meals. Some stores are already making these changes. One store puts all the "fixins" for baked potatoes in a cold case in the produce section next to russet potatoes: sour cream, butter, bacon bits, chives, cheddar cheese, etc. Another puts everything to make a fajita in one place. Even chains such as Publix have a program called Aprons where all items for a single meal are located in one place.

Baum: I'm not sure there's such a thing as ideal. I think that the Center Store will vary by marketplace, which is to say that it needs to be customized to the needs of the consumers who shop a particular store. My best view of what that would be, would be something like "Supermarket Operators on Broadway." There is no sense of theater in Center Store today, and creating a sense of theater -- which is to say a sense of excitement and anticipation on the part of shoppers -- is going to be the key to the center-of-the-store experience. Ironically, while most retailers have dedicated their resources to the perimeter -- because that's where they've seen higher basket rings -- it's the core of the store that still drives the lion's share of the profits of the business. But those particular sections have suffered from neglect and lack of attention.

Schneider: Currently, quick shopping trips are taking away from Center Store sales. It's up to us to bring our customers down, into our aisles. Additional, improved graphics, point of sale, customer-specific point of sale, the right ethnic products for each store ... and we also need to make sure the perimeter of the Center Store is merchandised correctly. Bright, clutter-free aisles, frozen aisles that sell products, ice cream cases that reflect the lifestyle changes, etc.

Jacobson: The Center Store will need to evolve into a dynamic merchandising environment in order to hold any attention of the customer. It will need visual drivers including digital merchandising signing and plasma screens triggered by RF technology with the customer. This of course should not be to the intrusive degree of the movie "Minority Report"; however, there is a definite play here. The shelves have virtually remained unchanged for years, so soon more grocers will analyze customer feedback and drive the flow of the categories to match the natural thought process of most people, rather than submitting to CPG manufacturer perks. Shelf displays will finally be maintained as the target of 95% of sale item movement, vs. the end caps, as they should have been for decades. They will be allocated by true velocity, rather than "four facings for every canned vegetable SKU." The reserve stock will be minimal as a result of the ability to go truck-to-truck with fully 98% of SKUs.

SN: What flaws, if any, can be found in the way Center Store has been presented to date? What could have improved the look/operation?

Schneider: There is little fun put into the shopping experience within the Center Store. We need to offer our customers what they want, not what we want them to want. Our planograms and shelf sets need to be store-specific as far as packout goes. Customers need to find what they want, when they want it.

Jacobson: There is simply nothing new. Out-of-stocks are still above 8% because shelves are not planogrammed to accommodate ad items. Additionally, backstock is not eliminated, because as long as a store has physical space to store product, the employees will fill it. This means that backstock is often handled six times before it gets to the shelf. Shrink, labor expense and loss of inbound margin. Our Institute for Business Value studies have shown that little real improvement has occurred at store level.

Stanton: The category silo has caused stores to focus on maximizing returns from sections of the stores and not from customers. The various managers are more interested in getting their category sales up not selling the store. They even use tools called category management but what about customer management? Focus on the cart, not on the category. Get them to buy the meal. While efficiency will always be important, grocers must spend more time figuring out how to get more money from a consumer's wallet and less time trying to save money. You cannot save your way to prosperity.

Baum: The center of the store looks by and large the same way it did decades ago, and we've seen a tremendous erosion of share within those particular categories. And there are all sorts of things that can be done, particularly if you think about technology. Fixtures today can be made much more exciting, much more three-dimensional and provide a much greater overall experience. Lighting can be changed from section to section. Also, the basic store layout, in terms of core-of-the-store categories, has not changed -- it's up one aisle, down another, there may or may not be an endcap. Why not create more open spaces, create islands? Reorganize assortments in the way consumers say they want to shop, which is by building meals or meal occasions, as opposed to just pantry-loading or other ways in which we have historically tried to train them to shop.

SN: With all the new products and line extensions constantly entering the marketplace, how can retailers better manage Center Store shelf space?

Jacobson: Demand a black-and-white set of shelf management rules. Start with store-level compliance of, say, a minimum movement of a case per week per store for all warehouse dry grocery product. Otherwise it is discontinued, with the exception of truly unique, must-have items. If one can of beans moves three cases per week per store and the one next to it on the shelf moves one case per week, they should not have the same allocation. Also, look at variety movement. The world does not need 40 varieties of mustard. Count yours.

Stanton: One simple thing is to have a place in the store to tell consumers what products they can no longer find in the store (de-listed, discontinued, etc.) and what a good substitute is. One store posts all the de-listed products on a board with the substitutes next to it -- would you be surprised that most of the substitutes are his private label? Same for the new products -- stores could have a display case of all the new products that will appear in the store. Stop accepting new products just because a manufacturer is willing to pay for space. Keep only the best-selling products on the shelf and find a way to get customers items that they want but you don't keep on the shelf.

Baum: I think retailers can enjoy competitive advantage by carrying a fuller assortment in some cases, but the fuller assortment is no substitute for the right assortment. So, it's a matter of really understanding the consumer's purchasing habits and authorizing only those items that the retailer knows their consumers are interested in. Retailers are going to have to become more sophisticated in their ability to look at things like efficient assortment and category management, but more importantly, they're going to have to become exponentially better at store-level execution if they're going to make all that work. When you get down to customized store assortments, you're going to have more in the way of mixed pallets, you're going to have more frequent deliveries, in some cases, so all of that's going to be managed in a completely different way than perhaps they have thought about traditionally, but I think that's the way in which they're going to optimize that space.

Schneider: We can use all the technology available to us but, most importantly, is what we know about our customers. Use your customer information wisely; store-by-store demographics will play an important role in the future. Don't get caught up in the "sell space" theory. Let the space sell itself!

SN: Should the traditional layout of the Center Store change, or stay the same? Is it better to keep items in predictable locations, or take a more unique approach in the hopes of driving foot traffic in other directions and/or through other departments?

Schneider: Every time we move, or change a store layout ... Whammo! Customers complain, and generally rightfully so. Unless the footage change is necessary, or the store is going under major expansion, we shouldn't "change for change's sake." Our customers don't like change; they like to shop what they are used to.

Stanton: The old approach of getting people to "walk" the whole store by spreading everything out is ill-advised. Today's customers do not have time to walk all over the store to get what they want. Endcaps should be better used to put things that consumers buy for meals in one place. Today's consumers are looking for simplicity in everything they do; the easier and more simply the shopping occasion can be the better.

Jacobson: I love change, but customers do not. Change it for the better, not just for the sake of a reset. The Center Store is still not predictable. Customers make multiple trips to the same aisle searching for items. I like what some retailers have done with the curved aisles to make it easier to view the product all the way down. The "hub and spoke" method has some success, also.

Baum: Predictable location is a little misleading. What's predictable, the way it's been? The way you try to train consumers to shop? If I look at the erosion of market share, clearly that's not the solution. The real key, though, is when you start looking at making changes in your approaches or driving foot traffic in different directions or organizing choices in different ways. Be sure that it's attuned to the way your consumers think, and that they know that these changes are going to be coming, so they can get excited about them. For example, use your direct-mail program and send them a layout of the new center of the store in advance, explaining what you're doing and why, and how it's going to enhance their shopping experience. I think things need to change. The status quo is no longer acceptable, and it won't work. But it's got to be done in a way that you don't further offend your consumers by taking what's already a number of moribund categories and making them harder to find.

SN: Is there anything you'd like to add yourself, having answered these formal questions? Anything that occurs to you that might not have been part of the regular discussion?

Baum: This could be a great opportunity for better collaboration in these categories between manufacturers and retailers. Let's work together and figure out ways to take a broad-based approach to make sure that we can find ways to use the Center Store to differentiate stores and offer the right assortment of products for the shoppers in each individual store.

Stanton: The grocery store business failed to keep up with the changing American consumer. What was perfect 30 years ago is a failure today and the success of the alternative channels of distribution is evidence of that failure. Now grocery stores need to re-evaluate how they do business and stop trying to bring people "back to the future." They must think anew and act anew. The big chains have lost sight of Main Street while they worried about Wall Street and the independents have still tried to emulate the losing channel instead of asking how they can use their unique strengths to woo consumers to their stores. The future is NOT bleak, however, because consumers still want to shop at grocery stores. It is part of how they were all brought up.

Jacobson: We need to look at the store and determine what should be improved to transform the customer experience, take out costs, and enable the employees. That will make the store a more "on demand" environment, making the store available, accessible, responsive, focused and variable in its services provided.

Schneider: The supermarket Center Store industry is under attack from alternative formats, and not only the supercenters! Drug stores, dollar theme stores, club stores, closeout stores, "destination" stores ... we need to plan our counterattack and get it done!