HAPPY ENDINGS 2004

LUCIA MOSES

At one time, endcaps were a destination.

Today, retailers concede this prime real estate has evolved into more of a crossroads -- between departments, between categories, and even between competing products.

The contradictions and lack of focus have hurt the endaisle's vitality. Seeing this, retailers and manufacturers are experimenting with new strategies in an attempt to generate renewed consumer interest.

Adams Food Stores, Cheshire, Conn., over the past three years has moved to themed displays throughout its 12 area stores, said Joe Kelley, executive vice president. While in the past, the chain would stack a single product on tables at aisle ends, it's found that merchandising related items like soda, chips and coolers together "increases the average order," and has helped lift same-store sales growth by more than 2%. That's compared with the industry average of 0.25% last year, according to the Food Marketing Institute, Washington.

Bashas', Chandler, Ariz., displays meal solutions and, in some cases, offers the latest low-carb foods on its endaisles.

At Cub Foods, Stillwater, Minn., endcaps are cross merchandised in its 105 stores, with an eye to customer convenience, said Chris Murphy, manager of public relations and consumer affairs for the Supervalu, Minneapolis, unit.

"Most of our customers are constantly time-starved and want to shop as quickly as possible, so endcaps and perimeter aisles give grocery and general merchandise departments the opportunity to gain impulse sales in the main traffic areas," stated Murphy. Cub also has reduced the size of most of its endcaps in recent years to make space for pallet displays, he said.

"Progressive, strong regionals, and some of the national chains are starting to rethink the endcap," said Paul Weitzel, vice president, Willard Bishop Consulting, Barrington, Ill., who specializes in helping retailers and manufacturers optimize the use of endaisles. "A couple years ago, it was pretty much pure dollars to round out category margins. Now we're seeing what I would call a blend between strategic use of space and pure profit use of the space."

Today, retailers are asking questions like: What's the real return on investment of endcaps? Can it be used to attract more shoppers, and the right kind of shoppers? Can it drive customers to other aisles? Create store loyalty?

Bashas', for instance, once would have reserved most of its best deals for endaisles. In June, it began moving them to the middle of the aisle, where large hanging signs that read "Xtreme Deals" point to the sale item, which is stacked in the aisle.

"We're looking for strategies to get more traffic down the aisles," explained Duane Proulx, vice president of procurement. "We plan to promote good values with high-volume potential on the endcap, but not necessarily weekly ad features."

The new approaches come as operators are dealing with overcrowding at the endcap and throughout the store.

Supermarkets are cramming more stockkeeping units and displays into the same space in an effort to mimic the variety offered by supercenter formats. The average number of SKUs on display in supermarkets each week rose 26.2% to 1,055 between 2002 and 2003, while the store size stayed essentially unchanged at 44,000 square feet, according to Mosaic InfoForce, Chicago, a collector of in-store conditions data.

Meanwhile, mass merchandisers had almost the same number of SKUs on display -- 1,103 on average, up 13.6% from 2002 to 2003 -- but in a footprint nearly double that of the average supermarket. Often it's the endaisles that are catching the spillover. A location that was once dedicated to one manufacturer or one category is now teeming with products representing multiple categories and competing manufacturers, plus private label, said Kim Feil, chief executive officer of Mosaic InfoForce. At the same time, more nonfood items are creeping onto endcaps, resulting in a loss of share for edibles in the overall store and contributing to customer confusion, she added.

"There used to be a lot more exclusive displays," she said. "Everybody's being asked by manufacturers to do more and more."

Mark Baum, executive vice president, Grocery Manufacturers of America, Washington, said the problem isn't the number of promotions, but how they're managed, pointing out that no one is forcing retailers "to take every item offered to them by the manufacturer. I think the fact we've got more promotional opportunities available is not necessarily a bad thing at all."

From a promotional standpoint, too, retailers may not be using endcaps to their fullest potential. A 2001 study by Point-Of-Purchase Advertising International, Washington, found that endaisles were the weakest location in the store for POP advertising, with only 24.1% displaying any POP advertising at all. Contrast that with the store lobby, another prime promotion area, where 37.9% of displays had POP advertising, the study found.

In the fight for what used to be exclusive territory, manufacturers are spending more promotional dollars to cut through the clutter -- and getting less in return, analysts told SN.

"Some might say, 'If I'm only 20% of the endcap, let's try to make sure I'm in a themed one where it makes sense, as opposed to being with a competing manufacturer,"' said John Carlson, partner, Cannondale Associates, a marketing and services consulting company based in Wilton, Conn. "Lots of times, they'll find themselves [sharing space] with private-label versions of their own product."

The negotiating process doesn't always result in the best use of the space, Feil of Mosaic InfoForce said. One retailer she analyzed gave candy the second-biggest amount of display space, simply because the candy buyer for that region was particularly aggressive.

Change is happening, though. To manage SKU proliferation, Adams Food uses the category management experts of its parent company, Bozzuto's, to evaluate which new items will perform well, and restricts endaisle items to private label, value sizes and ad specials.

"The only thing that goes on the endcap is what's of value to the consumer," Kelley said. "We do not put out everyday items."

Yet radical change in endcap strategies seems a ways off. At a recent meeting Bishop's Weitzel attended between a major national retailer and a manufacturer, the manufacturer offered a huge payment to promote a product. The retailer, to his surprise, chastised the manufacturer, saying that acceding would force the store to change its annual merchandising plan. Ultimately, the retailer couldn't turn down the payment, but Weitzel said the episode indicated change is on the way.

"Two years ago, you would have given space to the manufacturer who was going to give you the most money," said Weitzel, "[whereas today], they're willing to give up some money to have the right products on endcaps."

Analysts would like to see retailers do more to measure sales by category in aisles as well as endcaps, and match displays with consumer demand.

Consolidation among supermarkets may be bringing that about, as retailers begin thinking more about the message they're sending consumers with their enlarged platforms, Weitzel said. Competition from other channels may likewise encourage operators to share more point-of-sale data with manufacturers, something they haven't done so well in the past, Baum mused.

"There's not a history of transparency in the grocery channel so that we marry up what manufacturers have, which is consumer data, with what retailers have, which is market data," he said.

The industry isn't given to rapid change, however. Cross-merchandising strategies may demand that departments share display space, and that isn't always in their financial interest. Measuring the endcap's true impact across the store can take longer to evaluate. Bishop Consulting is using new software for several clients that looks at criteria like category growth rate and items' importance to shoppers to determine the optimal product mix on an endcap. However, measuring the return on that mix can take months instead of the weeks it takes to perform a traditional assessment, Weitzel conceded.

While a certain number of endcaps will always have key, basket-building items, observers expect that endcaps in the future will be more needs-based, or bearing a theme, whether it's breakfast or on-the-go foods. That's where manufacturing giants, with multiple categories in their portfolios and strong post-promotion data, could help retailers determine the best use of the endcap.

"It's oceanfront property," Feil said. "That's where consumers do the bulk of their promotion shopping. Endcaps have much more impact than [other] displays. That's why more and more it's so critical that manufacturers and retailers don't take [them] for granted."

Shelf Strategies

Along with themed displays, retailers are trying new ways to draw shoppers' attention to endcaps, which are prime store real estate.

This effort is reflected in the interest that vendors like Scott Muller, senior store designer for Lozier, Omaha, Neb., have in adding signs, graphics and canopies to endaisle shelves.

He's selling more laminated back panels mimicking wood and other surfaces to dress up the look of the endcap, "billboard" shelves that add height to the shelf, and shelving combinations that let the retailer flank an endcap with smaller displays of upscale versions of the products featured on the main endaisle.

"I think people are really finding the opportunity on the endcap to make shoppers stop and notice, especially with higher-end products," Muller said.

In addition, retailers are experimenting with interactive kiosks at endcaps -- manufacturer-built units that hold a group of products with a cuisine or seasonal theme. Such fixtures may show menu ideas on a video screen and print coupons.

Some are installing video screens that broadcast manufacturers' ads in an effort to drive traffic to endaisles and other target areas.

One provider, Interactive Graphics Solutions, Chesterfield, Mo., which has signed up Shop 'n Save Warehouse Foods' 35 stores and Dierbergs' 21 stores, all in the St. Louis area, typically places its monitors at the endcap to highlight those displays, as well as send shoppers down aisles they might otherwise ignore, said John Henningsen, IGS marketing and content manager.

"That's where supermarkets are getting the most bang for their buck," he said. Dierbergs has used monitors to drive shoppers to an endcap display of nuts. The nuts were promoted in the circular as a heart-healthy diet option, and the extra promotion seemed to help, said John Muckerman, Dierbergs' vice president of advertising and marketing.