UNWASTED SPACE

LUCIA MOSES

Mickey Gallegos, merchandising director for Food Lion's Bottom Dollar, looks forward to the day when he can find out what customers at the discount banner want - and within minutes, adjust sets accordingly.

"It's extremely important for us to nail what our customers are looking for," Gallegos said.

As Food Lion and others well know, it's no longer a one-size-fits-all world. That's why, armed with technology, retailers are getting serious about tailoring offerings to customers. In so doing, they hope to fend off competitors, gain market share and reduce out-of-stocks.

Associated Food Stores, Salt Lake City, is building several versions of planograms based on store size for the 23 corporate-owned and about 95 independent conventional stores it serves in the western United States. Down the road, it hopes to incorporate shopper demographics into the process.

"We have stores that we consider value stores, and we have planograms that may give more emphasis to faster-moving-type items, so there'll be less emphasis on specialty foods," said Ray Nesslage, space planning team leader for the retailer/wholesaler. "And we get to [another] store, and we'll have more emphasis on specialty foods."

The process, enabled by JDA Software Group's Intactix Knowledge Base software, helps Associated identify ways to use space more efficiently.

"We're realizing that Center Store is very important, but we're realizing we're overspaced in some sections," Nesslage said. "So we're becoming more efficient, scaling back, which is allowing us to put in more natural and organic items, more

perishables." Nesslage said that while it's hard to link the planogram customization directly to performance, he believes sales are improving as a result.

MARSH SIZES SECTIONS

Marsh Supermarkets, Indianapolis, used to assign space to categories uniformly across all 68 of its stores, regardless of differences in the customers from one store to the next. This past year, it's been adjusting section sizes in Center Store to reflect store-specific sales trends, using a category management tool supplied by an unnamed direct-store-delivery vendor, said Bill Loneman, senior vice president of merchandising for the retailer.

So if a given store's customers have a strong affinity for bottled water, for instance, the tool will identify slower-moving categories that can afford to give up space for water. Beverage, dairy, cereal and commercial bread are among categories that have had high reset activity as a result. The initiative also has enabled Marsh to carve out more space for pallet displays, which support its price image.

Next, Marsh plans to tweak assortments at the item level, Loneman said. "It should provide us a competitive advantage," he said of the various customization efforts.

Food Lion, Salisbury, N.C., plans to test an assortment and space planning tool at Bottom Dollar, its 1-year-old limited assortment, discount format. Because Bottom Dollar stores have just 6,500 SKUs (one-fourth the number sold in a conventional Food Lion), they're the ideal platform to test the software, Gallegos said.

Once Bottom Dollar collects enough loyalty card information and begins to analyze it, the software tool, from U.K.-based Galleria, will let the banner quickly adjust planograms to reflect shopper demand based on that data. "When you combine Galleria with our card data, we'll know what consumers are looking at on an ongoing basis," Gallegos said. "The customer really determines the level of items on a shelf."

The software also is designed to help the retailer shift space from slow- to fast-moving products, thereby optimizing section sizes.

"It can help us look for ideal section sizes," Gallegos said. "In certain markets, like Manassas, Va., that have such a high percentage of Hispanics and Asians, I struggle to find space [for ethnic products]. But Galleria would help me find opportunities based on optimizing section sizes. Maybe I don't need 8 feet of syrup."

Once it's built up experience using the tool, Bottom Dollar will be able to apply lessons to its other stores that share market characteristics, Gallegos said. The hope is also that Galleria will help reduce out-of-stocks by telling the retailer how much inventory to have on hand based on the day's supply and number of deliveries.

Bottom Dollar hasn't begun using the software to make planogram adjustments yet, but Gallegos said the retailer has already been analyzing card data to ask how it can lay out stores based on the few months of customer data it's already collected.

Take packaged bread, usually displayed against a wall with peanut butter and jelly. One idea that's come out of the analysis would be to create a portable bread aisle that displays those associated products as well as other spreads and condiments, depending on what the particular market demands.

"Because we have a lot [fewer] items than the traditional store, those affinities are more important to us because they're on a much smaller scale," Gallegos said. "You have a lot more room to mess up with 30,000 items."

Bottom Dollar may be the first of Food Lion's banners to benefit from Galleria, but the selection of that software earlier this year was intended to support Food Lion's multi-banner and segmentation effort. Food Lion is seeking to grow its business by targeting shopper groups with banners, products and direct-mail offers that are tailored to their buying behavior and lifestyles. Bottom Dollar, along with the convenience-focused Bloom banner, is one of the results of this effort.

MANUFACTURER RELATIONS

How is all this retailer-driven customization activity affecting relations with manufacturers, who traditionally have called the shots in the category management process? Retailers say it separates the enlightened vendors from ones that are less so.

Setting stores using planogram software cuts down on store-level hassles because vendors have a reduced role in determining schematics, Associated's Nesslage said. "You can set it faster, and you're not fighting with the vendors, because the decision's already been made," he said. "The vendors have a tendency to just want to get all of their products on the shelf. Some of them are really good. They are more progressive. They realize what is best for the consumer is best for them."

Presented with cold, hard data, forward-thinking manufacturers support the idea of changes, even if one of their products ends up losing shelf space, retailers and observers said. They recognize that they'll benefit in the long run if stores thrive because their assortments reflect customers' wants.

A multi-category player like Kraft Foods might see a reduction in its space in one category, Loneman said, "and they know those categories are not necessarily doing so good. But we're not necessarily losing sales in those sections.

"Anytime you can approach something that's mutually beneficial in a fact-based environment," he added, "who can argue with that?"