In an increasingly crowded marketplace, a “one size fits all” merchandising and marketing strategy is outdated. That said, more retailers and manufacturers are joining forces and creating unique shopping experiences based on customer preferences.
This strategy was explained during the session, “Customer-Centric Pricing and Promotions: Retailers and Manufacturers Collaborate to Win,” held at the 97th annual National Retail Federation Convention and Expo in New York City.
Salisbury, N.C.-based Food Lion, a wholly owned subsidiary of Belgium’s Delhaize Group, is among the companies that have adjusted their merchandising strategy to fit the changing space.
“Historically, our locations were very much the same regardless of where our customers went—from price and assortment to store layout,” Charles Davis, Food Lion’s VP of strategy and analytics, said during the session. “We focused on providing our customers with low prices. And although this worked very well for us for 20 years, things started to change in the 1990s.”
At this time, the supermarket industry faced another problem. The number of trips that households were making to grocery stores began dropping dramatically. Visits dipped from 85 annual trips to 62 between 1998 and 2006. And the problem was evident: newer, more exciting formats, including dollar stores, super centers and specialty retailers, began expanding their assortments with grocery merchandise.
As a result, the chain segmented its customer base by breaking its demographics into subcategories. It matched these groups with its own banners, such as Food Lion, Bloom and Reid’s.
Next, Food Lion turned to San Carlos, Calif.-based DemandTec, a technology provider that helps companies optimize the selling experience based on customer behavior. Armed with the technology, Food Lion was prepared to learn more about the behaviors of its shoppers, and customize assortments and services that would better meet their needs.
At the core of this strategy’s success is the power of supplier collaboration. “In the old days, we operated by the collaboration-with-suppliers-as-treason definition, but now we see collaboration as an opportunity,” Davis said.
Using DemandTec as its platform, Food Lion began collaborating with Cadbury-Schweppes, eager to create a consumer-centric assortment. However, the new program required some planning on the part of the retailer and its supplier partner.
“Food Lion came to us and said we need 1,200-plus planograms in two weeks,” Craig Hodnett, VP of category management at Cadbury-Schweppes Americas Beverages, the U.S. business unit of London-based Cadbury Schweppes PLC. “Emphasizing that the customer should take center stage, they wanted [the planograms] to be customized.”
The team initially focused on the carbonated-beverage category. The first step was to transition away from a space-to-sales ratio, meaning that if a product makes up 20% of a category’s volume, the store will allocate 20% of shelf space.
“This practice has zero benefit to retailers,” Hodnett said, adding that companies should measure daily sales volume against days of supply to avoid giving extra shelf space that isn’t making any money. Hodnett called this a “dead profit zone.”
Instead, Cadbury-Schweppes began entering Food Lion’s collected customer-centric data to develop planograms for Food Lion’s various brands. By having this data on hand, Hodnett said the team was able to master the art of speed to shelf. Not only did Cadbury-Schweppes deliver more than 1,200 planograms for Food Lion, it slashed creation time.
“In 2005, it took 79 minutes to design a planogram and 73 minutes in 2006,” Hodnett said. “In 2007, it took 12 minutes.”
Since the planograms dedicated space based on consumer demand, assortments became more tailored and accurate, and the grocer improved space management.
Marc Dietz, VP of product marketing for DemandTec, added that retailer/supplier collaboration is becoming more critical.
“Technology is just one part of the equation; it’s also about people, process, methodology and common goals,” Dietz said.