Managing product variety is a major merchandising challenge with micro markets. The open shelf environment removes all of the traditional product constraints associated with vending merchandising, and therefore presents a completely different set of challenges associated with product selection and shelf placement.
Operator questions continually arise as to how to merchandise and planogram micro markets. What are the difficulties in creating a planogram for a micro market? How do I assign shelf space to new products when I still have older products that haven’t sold? How often should I change my market planogram? Should I have visible prices?
The micro market POG process
The planogram process is a central, key component of micro market merchandising. Not only does a planogram ease route driver on-site activities by creating a roadmap for product placement, the process, if done correctly, identifies and allocates shelf space to categories and products that sell. As in every retail channel, making the right products available to consumers when and where they are shopping is a key to effectively driving sales.
The planogram issues that have occurred in micro markets are mostly attributable to applying “heritage merchandising” from vending to micro markets. Micro market open shelving allows for a much greater set of product options. A major operator miss-step in micro market merchandising is to rely upon vending experience as the primary basis for product selection.
In general, there aren’t any “difficulties” in developing effective micro market planograms as the general process is identical to the approach applied in other retail channels, including vending. Basically planogram development is a two-step process: 1) shelf space allocation based on a space-to-sales calculation and 2) selection of category products, including core and variety/rotational products.
Allocation by shelving type
Shelf space allocation is straightforward and begins by analyzing and totaling micro market sales by both major product categories (food, beverages, snacks, etc.) and sub-categories (soft drinks, energy drinks, juices, etc. within beverages; cookies, salty snacks, candy, etc. within snacks). As most product sub-categories have common temperature requirements for all sub-category products (juices are always refrigerated; chips are always at ambient temperature), the second step is to group sub-category sales by the type of shelves (ambient, refrigerated, etc.) on which they are presented to consumers. We now have a total dollar sales level for each shelf type.
The result of the category and shelf sales grouping process is to be able to allocate each shelf type to those product categories using that shelf grouping. Category sales as a percent of total shelf group sales identifies the share of total shelf space each product category “earns” according to its level of sales.
In a recent analysis we conducted of an operator’s micro markets, salty snacks represented 33 percent of total snack sales and candy 28 percent. Accordingly, an appropriate planogram for these markets should initially allocate one-third of the snack shelf space to salty snacks and, similarly, a 28 percent portion to candy. Space-to-sales shelf space allocation is a direct and simple calculation and a fundamental component of category management and planogram development.
Whatever amount of shelf space a category is assigned by the planogram process, it is very important to ease consumer shopping by grouping same-category products together. Consumers often shop for a type of product to meet an existing, specific consumption desire, should that be for salty, sweet or healthier snacks. Grouping like products side-by-side greatly eases consumer identification of the available options that will meet their current situational demand.
Category shelf placement
Another issue relative to planogram structure is where to place various category space sections within the total shelving area. At most initial micro market installations, operators tend to put salty snacks on the top shelves of the snack racks and gum and mints at the very bottom. Why? Candidly, because that is the normal shelf placement within snack machines – salty snacks can fall four feet in a vending machine without product damage and gum and mints will only fit on the very bottom shelf.
Category placement within micro markets should only consider how best to enable consumer product identification and ease shopping. The smaller footprint and space between shelves for bar goods will enable better consumer access by moving their category positions onto higher shelves. Larger graphic items can be easily identified by consumers regardless of their shelf positions, so lower shelf placement makes sense without losing consumer visibility. Gum and mint items are generally impulse purchases, so placement high on shelving units or near the checkout kiosk makes sense to gain that incremental purchase.
Specific product selection
Once the shelf space is allocated, specific product selection for each category is the next step. Products should always include a combination of core products that are leading, proven items, plus new or variety products that present consumers with options within a category. The general rule of thumb is that core products should represent 70 to 80 percent of category SKUs to ensure strong consistent sales.
The shelf capacity and flexibility within micro markets allows operators the ability to try new products and different varieties while maintaining core item positions. One of the best things about the expanded variety that can be offered in micro markets is that operators can try new items without the fear of failure and loss of sales. Even if a new product turns out to sell poorly, its placement brought to the location a very positive perspective of newness and difference. It is also important to understand that every top selling product at some point was “new” and that every retailer has at some time added products that have underperformed versus expectations. “New” is okay!
Another important component of variety is the use of rotational, non-core products. A wide variety of top selling items are simply not strong enough to be considered core products, but have their own, very positive consumer demand levels. Rotating second-tier brands within a micro market product set will often deliver a sales spike and also make the micro market look “fresh” to consumers.
As operators add new products to their micro markets, there are two options for their location – a separate “new item” shelf area just for such items, or the placement of the new products within their general category shelf space. Whichever approach is taken, new products need to be clearly identified as such to draw attention.
A challenge for micro market operators (and every other retailer) is how to deal with slow moving items. Every business that sells to consumers ends up at some time with products that simply don’t sell as well as expected. It is important that the slow sellers are identified and “moved out” to allow that shelf space to be used for better selling items. The worst thing is to leave poor sellers in a market to just “sell through.” Once a decision has been made to discontinue an item, do something to eliminate the item from the micro market within a short time period. Discount slow selling items, perhaps with as much as a 50 percent price reduction. Whenever an item is being discontinued, be sure to remove the items from the micro market reorder process to eliminate any automatic replenishment orders.
Adjusting, refreshing POGs
Micro market planograms need to be adjusted or “refreshed” for two reasons: 1) to keep market product sets looking new and interesting to consumers and 2) to tweak individual location shelf space allocations according to the specific sales and consumer demand at that account.
As all vending operators know, different locations consume different types of products at very different levels. One location may consume twice the cookies and half the pastries of another location that, from the outside, looks very similar. The same thing happens at micro markets with specific location consumers having very different purchase patterns.
After about six weeks following a micro market installation, it is important to do an initial planogram review. A category sales analysis on the new market will show the specific consumption pattern for that location. Category shelf space adjustments and elimination of slow moving products can then occur to better offer the location a product set that best matches demand.
Thereafter, it is best to routinely and relatively frequently change the micro market product set to keep the overall micro market and its appearance from getting “old” or “stale” from the consumer’s perspective. A micro market can be refreshed by using new or different non-core, variety products, realigning category placement and even moving the position of shelves. Market planograms should be refreshed at least every four months to let consumers know their micro market operator is on top of product selection and merchandising.
Visible product ID and pricing
A recent topic of discussion related to planograms is whether or not to place on-shelf position identification for each item and if such identification should include pricing information.
There are positives and negatives associated with shelf-product-position identification in micro markets. Product placement identification is often used and is effective in convenience stores and other retail channels to help ensure that specific products are in their correct location when product is restocked, which is a good thing in terms of maintaining planogram design. The challenge is that specific item identifiers must be changed and kept up-to-date with every product modification and do not allow drivers to move and adjust product placements when out-of-stock situations occur.
Relative to visible pricing, few micro markets to date have individual item pricing that is visible to the consumer. The debate supporting visible pricing is based upon consumer demand being impacted by different product pricing levels. At issue, however, is that visible pricing requires that price changes be timed with location visits when price markers can be physically changed in order to be consistent with the kiosk software price adjustment. One of the benefits of micro market kiosk software is to remotely schedule price changes for midnight Friday or any time, a benefit that is lost with on-shelf pricing.
In closing, planograms are an extremely important part of effective micro market merchandising. Planograms establish a basis for initial product placement, can be adjusted based upon specific location demand and ultimately help to refresh locations in the minds of the consumers.
Brad Bachtelle is president of Bachtelle and Associates, a national consulting and research firm. Contact Bachtelle at firstname.lastname@example.org, 714-731-5830.