Becoming Aisle Experts: A New Vision to Deliver Greater Customer Value

The Benefit - When you're an aisle expert, you're in a position to offer a complete understanding of and vision for delivering greater value across the entire aisle. Aisle experts combine information on pricing, aisle penetration and category closure, affinity merchandising, operations, packaging, assortment, and real space optimization principles to deliver greater value--in the "right" stores. This article outlines how successful companies are developing aisle expertise and creating new Aisle Management strategies to tackle the nagging in-store issues that are sub-optimizing profitability and ROI. Wal-Mart Implements Aisle Management - During a recent visit to the newest Wal-Mart Neighborhood prototype store in Bentonville, I was impressed with how well Wal-Mart blended operational efficiencies with merchandising effectiveness. Over the past 14 years at Willard Bishop Consulting, I have helped clients identify opportunities in categories that have resulted in improved top-line sales and increased bottom-line profits. Many of these opportunities have been successfully implemented, but generally only one category at a time. But now, a retailer has taken many of the things we've worked on over the years and implemented them across entire aisles. While many people may be tired of hearing about yet another Wal-Mart success, I believe their new Neighborhood Store concept should serve as a blueprint for Supermarkets--not from a size or product mix standpoint, but rather from the way Wal-Mart has successfully blended operational needs with merchandising principles. They've successfully identified problems and opportunities in each category and aisle, then addressed all of them simultaneously. Here are a few examples of what I saw on my recent trip to Wal-Mart's Neighborhood Store:Blend of Shelving Fixtures - In the same aisle, Wal-Mart uses a variety of shelving options, e.g., regular gondolas and standard shelving on one side and heavy duty warehouse racks on the other side, to accommodate pallet drops of high volume, large cube items like water, soft drinks, and pet food. Racks are scattered throughout the store and aren't confined to only one aisle.Increased Use of Multi-packs - In categories and aisles where it's often difficult to generate positive true profit contribution (profit after factoring in retailer activity-based costs), e.g., canned goods, many SKUs are shrink-wrapped in four-packs, which increases volume and improves handling efficiencies. Wal-Mart has determined that they can't make money selling certain canned goods one at a time and has worked with manufacturers to replace unprofitable cans with profitable multi-packs.Increased Use of Multi-pricing - In instances where multiple-case packs aren't an option, Wal-Mart often institutes a multi-price strategy. Like multi-packs, this strategy encourages multiple purchases, which generate greater throughput in the same amount of space. Looking at all direct costs that retailers incur in the warehouse and in the store, "shelf occupancy" (operating costs allocated down to the shelf) represents the single-largest activity-based cost and is the bulk of all retailer direct costs. So it's critical to ensure that throughput is optimized relative to space occupied, especially for low-margin products."One-Touch" Handling Containers - Many high-volume goods, e.g., produce, are displayed in the same container in which the product was shipped. This enables Wal-Mart to quickly replenish the shelf during peak volume periods, thus minimizing out-of-stocks and reducing in-store labor handling costs.In-and-Out Program - The Neighborhood Store still takes advantage of the treasure hunting that occurs with in-and-out programs. A small section of the store is used to transfer the same excitement found in Club Stores to this smaller format.Aisle Optimization -The store I visited only has approximately 35,000 square feet of selling area, so product mix is optimized and there's little--if any--product duplication. The big brands have greater holding power and there are still enough unique items to round out the mix.One of the unique aspects of the Neighborhood format is that Wal-Mart looked at each aisle as an entity and then implemented the necessary changes to optimize sales and profits without diminishing merchandise effectiveness. Operations plays a much greater role in this format compared with the traditional supermarket format, and is reaping the benefits. Manufacturers Are Becoming Aisle ExpertsFrustration with the lack of category management implementation at retail is leading more manufacturers to look for a solution that will grab retailer attention--Aisle Management is that solution. Leading manufacturers want to move past the one-on-one category reviews and one-in/one-out merchandising practices. Like Wal-Mart, they are taking a more macro look across the entire aisle to really determine what should be done in the aisles to optimize available real estate, from both a selling and operations perspective. These macro views provide a holistic approach to optimizing aisle profitability in addition to a closed-loop recommendation because manufacturers can help their retail customers see where and how changes should be made. Two key steps are involved in this new Aisle Management collaborative process:STEP 1: Conduct an Aisle Optimization Review (Store-by-store)This first step forces companies to step back and look at how much space each category really needs in the aisle based on the following criteria: Sales and movement GrowthTrue profit contribution (after ABCs)Cubic space requirements based on inventory rules that minimize out-of-stocksProductivity curves and marginal contribution curves, by categoryTradeoffs are made among categories to "optimize" space based on available real estate. This is very different from space management tools that only "reallocate" space based on select criteria. Tradeoffs are identified by: Determining Incremental Performance and Productivity Across Categories (see Chart 1)Understanding Margin Decays By Cubic Spaced Requirements (See Chart 2)Identifying Optimal Changes(See Chart 3)STEP 2: Determine Operational Best Practices (For new and remodeled stores)After optimum space has been determined, by store, the next step is to identify and apply a set of best practices that will reduce handling costs, drive aisle penetration and category closure, improve turns, and increase ROII. Best Practice Areas to Consider:Setting a Category and Per-Unit Pricing Strategy - Increases aisle penetration and category closure.Identifying New Racks and Fixtures - Reduces labor costs and out-of-stocks.Determining Packaging Changes - Improves throughput and space utilization.Finally, the best plans include an understanding of the cost to do the work necessary to achieve aisle optimization as well as a set of priority recommendations based on available resources and payback schedules.Example of Top 20 Payback Stores (High Priority)(See Chart 4).The ultimate goal of Aisle Management and creating Aisle Experts is to offer trading partners a complete view of the size of the opportunity, where and specifically how to optimize the total aisle, and suggest priority action steps that focus on the immediate payback opportunities and balance the cost to make the changes with available resources. Next StepsThere's a growing need for supermarkets to take advantage of Aisle Experts and do a better job of blending merchandising principles with operational practices to address problems such as labor shortages,over-spaced categories.inadequate shelf-holding power for the big brands, and out-of-stocksWhile the new Aisle Management vision is still emerging, it will play an increasingly important role in how trading partners interact. Companies who have embraced this value creation opportunity are already realizing big dividends.

Becoming Aisle Experts: A New Vision to Deliver Greater Customer Value

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