Why Is Shelf Management Getting Short Shrift in Supermarkets?

By Denise Leathers, RetailWire

My new favorite statistic comes from Acosta, who figured out there are approximately 14,000 miles of shelf space across 20,000 supermarkets in the U.S. That’s the equivalent of an aisle that stretches from New York to L.A. — five times.
But, according to the report, most grocers aren’t investing nearly enough in one of their biggest, most visible assets.

While manufacturers allocate about $100 billion to trade spending each year, says Acosta, shelf management gets only about $300 million — or about 0.3 percent of the amount given to trade spend. That’s despite the fact only 66 percent of total units sold are not promoted.

More important, those items deliver a disproportionate 85 percent of profits compared to 15 percent from promoted items.
In addition, lifts associated with all promotional tactics continue to decline year after year, falling from 29.8 percent in 2015 to 26.7 percent in 2017. So, “while spending on trade often results in declining returns, ‘fixing the shelf’ achieves a six percent sales lift,” according to the report.

And it gets better.

Although the percentage varies by category, Acosta’s research indicates a whopping 55 percent of grocery buying decisions are made at the shelf, especially in segments like, say, ice cream where consumers might look for the best deal or peruse a set of brands they typically choose from for an interesting or appealing flavor.

The Acosta report also revealed that store brands are getting more shelf space than they deserve — 11 percent more, on average — which can have a negative impact on productivity and lead to out-of-stocks of top-sellers. Indeed, notes the report, 71 percent of category leaders are under-spaced relative to the number of units they drive.

So, why the heck are retailers and manufacturers not reallocating resources toward shelf management? Resistance to change, lack of time, difficulty quantifying the impact, stubborn attachment to old ways of doing things — take your pick. Okay, money probably has something to do with it, too. Although costs have come down, new technologies that support shelf management like video mining, simulated eye tracking and virtual shopping don’t come cheap. But neither does bankruptcy.

Discussion Questions:

Why do you think grocers spend comparatively small amounts on shelf management? Which technologies hold the most potential when it comes to shelf management?

Comments from the RetailWire BrainTrust:

I believe that shortcomings in grocery shelf management are due to the human factor in maintaining shelves stocked. Servicing vendors do not always do a good job of understanding the velocity of key items. Store associates don’t always look at the rear of the lower shelves, where product is sitting — invisible. Last, it may be due to inappropriate use of planogramming software, or the lack of discipline to adhere to the replenishment calculations. In these times, this doesn’t sound like rocket science.
Bob Amster, Principal, Retail Technology Group

Shelf management is the skulduggery of retail — it takes hard work to delve into the details and manage effectively on an on-going basis. Yawn! This despite the fact that the majority of sales happen on shelf. Perhaps it’s more exciting to negotiate pricing and get trade allowances. Or maybe given that “center store is dying” it’s not worth the effort to deal with. It could be that it’s just a pain in the ass to reset the shelves often. Regardless, the biggest opportunity in retail – and, perhaps the most bang for your buck – is getting the shelf right (this includes assortment and keeping items in stock). Not sure you need new technology like eye tracking and heat maps as much as getting the shelf fundamentals right by having the right tools to understand real-time data and then planning to optimize.
Michael La Kier, Principal, What Brands Want, LLC

Restocking is a labor cost that store managers are asked to control. It is sometimes hard for marketers and technologists to recognize the very analog reality of the shelf, whether on the store floor or in a warehouse. The planogram is the agreed upon ideal. How long does it last? On a busy day, not long…
Paco Underhill, CEO of Envirosell Inc., Speaker, NY Times Best-Selling Author

It is true that shelf management is not one of the sexy areas of retail technology, but it certainly does deliver. However, this article is only part of the story and it’s time for grocery retailers to take the next step, which will make shelf management both sexy and productive.

By linking shelf management to supply chain, retailers can significantly improve the efficiency of their operations as well as sales and profitability. Unified retail or space-aware supply chain is the next major development in retail efficiency and will enable retailers to make their traditional store retail outlets more productive, efficient and profitable. This in turn enables competition with online, happier customers, less waste and happy management.

Imagine if the supply chain knew what is on shelf, what the rate of sale is and therefore when stock of each item needs delivering and in the right mix and sequence to be efficiently stacked on shelf? The saving in staff time is enormous, the disruption to customers is significantly reduced and service levels increase resulting in better sales.

Using the single forecast to run both supply chain and shelf management is one thing. The exciting results and massive return on investment from linking it all together gives retailers the incentive they need to boost their shelf management processes.
Andrew Blatherwick, Advisor, Relex Solutions

Too much time and money is spent on all the components of e-commerce, which — of course — is important. But more important are the results of a recent survey saying that 87 percent of consumers prefer grocery shopping in stores. They say they want a satisfying shopping experience. That surely includes product availability, which is the result of efficient and consistent shelf management. That is where grocers should be devoting more time and money
John Karolefski, Editor-in-Chief, CPGmatters

Where’s the sparkle? Where’s the sizzle? For grocers, the shelf is not the main concern because they’ve been optimizing it for hundreds of years. The fact that it’s not doable in real time has limited data accuracy and metrics beyond t-logs and misses the “profitability” factor when optimizing makes it ever more difficult.

Few stores have aisle resets more than once or twice a week, and resources are scant when it means operating the store or managing a line at the registers. Add to that the tiny margins grocers have now, it becomes clear why dynamic planogram technologies just haven’t taken off. Lastly, most tech being used for shelf mgt has yet to prove its weight — especially on an enterprise scale across thousands of stores. The few examples I have seen are in optimizing point of purchase displays, which is less shelf management and more marketing spend management.
Ananda Chakravarty, Retail Thought Leader

Shelf management has been around for a long time, but it is a boring block and tackle task that is also labor intensive. As retailers shift online and try to make stores more efficient, the work on shelf management gets short shifted. I wonder if the next generation smart shelves will be designed with storage in the middle and space allocation will be done mechanically. We can always dream.
Kenneth Leung, Retail and Customer Experience Expert

Read the entire story and RetailWire discussion at http://bit.ly/2H4knte

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                                                                         Early March 2019
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