It Takes a Village to Raise a Business in Value Channels
By Ric Noreen
The business case for investment in value channels such as dollar stores and discount grocers almost writes itself. Value-channel leaders are well-known, and include Dollar General, Family Dollar/Dollar Tree, ALDI and Lidl. Here are some specifics:
- Dollar stores draw 53 million shoppers annually, and extreme discounters like ALDI lay claim to 42 million.
- Beyond the core value shopper, Affluents and Millennials are acknowledged by all channel players as having an incremental impact on their business, with purchase growth double the retail average.
- According to Kantar Retail, the total value retail channel was nearly $100 billion in 2017 and projected to grow to over $140 billion by 2021. The top four retailers discussed here have more than a 75 percent share of channel sales.
- There are currently over 15,000 Dollar Stores, with over 1,500 new store openings planned for 2018 – over four per day, every day.
Considering this avalanche of growth, why are so many CPG manufacturers reluctant to invest in these channels? The following suggests a blueprint to lay the proper foundation of growth.
Engage the Organization
The acknowledged leader of most CPG businesses is the brand management group. Recruit them first, as they are not likely to be hardcore value shoppers. Focus on adjusting their orientation from their traditional mass market mindset to being evangelists for the needs of the value shopper and the stores they shop in. Then identify the right cross-functional team, give them a clear charter, and transform them into value champions. Make sure the whole organization understands the commitment this team represents; publicize their accomplishments early and often.
Once the cross-functional team is formed, have them sponsor a Value Channel Immersion workshop for important stakeholders. In the session, arrange for outside speakers to share their insights with the group, and organize a “Retail Safari” with specific insight assignments for reporting back to the group. With this newfound knowledge and experience, conduct a facilitated brainstorming session to plant the seeds of product and marketing innovation.
Embed the team’s affinity for the channels by setting up social experiments. Give each team member a fifty-dollar bill. Challenge them to do 100 percent of their weekly shopping for food and other consumables at a Dollar Store or Extreme Discounter. Adjust the amount for families with more than four members. Urge them not to supplement their purchases by drawing from their home’s pantry. Have them keep a journal of their experience and schedule a team meeting to share their insights and draw out implications for business development.
Invest in Shopper Insights
Typically, market research agendas will be directed at the brand’s current franchise. Alternatively, your team should invest in truly understanding the value consumer at the foundational level. Recruit focus group participants from this new set of consumers and structure the discussion guide around understanding the challenges in their lives, not just their product preferences. To better understand the emerging growth segments of value shoppers (Affluents, Millennials, Ethnic), field separate panels to identify their unique attitudes, motivations and behaviors.
Design for Maximum Value
The road to value discounters is littered with product failures from vendors who ignore the basics of the channels…price points are too high ($1-10 range); margins are too low (minimum 50 percent); packages are too big (remember, there are a lot of pedestrian shoppers) or consumer value not evident.
To win here, reverse engineering if often required. Work backwards from serving counts, price points, or package size. Changes in product formulation or composition are often required to achieve the targets. Merely downsizing or compromising your internal margins will not deliver true value to the value consumer.
Value packs can also very explicitly deliver value. Bonus packs, shrink wrap dual packs, and near packs – usually reserved for promotional periods in mainline retail – can become permanent stocking SKUs.
Primary packaging is a critical element of delivering value. Package use functionality, storage benefits and even empty packaging re-use all enhance the delivery of product benefits. And front and back panel communication of value is essential, including details such as included “extra” free units, larger serving sizes, percent savings of the larger pack versus single unit, or “X” times the cleaning power.
Secondary packaging is also a powerful tool for building value, both to the shopper and retailer. Be they Dollar Stores or Extreme Discounters, both have significant operational constraints. Dollar Stores are typically manned with no more than two or three employees, with limited time to restock or face shelves. Backroom storage is non-existent, so display shippers, shelf trays and smaller modules all reduce labor costs. These units can also be effectively used to further communicate value, deliver promotional messages and draw the shopper’s attention.
Market Your Value
By this point, your marketers now know the value-oriented consumer, so it’s time to start talking to them.
From a branding perspective, most of the major chains with the exception of ALDI feature national brands. Private label SKUs are offered in some categories, but equity of national brands is another form of value. Some resourceful marketers have even pulled dormant brands from their archives for channel exclusivity.
To reach the value shopper, many marketers call on mass vehicles that have waned as a part of today’s hyper-digital marketing mix. Use of strategically placed outdoor, public transportation, and venue-specific media all can reach the value consumer effectively.
Promotionally, all value retailers have pre-formatted programs which target shoppers and vendors for participation. These programs are tilted toward digital mobile marketing with fully integrated promotions featuring text-to-win or loyalty-based programs.
Most winning promotions are delivered in store. In general, these retailers have a more lax “Clean Store” policy, so secondary displays and floorstands abound. Graphic signage touting brand value and solution-oriented messages all combine to add further value.
To win in these channels and with these consumers, your organization will have to equally use heads and hearts. Develop an intimate relationship with the value shopper and they will be a friend for life.
Ric Noreen is managing partner of Waypoint Strategic Solutions, a boutique consultancy that helps clients worldwide design and implement channel-driven growth strategies.