Across Europe retailers are sitting down with brand captains across numerous food categories to review the products that they will stock over the next year.
These are often tense times for food manufacturers who are facing pressure from all sides. Shoppers are more sophisticated in their food choices – they want quality produce at a good value price. Every month sees the launch of competitive products and new sub categories appear with products that address options such as healthy, light, organic or exotic flavours. Retailers are also frequently and fervently introducing their own labels.
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According to IRI’s annual special report about the private label market in Europe and the USA – Private Label: Balancing quality and value – European retailers boast a 34% value share and a 42.6% slice of unit sales of food and beverage sales. This grew by 0.2% in the 52 weeks ending July 2013.
In the USA, retailers have a much smaller share the food pie – 15.8% value share and a 17.6% share of unit sales. US retailers are losing rather than gaining share with their own brands.
Food manufacturers know that while shoppers are less loyal to national brands in some categories and have fewer hesitations about buying private label products, getting the right mix of brands across all of the different product types is critical if shoppers are to remain loyal to a store.
Some shoppers are more value oriented than others, but there will always be shoppers who are looking for their favourite brands. Retailers that stock too much own label or one brand over another that’s more loved at the expense of shoppers’ preferred choices may lose their appeal.
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By GlobalDataNonetheless, range optimisation is a fact of life with more product choices available. Tough decisions need to be made by retailers who cannot stock every SKU available.
Changing the way ranges are optimised
It is no longer acceptable, or wise, for retailers to optimise their range or delist products based on whether they meet the required sales volume threshold across a region or store. Not only is it a crude way to plan assortment, but with today’s category complexity, it is outdated.
Retailers can lose more than the sales of delisted products if shoppers do not transfer their purchase decisions to other products on the shelf but instead take their category choice or entire basket to another retailer. This is particularly true when different characteristics are involved – organic, fair trade, lower calories for example – or the shopper is highly loyal to one of the brands. At the same time, the right range decisions can increase the value of the category if shoppers switch to higher value products.
Colloboration is key
Food manufacturers need to work closely with retailers to ensure that they continue to provide a mix of products that appeal to different shoppers. Manufacturers can play a critical part in this collaboration by using their category specific insight to provide retailers with a detailed evaluation of key criteria including: how their brands drive sales for the category; how the mix of products in the category works together; what the impact of brand absenteeism may be for the shopper as well category and store level sales.
New advanced analytic techniques are increasingly being used by IRI to help manufacturers and retailers alike to understand the impact of changes to their ranges amidst ever increasing category complexity.
Such insight helps retailers and manufacturers to work together and, make decisions based on the minimum impact to category or store sales or even profit margins of range changes such as new product offerings, range reduction or a change to the product mix.
Range optimisation is far more complex than it ever was, but if it’s aligned to consumer demand patterns then the cost of making a wrong turn can be eliminated. The more insight that manufacturers can bring about sales predictions and range dynamics to the retailers’ negotiation table, the easier it will be for them to keep their own product range stocked.
That’s better for the retailer, shoppers and of course food manufacturers who already spend huge amounts of money on marketing to drive shoppers into store where the final purchase decision is made.
