Retail

Retail

Opinions expressed on this blog reflect the writer’s views and not the position of the Capgemini Group

Less is most definitely more in the increasingly competitive grocery market...

It’s 7pm on Friday night and you’ve just finished work. You curse yourself for not popping out at lunch to pick up a bottle for the housewarming tonight. It’s the other side of town and it started at 6pm. As you’re already late, you take a quick glance at your mobile to locate the nearest supermarket to your friend’s new place before dashing out of the office.

A bus ride and short walk later, you nip in store to find yourself standing in front of a never-ending wall of wine. Although on paper, this may sound like the obvious place to start your search, it’s not necessarily the case. In today’s world where time is limited and convenience is essential, being spoilt for choice can be daunting and it can put off the modern-day, time-strapped customer.

Endless choice turns customers off

The customer in question will be shopping with a mission in mind; this may be driven by price (“I don’t want to spend more than a tenner”), occasion (“it’s a housewarming, I’d like to get something special”), season (it’s the hottest day of the year – and we are having a BBQ), and so on. When faced with thirty wines under £10, a bay of sparkling wine and rows of summery rosés, how does the customer make up their mind?

Extensive and insightful research shows that too much choice can drive customers away. Most famously perhaps, a study carried out by social psychology students in the US demonstrated that too much choice can be de-motivating. Their study saw customers confronted with a selection of jams to try, which they could then go on to buy. Their findings suggested that participants were more likely to buy the products when presented with a more limited choice rather than a wide range of options (6 rather than 24 or 30 jams in this case).

Around fifteen years on from the publication of the study, and today’s customer is even more ‘spoilt’ for choice. The phenomenon of choice or decision ‘fatigue’ has been widely reported in the media, and it appears to be driven by an unease or reluctance to manage the plethora of decisions we are confronted with. The impact of choice affects both physical space in-store as well as online with never-ending streams of products, reviews and ads filling our digital spaces. With online filters, personalisation and recommendations help us narrow choices and make decisions. In a physical store, the idea of missing out or not having the same level of information to evaluate all options can often lead us to walk away and look elsewhere. Where does this increasing breadth of choice come from?

Baggy space leads to even more product on display

The legacy of the space race has left hundreds of baggy ‘aisle-miles’ up and down the country’s supermarkets. As the large, out-of-town, space-hungry formats feel increasingly redundant, retailers are looking for more innovative ways to fill the space. Some are experimenting with in-store restaurants, wine bars and various forms of aisle ‘furniture’ to fill under-utilised shelves. Others are testing the water with non-competitive partnership deals, teaming with businesses willing to share the strain of inflationary overheads, while attracting new customers into stores.

Nevertheless, the most typical way to fill the space is simple – more product. And commercial teams are only too eager to oblige. This has led to ‘range creep’, particularly in traditional formats. Historically, shelf space meant investment and suppliers would compete for privileged on-shelf positions, however, retailers’ negotiating positions in this space has changed. Furthermore, quite simply there is a temptation to assume that more lines on-shelf equates to more sales registering through the tills. This, coupled with a lack of range review discipline, has led to range proliferation and range ‘tail’ has become common.

Reducing range sizes is good for business

Range tail can be an expensive luxury for a business to carry, from increased waste and diluted trading intensity where lines stagnate. There are also costs throughout the supply chain: from reduced efficiency in manufacturing sites due to shorter production runs; increased inventory and complexity in warehouses and transport networks; and more products to replenish and hold in back rooms.

Over the past few years, there has been a move to reduce the size of ranges carried. Partly driven by the range simplicity offered by the discounters (generally between 1,300 – 1,600 lines stocked) affording them increased efficiency and helped drive price competitiveness. In comparison, traditional grocers carry between 20,000 to 60,000 lines. The rationalisation process needs to be bold and implemented with discipline, consistency and rigour. Calculating the cost of developing, sourcing, listing, managing, moving, merchandising and selling each additional line requires significant analysis.

As a result, the pressing battle for margin means each line must earn its place. It isn’t enough to look at margin as profit over sales alone. The cost to sell the line ‘end to end’ is increasingly important, as target margins through the till may well have already been eroded in storing the line for weeks in depots and store backrooms.

This isn’t to say grocers should or will resort to selling essentials only. Retailers will need to define their propositions more carefully, focussing on range breadth rather than depth (product variety rather than multiple sizes and brands, ensuring point of difference through market-leading own brands for example). Commercial strategy, price and promotional planning as well as product quality will become defining factors in customers’ choices of where to spend their money.  

So, less is more (and better) for all?

So back to my housewarming story...as we have seen, making a selection from a range of 3 is far easier than range of 30. Clearly there is a tipping point; and we need to ensure customer missions are catered for. Simply offering one red, one white, one rosé in your wine range would not fulfil the three missions outlined earlier and could potentially lead to lost sales and ultimately lost customers.  This is where the skill of the commercial and customer teams come in.

Reducing range proliferation is not a case of drawing a red line through the bottom 20% of SKUs and delisting them. It requires a detailed understanding of who your customers are and what they want while ensuring profitability is balanced. Gaining greater insight into customer missions by product category and identifying how to respond to these will be the first step in the rationalisation process. The subsequent plan for taking out non-performing lines, tightening ranges and improving overall efficiency will then follow.

About the author

Cristina Proietti
Cristina Proietti
Cristina is a Senior Consultant within the Capgemini Consulting Operational Excellence practice, specialising in Retail Planning. She has delivered across a range of programmes including end-to-end value chain reviews, business transformations and supply base consolidation projects. Alongside her consulting experience, Cristina has held a number of commercial roles in industry.

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