Warehouse-delivered snacks and multi-vendor end caps offer high-margin opportunities for c-stores

by Lisa White

Key Takeaways
•  Higher profits
•  Increased margin dollars
•  Secondary snack location results in increased overall sales
•  Focus on the top-selling snack items
•  More manufacturer support
•  More impulse sales generated
•  Quick and easy implementation

The squeeze is on. Convenience stores are being hit with high credit card fees, fuel costs and SCHIP taxes. As if this wasn’t bad enough, retailers also are contending with competition from other retail channels and consumers intent on keeping their wallets closed.

Yet, there is a bright spot that offers profit potential amidst all of these challenges. Despite the economic downturn, warehouse-delivered snacks (WDS) are driving revenues in the snack segment.

It is important to note that educating convenience store retailers about WDS is not about going head-to-head with direct store delivery (DSD).

Instead, this delivery method provides an alternative that not only provides increased profits for stores, but also gives a boost to all snack segments and products, including DSD.

“WDS provides retailers with a very high margin solution that can help fill the tobacco void,” says Kit Dietz of Dietz Consulting, Huron, OH. “When it comes to the snack category, only warehouse-delivered suppliers can bring a true sense of category management to this channel.”

This is accomplished with the help of multi-vendor end caps or MVEs, in which distributors combine the top-selling salty, sweet and alternative snack brands into one display.

“MVE is category management at its finest,” Dietz says. “This offers a more holistic approach to the snack segment. Manufacturers combine products, knowledge and data, which results in better decision making, while distributors serve as an objective intermediary in finalizing assortment choices.”

With WDS, distributors play a significant role in helping to bridge the gap between manufacturers’ brand management and actual category management at the retail level.

“This gives c-stores an advantage, since the snack assortment from the warehouse delivery system is more category management driven,” Dietz says. “The program ensures that the items included in the planogram, whether in line or within snack MVEs, are the top-selling brands and products that deliver the highest margins.”

An advantage
There are currently more than 28,000 convenience stores in this country, along with more than 100 distributors, utilizing MVEs.

“Our industry has historically supported ‘single vendor display programs’ that too often result in low margin end caps,” says Marty Monserez, convenience channel leader for Procter & Gamble, based in Cincinnati, OH. “Another problem is that most single vendor display programs include many slow-selling SKUs because few manufacturers have the ‘brand scale’ to warrant the space of the entire end cap.  The MVE concept allows the retailer to display the SKUs the consumer wants to buy, not what the manufacturer wants to sell.”

By contrast, MVEs leverage 40 to 50 high-margin items that include the best-selling and most recognizable brands.

“The MVE program has a proven track record of increasing category sales by more than 20 percent,” Monserez says. “This MVE strategy is a category management approach to displaying snack SKUs because the retailer determines MVE SKUs based on the selling strength of each SKU and its profit contribution, not based on the SKUs that one manufacturer has to offer.”  

About half of WDS growth in MVEs comes from warehouse-delivered items in line, while the other half comes from end caps. When brands and varieties are spread out, impulse sales increase and consumers are forced to shop the entire store.

“It’s very rare when there’s a strategy that can grow sales at more than 20 percent in such a large category, while helping all supply-chain partners, distributors, retailers and manufacturers benefit so significantly,” Monserez says.

Distributors benefit because every store they supply with MVEs grows warehouse snack sales by 50 percent. Manufacturers benefit because they obtain permanent display space in a way they couldn’t with single vendor selling.

Unfortunately, even with the margin and revenue potential, not all retailers in this channel are embracing the program.

“Our industry is under significant profit pressure, due primarily to credit card fees and tobacco legislation, and the snacks MVE is a proven solution to help offset these profit concerns,” Monserez says. “Some retailers don’t realize the snacks MVE increases the entire snack category profits by more than 20 percent by prominently displaying best-selling, warehouse-delivered SKUs that deliver a 40 to 50 percent margin.  This is a solution that helps offset the risk to their business.”

With WDS, costs are taken out of the system since distributors are making more delivery drops compared with DSD product. MVEs improve the visibility of the best-selling warehouse-delivered snacks that react well to better positioning at the retail level.

“An MVE also provides a secondary merchandising location and more opportunity to cash in on impulse sales of both snacks and candy,” says Bill Walker, product director for candy and snacks at Temple, TX-based McLane Company. “This merchandising method offers a better return per square foot than other traditional end caps.”

Consequently, snack manufacturers involved with the program seek to get the word out to retailers about the benefits of WDS and MVEs.

“It’s really about communicating and educating retailers about the value of WDS,” says Bill Henry, managing director at Battle Creek, MI-based Kellogg Company. “WDS offers 40 to 50 percent margins. We need to make c-store retailers more aware of the value proposition.”

With 6 in. of c-store shelf space equal to 9 ft. of supermarket shelf space, the convenience channel needs to the make the most of every square foot.

“The good news is that MVEs can move a lot of dollars through a small amount of space,” says Jeff LaFever, director of marketing at Minong, WI-based Jack Link’s Beef Jerky.

Success stories
Proof of success with WDS and MVEs can be found throughout the c-store channel and the industry as a whole.

Golden Pantry, a Bogart, GA-based chain of approximately 47 c-stores, implemented MVEs a little over a year ago. The result was a more than 40 percent total sales increase of snack MVE items and an average gross margin of more than 42 percent.

“So far, our MVEs are doing what they’re supposed to as far as margin and movement,” says Mike Griffith, Golden Pantry’s president.

At the program’s beginning, the chain had just changed wholesalers, so the timing worked out well.

“Although most wholesalers are now involved with MVEs, it was a new initiative for our distributor,” Griffith says.

Golden Pantry’s wholesaler spent the necessary time determining which snack products should be included on the rack, looking at movement and margin relative to the allotted space.

“There are no low-margin products that tie-up inventory dollars in our MVE,” Griffith explains. “The program helps us operate more lean and mean.”

In a study sponsored by the AWMA Warehouse-Delivered Snack Committee, Mechanicsville, VA-based FasMart implemented snack MVEs in 58 of its 200 stores. The result was a more than 19 percent increase in snack category sales and a more than 22 percent rise in profits.

FasMart’s snack MVEs also generated incremental sales and profit increases of more than 50 percent. As a result, the chain projected $1 million growth in sales and more than a $420,000 increase in profits.

San Ramon, CA-based Chevron started testing MVEs in its South Florida stores last July, according to Tony Bandiera, category manager. “This was a tough market last year, but we noticed the segments represented by the MVEs weren’t down as much as other snack categories.”

The chain is looking at rolling out additional MVEs in the coming months.

“There was no additional labor necessary with this program,” Bandiera says. “Stores implementing these programs just need to look at both gondola shelf sets and MVEs to make sure the areas don’t run out of stock. MVEs do more business than regular gondolas because they are in more visible locations. Our store managers said customers were drawn to these displays because they provided an easy way to shop the snack category, were more visible and attracted more impulse sales.”

“Because our Extra Mile stores don’t receive as many shippers and counting units, we’re more critical when it comes to store space and aesthetics. MVEs provide additional merchandising capabilities,” Bandiera says.

“My job as a manufacturer is to bring profitable sales solutions to my distributor and retail partners. In the five MVE tests we have run over the last seven years, MVE has grown total snack category sales more than 20 percent versus stores without this program,” Monserez says. “C-stores can obtain another $6,000 to $7,000 in profit each year by displaying an MVE.”

For c-stores, executing an MVE is seamless. Most wholesalers have a set program, so racks can be installed within a week. Retailers’ only responsibility is identifying a high-traffic area for proper rack placement.

Richmond-Master Distributors, Inc., based in South Bend, IN, has placed thousands of MVEs. After experiencing success with the program, confections have been added to the mix.

“There were some candy manufacturers that had snacks included in the MVE, so we created a new item rack for products that are in the trial phase or those without a spot in the planogram,” says Frank Davoli, Richmond-Master’s director of purchasing.

In most cases, retail approval programs fall into place when MVEs are implemented.

“MVEs are not just set up and forgotten. We’re in a promotion with these racks every day of the year,” says Davoli. “Manufacturers rack it up with accrual programs, using monthly promotional catalogs, flyers and shippers tied around these items.”

MVEs have helped boost sales for the entire snack category, including DSD.

“These programs have added millions of dollars to distributor’s and retailer’s bottom lines, and the DSD guys have seen their sales grow as well,” Davoli notes.

This is because, when strategically placed, MVEs prompt more impulse sales from consumers. After seeing a snack on the rack, shoppers are tempted to go down other aisles to see what else is available.

“These racks not only add profit to the store, but they offer consumers value in this channel, which is important,” Davoli says. “C-stores need to overcome consumers’ perception that its offerings are higher priced. This isn’t the case with MVEs, which include value-priced items that are attractive to consumers.”

Most importantly, WDS and MVEs allow retailers and distributors to work together to improve the effectiveness of category management in the snack segment.

“This program is an example of the approach that needs to be taken in all categories,” Dietz says. “It is a template for improving profitability based on category management principals.”

“Warehouse-delivered snacks provide a better gross margin and better profit dollars in our stores,” Bandiera says.

Lisa White, a regular contributor to Distribution Channels, is based in Cary, IL.