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MVEs Show Promise and Profit for Warehouse-Delivered Snacks
by Lisa Van Wagner
The Multi-Vendor Endcap (MVE), a cornerstone of the AWMA-sponsored warehouse-delivered snack program, is increasing turns and profits for retailers and wholesalers alike. The MVE is a display tool that allows a variety of best-selling, high-margin warehouse-delivered snack items to be merchandised together in c-store locations with high visibility. The concept originated from the Warehouse-Delivered Snack Committee, guided by AWMA.
"The mission of the committee is to better communicate the value of warehouse-delivered snacks to the convenience channel," says Marty Monserez, convenience channel leader at Procter & Gamble. "The first step was to have wholesalers develop the MVE tool. Now both wholesalers and manufacturers are partnering to help retailers realize 40 to 55 percent margins (higher margins and more overall profit) on fast-selling, nationally recognized brands."
 The MVE "is a reintroduction to the fact that wholesale-delivered snacks are delivering more sales and profit," says Tommy Thomas, director of sales for The H.T. Hackney Co. "We feel the whole category is lifted up by that process, not just the items on the MVE. The whole category has grown incrementally as a result of the MVE."
Recent research by Willard Bishop Consulting supports this fact. The consulting firm, which measured snack MVE sales results in seven chains totaling 186 convenience stores, found snack category sales in-creased more than 43 per-cent after the MVE was displayed. Given the higher margins generated on these warehouse-delivered MVE items, profit growth was even higher.
Thomas also reports that H.T. Hackney, during a 12- week period, had increased average store dollar sales on 92 MVE items by more than 318 per-cent (from $264 to $841) versus sales during March, April and May 2002. MVE unit sales were up over 234 per-cent, he says.
How It Works
The MVE makes it possible for a number of different vendors to take advantage of the same end-display under the supervision of the whole-saler. Basically, the MVE takes top selling items and provides a high traffic, secondary placement to improve visibility to the consumer, says Ron Mills, vice president—business development, convenience, distributor and A/O, ConAgra Snack Foods Group.
Grocery Supply Co. has its own unique approach. According to Howard Stroud, director of merchandising and purchasing, "We buy the rack, make the investment and place it in the store with the condition that they will buy this rack, with the product that is on it, for one year. At the end of one year, they own the rack. The vendors will continue to pay every year as long as that rack is set to the vendors’ specification, he explains. Such programs can vary by distributor.
After a year, Grocery Supply Co. will redraw the planogram. The manufacturer can either pay a rack allowance for another year, or the retailer can choose to do something else with the rack. However, retailers agree that during the first year they will carry the rack as it is planogrammed.
"We have products from about six different manufacturers on our rack. All the items are strictly the best-selling items. We want the retailer to see lots of turns," says Greg Kaminski, corporate category manager for candy and snacks for Core-Mark International. "It’s very profitable for the retailer because their margins are higher with wholesale-delivered snacks."
Through its Smart Stock program, Core-Mark provides the rack, merchandises it and services other select areas of the store.
Kaminski stresses that it is important to have a merchandising program with the MVE to make sure that the right items are on it, as the vendors are paying for the space. "You have to make sure a merchandiser is in there policing it. If you don’t, your competition—DSD guys—will go in and change it around."
He notes that since Core-Mark put in the MVE, sales have increased in those categories. "That’s a very good indication that the rack is a positive contributor to sales for the retailers. That’s what we’re looking for," Kaminski says.
Claiming Shelf Space
"In the convenience store industry, there’s a tendency to think that all merchandising comes from DSD," says Bill Bishop, who heads Willard Bishop Consulting, the firm that con-ducted the cooperative C/SCAPE study for AWMA and the National Association of Convenience Stores. "While DSD does provide a lot of support, this belief tends to obscure the very real opportunities in wholesaler- delivered products."
Those opportunities include full service merchandising from whole-salers who provide staff to stock the MVE, order the product and contin-ue to merchandise the rack.
"I believe there’s a major sea of change taking place as we speak," Bishop says. "Retailers are in the process of taking greater control of their shelves. Historically, that was not the case. Traditionally, retailers took money and, in the process, frequently put less focus on managing what items were on the shelf. While retailers still want and, in fact, need promotional support from manufacturers, they can now focus more attention on getting the products consumers really want to buy on their shelves. This is what category management is all about."
In many stores, high-margin warehouse delivered snacks were hid-den away from sight while DSD-delivered snacks ruled the endcaps.
"The snack category has been dominated by DSD companies who are in the stores two to three days a week and are having their way with location," Monserez says. "If you go into a convenience store, your consumer’s most likely opportunity is to buy a DSD snack product—with an extremely low 28 to 32 percent margin.
"Wholesalers and manufacturers are not trying to push products that don’t sell," Monserez continues. "We are showcasing products that are historically underdeveloped in this cate-gory because of the way they’ve been historically shelved and merchandised away from traffic flow."
"The endcap is clearly the place to be," Mills agrees. "If you have your primary set in-line, you may only get exposed to 15 to 20 percent of the consumers who visit the store. Primary endcap positions increase exposure of high-impulse, high-profit snack items," Mills says.
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| This rack developed by DOT Foods, Inc. demonstrates the marketing appeal of combining warehouse-delivered snacks in one location. |
Thomas argues that DSD vendors ought to be able to maintain their sales and still produce for the retailers with less space. Whether it’s a region-al snack company bringing in $20 to $30 worth of snacks on an endcap weekly, or a major snack company that warrants the majority of its space, all DSD is over-allocated, Thomas believes. That’s because traditionally, DSD gives retailers 25 to 28 percent profit, while warehouse-delivered snacks deliver 38 to 45 percent profit, he says. He notes that on average, the MVEs are producing a 42 percent profit on the items housed on them.
"Most retailers haven’t discontinued DSD, and we don’t recommend that they do," Thomas says. "We recommend that, based on the wholesaler delivering sales and profits, we should have our fair share of the space. Looking at the DSD community, we feel like their space is over-allocated based on sales profit and turn."
True Profit, True Costs
"DSD is not free labor, as Willard Bishop Consulting showed in the C/SCAPE study," Monserez says. "For example, DSD involves costs for invoice handling, and these products often carry higher inventory costs as well."
However, despite higher C/SCAPE profits, warehouse delivered products are often placed on shelves in less desirable locations, making it more difficult for consumers to find and purchase them. "The MVE puts the warehouse-delivered snacks out where the consumer can see them, all at a 40 to 55 percent margin versus the DSD margin of 28 to 32 per-cent," Monserez notes.
Bishop explains that the original C/SCAPE study showed there was only a small percentage of the products in the store that were generating true profit, implying a tremendous opportunity to reallocate space in the direction of more productive and more profitable products.
"The C/SCAPE model provides an industry standard of how to com-pare products," Bishop says. "C/SCAPE shows that if retailers haven’t considered handling costs and other payments—such as displays and promotional payments—they cannot know everything the vendor has provided.
"The C/SCAPE study shows that the retailers’ share of handling can go from 10 percent to over 100 percent of gross profit," he continues. "Most retailers only see the sales and the gross profit. C/SCAPE provides a tool to compare everything—sales, gross profit, manufacturer’s payment and retailer handling costs.
"That’s what we call the ‘true profit.’ The multi-vendor end looks very good under those circum-stances," Bishop says.
MVEs Move the Category
"The most important contributions the MVE has made since its introduction are the extra gross profit dollars for our retail customers and the increase in inventory turns per square foot," says Stroud. He believes the MVE may be responsible for an increase in total sales for the snack category.
"We have heard from our sales force and our retail customers that the rack is doing extremely well," Stroud says. "We ran a report on the customers who received shipment number one and compared year-ago sales, and all are showing an increase in sales. However that is only a three-month duration and includes the initial shipment. I believe we need six months in the stores to see an empirical result."
The MVE rack improves profits for retailers by increasing gross profit to retail customers by approximately 12 to 18 percent, reducing total snack inventory in the store and increasing inventory turns in the store, Stroud explains. "This is because the MVE is the best of several vendors rather than the total of just one DSD vendor. That’s the key to the whole rack. When you have a DSD rack that is controlled by just one vendor, you have a mix of inventory that has fast, medium, and slow turns. With the MVE, you have the best of the best."
Jeff Madaus, sales director, Richmond Masters Distributors, points out that the items on the MVE are higher margin items and that the cost ratio of many of them are better than those offered by DSD vendors. The MVE planograms show retailers how they can maximize profit simply by remerchandising existing product, such as putting some items in line and others on the MVE. Once they are on the MVE, they grab the customers’ attention.
"Being able to show retailers the difference—that they can earn 39 percent profit on the MVE versus the 25 percent they were doing on DSD—helps make the sale," Madaus says.
"I like it because the sales tool shows what is really moving. The planogram reflects proven sellers within the industry." He notes that duplication of similar products can be eliminated by using the MVE, while warehouses offer ease of ordering, more variety and fewer out-of-stocks.
Shifting around categories or space with the MVE refocuses the merchandising on the products. Brands that sell better on the end translate into higher sales overall. If those products are warehouse-delivered rather than delivered by DSD, they will generate both higher sales and greater gross profit dollars.
At the same time, the committee should continue working with both wholesalers and retailers to promote the promise of warehouse-delivered snacks.
"We need to communicate the value of warehouse-delivered snacks to retailers," P&G’s Monserez says. "They need to know there is another game in town: high market share, fast selling, nationally branded products all merchandised together on an MVE."
Lisa Van Wagner is a freelance writer specializing in the food industry. She can be reached at lvanwagner@mindspring. com.
Reprinted from Distribution Channels. © 2003 by the American Wholesale Marketers Association.
For more information on warehouse delivered snacks and the Joint Industry Warehouse-Delivered Snack Committee, contact Bob Pignato at 800-482-2962, ext. 642 or robertp@awmanet.org.
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