Retailers view the opportunities through the lens of category management
by Kit Dietz
It’s pretty simple—warehouse-delivered (WD) snacks offer power brands across the major snacking segments of salty, sweet and alternative at higher margins ranging from 40 to 50+ percent. Over the past five years, more than 80 distributors have placed a Snacks MVE (multi-vendor merchandiser) in more than 24,000 convenience stores across the country, and we’re just getting started. Retailers are now grasping the size of this opportunity through the lens of category management.
The AWMA Warehouse-Delivered Snacks (WDS) Committee conducted a joint snack category meeting with CSP Information Group in Richmond, VA, in September. We invited a cross section of convenience retail chains (ranging from small to large) to participate in the session which was focused on driving total snack category sales by focusing on consumer preference, brand strength, higher margins and total category sales growth. Our purpose was two-fold—to share what we know, and stimulate dialogue that would help us do a better job of supporting their snack category management initiatives.
The snacks situation Retail space, branding, sales and gross margin are sub-optimized in convenience stores. Why? Convenience retailers have over-emphasized the role of DSD snacks, and under-utilized category management compared to food, drug and mass in their stores. DSD upfront shelf payments have distorted the retailer’s view of true category profit opportunities and inhibit proper snack segment branding emphasis that builds sales at higher margins. High-margin power brands are overlooked, under-spaced, poorly leveraged and improperly positioned.
As one retailer put it in our meeting, "We need to pull the DSD needle out of our arm and use category management to drive our decisions."
Leveraging category management Convenience retailers can achieve significant sales and gross margin gains by properly balancing the role of DSD and WD snacks by leveraging big consumer brands that deliver higher margins. Typically, retailers have been taking a macro approach to the snacks category, determining space based on contract negotiations. Moving from a macro approach to a micro approach—focusing on each of the snacking segments and sub-segments—will provide retailers with a road map to higher profits.
Retailers can conduct a snack segmentation analysis to determine which products should drive the merchandising of each segment in order to maximize power brands, gross margins and prime merchandising locations in the store. This requires the retailer to perform a detailed review of all snack SKUs for both DSD and WD snacks in each snacking segment and sub-segment.
Comparing brand strength, unit movement, unit sales and gross margin will help retailers determine which brands to emphasize in each snack segment. (See Snacks Assessment graphic.) When comparing margins, retailers should include all discounts, allowances, placement monies, etc., to fairly compare the total margin generated by each SKU.
Each retailer will draw their own conclusions from their assessment process, but what we learned in the three-year FasMart total snack category study is that DSD’s major role is the potato chip and corn chip categories, while WD snacks offer the power brands at higher margins in all other snack segments and deserve prime merchandising locations in the front of the store.
The WD Snack MVE is the perfect merchandising solution to capitalize on consumer snacking trends across each of the snacking segments in the store. Combining the best of the best brands of salty, sweet and alternative snacks from a number of leading manufacturers on one shared end-cap delivers consumer choice and space efficiency for the retailer.
The WD Snacks MVE is what I would call the first step, the no-brainer opportunity or the low-hanging fruit. Every convenience retailer should have one and every distributor should offer a WD Snack MVE program to help retailers capitalize on WD snacks. But it doesn’t stop here. There are more opportunities for retailers to grow higher margin snack sales inline.
The snacks category planning process is an important step and closely aligns with the NACS Category Management Framework.
We have pretty thoroughly covered steps 1, 2 and 3 in the category assessment. I’d like to focus on step 4, which is eliminating duplicate, low margin SKUs. If we can offer consumers great brands at higher margins, why would a retailer carry duplicate SKUs that deliver much lower margins? Nothing is lost in the elimination of duplicate, low-margin SKUs due to the consumer switching to the leading brand.
FasMart has successfully executed this strategy and their numbers speak boldly of the opportunity. Over a three-year period, FasMart has enjoyed total snack category sales growth of 68.7 percent and total gross margin improvement of 79.6 percent. All of this has been accomplished by implementing a WD Snack MVE and a commitment to leveraging the strength of warehouse-delivered snacks inline.
Kit D. Dietz is president of Dietz Consulting LLC, Huron, OH.
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.
