Wandering around the supermarkets in the run up to Christmas got me wondering why it is retailers think that they can bend the space-time continuum. Shelf upon shelf of retail space, normally focused on food essentials given up to sell festive trinkets: Christmas Deco’s; vast vats of Prosecco; fat Church-style candles; artificial trees and of course, more Christmas Jumpers than you can shake a reindeer with a flashing proboscis at. Too much stuff in too little space. Yet for fear of inciting the Ghost of Christmas Whenever, the issue is this: all this space, dedicated to limited-shelf-life tat has to come from somewhere. And given that the well-known US retailer is called Target not Tardis, one can only assume it hasn’t been conjured out of thin air.
But actually, Christmas isn’t the real issue, it’s just a specific manifestation of what’s going on in the big retailers (not just food). The commercial question, the commercial conundrum in fact, comes from the salami slicing* of space on shelves for our everyday essentials, year round. How do you run an effective retail operation when the majority of your sales and profit comes from a tiny proportion of your space – an amount decreasing, not increasing.
A small example: I popped out yesterday evening for some vanilla essence from my local c-store (in this case, a Co-op). A classic top-up store – less than 3000 square foot, 4 aisles, tills, a tiny in store bakery. Good store, but pokey. How many types of vanilla essence does it need to sell? One. How many does it sell: two (a ‘Madagascan Vanilla’ version would you believe). Literally, a tiny example but illustrative of what’s going on.
A more significant example is my old category – alcohol. In your typical supermarket, despite physical product size (and weight) this is not a category short on choice. But it is short on growth. Decade long growth in wine, has slowed to a crawl. Beer too posted decent growth until a decade or so ago when it came to a crunching halt. Cider has bucked the trends to a degree yet traditional cider is struggling with fruit ‘cider’ smaller but growing fast. Overall picture: alcohol volumes as flat as the Fenland. Appropriate then, in a category treading water, that space overall hasn’t increased. But the way the space is used is has changed beyond recognition.
To illustrate, consider the growth of fruity, sweeter products. This is nothing new and certainly not unique to alcohol, be it K cider, Hooch, Breezers, Moscow Mule or even Corona with lime. Seeing the growth, the big suppliers, the big brands have reacted by hybridising their products. Spirits with flavour additions (honey, smoke, fruit shots); cider with yet more fruits, beers with spirits, wine pre mixes, ciders with spirits, beer with fruit. And it’s important to say that as innovations, many are fine, indeed when viewed in isolation, commercially successful. And it’s good too that the category is innovating.
But there’s a worrying undercurrent. No new space is given to these products. There’s a Morrisons in the town near where I live which I have been visiting on and off since it opened in the late ‘90s. It has the same amount of space today for alcohol as it did back then. But the proliferation is staggering. Hybrid beer products (low or mid alcohol, fruit additions and so on) have munched the space away from their parent brand and parent category. There is no extra off shelf display, no additional gondola ends. The parent, in essence, is expected to sell as much from less space. How do you do that? Increase the deal.
It’s not clear who wins. The supplier cannot win, because despite the new hybrids commanding a higher unit margin (lower cost, more premium position) their rate of sale is a fraction of the parent and ultimately, the equity of the parent brand suffers endangering long term sustainability. The customer doesn’t win as effectively margin is moved around and if an individual company’s trading position strengthens then the retailer’s bargaining power is weakened. Consumers? Well they get more choice – but do they want it, and how do you navigate a fixture that is so complex (when the average purchase decision takes 2 seconds)?
Perhaps what is emerging here is a new retail paradigm. The key lines: Pareto’s 20% that sell 80%, get sold online or click and collect, or indeed through a discounter. Store space becomes increasingly focused on trading up, new and different and delivering category or brand experiences. Or perhaps, it’s simply time we got back to innovation based on solving real problems and that meet real needs. Or maybe, just maybe, it’s a call to retailers and brand owners to concentrating on getting big brands doing their job better and not slicing the sausage ever thinner? Now I’m sounding like Scrooge so I’ll be off to get some salami with my festive Humbug.
(*For players of business bingo, what shall we call this? Salamification? Sausification?)
David Preston is founder of The Crow Flies, a research, strategy and innovation company that helps brands find a direct route to long lasting success and a good Salami retailer. david@thecrowflies.co.uk; +44 (0) 7885 408367; www.thecrowflies.co.uk; @crowflieshigh