Up and Down the street
March 1, 2004
Up and Down the street
This column shows that the pulse of the industry is felt "up and down the street," where sales and marketing efforts influence consumers in a variety of retail venues — from "mom and pop" stores to warehouse clubs — snack products return profits for manufacturers and retailers alike.
This month's column is a condensed version of an article that appeared in the January 2004 issue of NACS Magazine.
C-Stores on Lookout for Next Hot Item
By Elizabethe Bogart
Vice President, Strategic Industry Initiatives
National Association of Convenience Stores
Whether it is a product, service or new category, retailers are looking for the proverbial silver bullet to get customers inside their stores. More importantly, how do you get those products on your shelves? If only identifying what the next hot seller is going to be was the only challenge. There are also the tasks of finding a supplier, making room in the store and getting the customer's attention. What's more, if the product has a lukewarm reception, a good exit strategy is key. Over the last 18 months, convenience retailers have been putting a greater emphasis on inside sales.
What is a New Product?
The debate is lively about what constitutes a new product. According to Mintel's Global New Products Database, more than 22,000 new products were introduced in 2002, a 15% increase from 2001, and only a small portion of those items made it to convenience store shelves.
A study conducted by Willard Bishop Consulting Ltd. (WBC) in 2002 for Masterfoods USA found that the convenience channel is at a significant disadvantage in speed to market when it comes to new items. The convenience channel takes five times longer to reach nearly 80% distribution with wholesale delivered new products.
"The lack of quick distribution is costing convenience retailers dollars, profits and market share, which is eroding the ability to grow the business," says WBC Director David Bishop, author of the report.
In reality, of course, a retailer would never be able to sift through more than 22,000 new items annually or even a fraction of them, but what are the best ways to identify new items that convenience-oriented consumers would buy?
Identifying New Products and Services
Retailers systematically identify new products in a number of ways, including trade publications, trade shows, keeping their eyes and ears open, and shopping other channels of trade. NACS is working to make suppliers aware of the interest and ability of convenience retailing to bring new products to market.
"We are always on the lookout. It is a mindset that we have that we love to find and bring new stuff in to our stores. We believe you have to kiss a lot of frogs to find a prince," says Richard Oneslager, owner of Balmar Petroleum in Englewood, Colorado. "They are not all going to be winners, but to increase our odds we are always talking with other retailers to find out what is working for them.
Barriers and Solutions
Convenience retailers could realize a $3 billion sales opportunity by effectively managing new product introductions, according to the WBC research, equating to approximately $22,000 in sales and nearly $7,500 in gross profits per store. To attain this, retailers must work with suppliers to get products to the shelf much quicker and use manufacturer support to drive incremental sales.
Commitment is critical if you are going to have a new product strategy. "Why, as an industry, we continue to use our best real estate to sell warm 12 packs of soda is beyond me," adds Oneslager. "Finding space shouldn't be a barrier, but the time and commitment required can be." Getting the attention of vendors can be troublesome. As a fragmented channel, coverage is problematic.
"Manufacturers need to improve upon their image of the convenience store industry, realizing that many new offerings could and should be offered to this class of trade first and not as an afterthought," says Bill Fendrick, vice president of merchandising for McLane Co.
Kyle McKeen of Alon USA recommends that retailers interested in new products must first be willing to change, and to do it quickly. A nimble staff is required, and the emphasis must be clear that growth is contingent on fast movers with high margins. One challenge to new products is finding space. Retailers must constantly be analyzing the product mix and sales in order to assure the right assortment. Unless slow movers have a strategic role in the merchandising mix, those items should be removed from the set to make room for new items.
Another barrier is aversion to risk. Trying new things can be a frightening proposition. Some retailers want manufacturers to assume the burden of new items, which can slow the process and result in a lower margin. Trying new products carries a risk that all parties need to acknowledge and accept a role in. The primary business model is a vendor-managed inventory with guaranteed, but lower margins. The risk is lower for the retailer, but so is the reward. If product is moving, it's replenished; if it's not moving, it's replaced. If it's seasonal, it's gone after the holiday.
One critical component to bringing in new products is getting the customer's attention. A combination of pump toppers, displays, other point-of-purchase materials and advertising can be used to draw customers' attention.
A critical mass of convenience retailers committed to expanding the offer is crucial to gain supplier interest in this channel. The first step is getting manufacturers to acknowledge the convenience channel as an excellent opportunity to introduce new products. Once this is accomplished, the other barriers can be overcome.
Anatomy of New Products
• Make new products and services a business strategy.
• Communicate with your vendors that this is a priority.
• Find new products and services.
• Be willing to take a risk.
• Get distribution.
• Make room on the shelf.
• Optimize manufacturer support.
• Educate your store employees and customers that it's for sale.
• Ensure you can sustain sales and avoid out-of-stocks.
• Have an exit strategy — guaranteed inventory, closeout, markdowns, etc.
• Continually evaluate item movement.
Always keep looking for new products to make your customers' lives easier.