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A Demanding Delivery

Customers want chips. It's one of the major impulse items in c-stores today, and still the No. 1 item in the snack category. Potato chips alone command a lot of space and, in turn, a lot of attention. But there is more to the salty snack category than chips, and as a whole, to manage and maintain it takes a lot of time and attention — especially with the never-ending new product introductions by major manufacturers.

"There are more new product introductions in the salty snacks category today than ever before, especially in chips," said Ray Bishop, director of merchandising at Town & Country Food Stores Inc., based in San Angelo, Texas, and operating 144 convenience stores and seven grocery stores.

In Bishop's stores, the salty snack category includes peanuts, salted nuts and chips. Currently there are 451 SKUs on record, and the one of the best-selling products in salty snacks is Cheetos Hot, according to Bishop.

"It debuted in our area in 2002, but it has really risen to the top since then and is No. 1 in our chip category at this time," he said.

Additionally, the same products and planograms can typically be found from store to store, and the space allocation for salty snacks alone is at least 24 total feet — equivalent to 120 linear feet, Bishop reported. This includes gondola, endcap and inline space.

Where delivery is concerned, the stores receive the majority of salty snack products though direct store delivery (DSD), especially the chips.

"Typically, our chips are delivered DSD, but select items, such as Pringles, come from a warehouse distributor," noted Bishop. Town & Country uses Texas-based Grocery Supply Co. as its warehouse distributor, and has for the last eight or nine years.

There are pros and cons to both types of delivery, especially in the demanding snack category, but Bishop says it's wise to utilize both methods. "If we didn't use both, we would be limited in the items we could carry," he said.

Going Direct

To maintain any category, it's important to stay on top of out-of-stocks, achieve just-in-time ordering and restock the shelves — after all, a full shelf is more attractive to a customer than one with holes due to missing product. But staying on top of this takes a lot of labor time, which takes away from time with the customer — and can add expense to the bottom line.

But with DSD, labor is not an issue. "One of the pros of DSD is we don't have to tie up labor because they handle it with the delivery," Bishop explained. "Typically with DSD, stores are serviced one to three times a week for salty snacks. However, it could be as many as four or five times a week, depending on the location."

Also, because salty snacks are impulse items, some stores carry extra stock to make it through the weekend and avoid out-of-stocks. "Depending on the store — the traffic and the store location — we do have back stock that we hold over for the weekend," he explained. "In a neighborhood store we normally won't need back stock, but if it's a store near a busy thoroughfare, interstate or recreational area, we could very easily need additional back stock."

In this case, the guaranteed sale DSD offers comes in handy. "If an item doesn't sell, they take it back," said Bishop. DSD manufacturers also take charge of switching items.

"Our salty snack planograms are somewhat flexible with DSD merchandise," said Bishop. "We do have more SKUs authorized than there is space allocated for all of them. However, there is flexibility for the distributor to determine what items sell best in specific locations and/or the ability to replace items that are slow movers with another item that may be more acceptable to the consumer. All items must be authorized through our pricebook system. Many times, when a new item is introduced, it replaces another because of space allocation."

All in all, there are not many drawbacks when it comes to DSD, as far as Bishop is concerned. "Occasionally there is a poor service issue, but other than that, there are few, if any, drawbacks," he said.

Currently Frito-Lay, Lance and Tom's are Town & Country's DSD snack vendors.

The Warehouse Way

Besides Pringles chips, other salty snack items delivered through the company's distributor include Planters nuts, Chex Mix and pork skins, and deliveries come twice per week.

One of the biggest pros to using a wholesaler is the price of the product. Overall, Town & Country's gross profit margin on salty snacks is approximately 36.7 percent annually, and products coming from a wholesaler often contribute more to this number.

"We are more likely to have a better cost or profit margin on the items through our wholesaler because it eliminates another person in the line of distribution having to be paid," said Bishop.

However, warehouse delivery because means more work for Town & Country employees. "It takes more time ordering, stocking and rotating the products ourselves," explained Bishop. "Also, it's not a guaranteed sale like it is with DSD."

There's also an issue of lag time: While DSD is delivered straight from the manufacturer, warehouse distribution adds an extra step in the process. "With warehouse you could get shorter expiration dates because by the time we receive it, that item could have been sitting in the warehouse for an expanded period of time," said Bishop.

In order to get all the products he wants in the stores, Bishop uses both delivery methods. The only challenge with using both is time allocation to receive the orders, he said. "With our wholesaler, we do our own ordering by transmitting the order to them from the store level," he said. "With DSD, sometimes it is strictly based on the route person and other times we have to do bill-to charts. So time allocation can become challenging."

Most items falling into the salty snack category increased in dollar sales from June 2004 to June 2005, and the biggest movers include unshelled nuts, canned nuts and trail mixes, according to ACNielsen's Convenience Track.

Unshelled nuts jumped 24.7 percent in dollar sales from $8.8 million in 2004 to $11.0 million in 2005; canned nuts rose 15.7 percent and trail mixes increased 15 percent.

The category leader in terms of sales is still potato chips, which increased 6.7 percent from $500.6 million in 2004 to $534.0 million in 2005.

Tortilla chips are another big seller, up 4.2 percent in 2005 to $321.2 million in sales, and third in line is bagged nuts, up 6.4 percent to $291.5 million.

Items that fell in sales include pork rinds, caramel corn, potato sticks and jars of nuts. The biggest drop was in sales of potato sticks, falling 10.3 percent to $1.9 million this year, compared to $2.1 million last year. Pork rinds are down 8.5 percent, caramel corn is down 5.1 percent and jars of nuts fell 2.4 percent.
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