DSD Snacks in the Crosshairs
A new study by the American Wholesale Marketers Association (AWMA) is underway that is expected to provide help to convenience store distributors and retailers seeking to increase snack sales and profits.
According to the study's author, Kit Dietz, of Dietz Consulting, LLC, Huron, Ohio, preliminary research already shows that as much as $500 million per year in increased convenience channel sales could be achieved if distribution of warehouse-delivered snacks can be maximized.
That conclusion is based on the same principles used in the 2009 study of candy category opportunities that was completed by Dietz under contract with AWMA, NACS, The Association for Convenience and Petroleum Retailing, and the National Confectioners Association.
That work, entitled "Convenience, Confections & Profit: Targeting the Core," said that if the top 50 "core" brand candy items could achieve full distribution in the channel, sales would be increased by $358.8 million annually. Since then, he said, significant improvements have been achieved, but that there still remains a $750 million incremental sales opportunity for candy and warehouse-delivered snacks combined.
The new study, expected to be completed later this year, is being sponsored exclusively by AWMA.
"Efficient assortment can drive continuous improvement for you and your retail customers," Dietz said at the AWMA Summit and Business Exchange in Key Biscayne, Fla. in September. He urged distributors to focus on making certain that core products are always in stock and effectively merchandised. "Leverage new data, new tools and new thinking that aligns strategic opportunities across the channel," he advised.
Dietz said that while the top 50 candy SKUs produce 33.1 percent of category sales, they do so with just 0.7 percent of SKUs. The next 350 SKUs generate 35.1 percent of sales with just 5 percent of total SKUs. The next 50 SKUs generate 14.7 percent of sales with .7 percent of SKUs, while the bottom 6,550 SKUs produce 17 percent of sales with a whopping 93.6 percent of total SKU count.
Dietz said there are major gaps in distribution of the major SKUs of warehouse-delivered snacks. Salty snacks average an ACV of 51 percent. "That's pretty poor when we have some great items in the category," he observed. Packaged sweet snacks constitute a major void, he added, with average distribution of 39.5 percent.
The challenge, of course, is to increase the share of warehouse delivered snacks products in the store vs. DSD products, Dietz said. Today, DSD controls 60.4 percent of snacks, compared to the 39.6 percent share held by warehouse-delivered snacks.
"We have an opportunity to take category management to a new level to drive margin in the snack category," he said. "We need to get out and impact the stores. We're all in this together -- manufacturers, distributors and retailers, joined at the hip to better serve consumers."
Dietz pointed out, however, that because distributors control less than 40 percent of non-DSD snack SKUs, there is no way for distributors to help retailers determine which assortment of snack items would provide the most sales and profit for their individual stores -- unlike the candy category, in which virtually all products go through the warehouse system.
"Nevertheless," he said, "there is a major opportunity for improving warehouse-delivered snack distribution if suppliers and distributors work together and help retailers understand how they can achieve greater sales and profit by allocating increased space to those products."
To realize that potential, Dietz added, it is important for distributors to identify which SKUs stores should be carrying at the segment and subsegment levels. To achieve that, he encouraged distributors and suppliers to utilize a new data system called InfoMetrics, developed by AWMA with the help of InfoRythm, Pittsburgh, Pa.
That system, which tracks actual warehouse product movement for thousands of SKUs, provides information that allows distributors to determine which items are successful and which are not, and identify gaps in product distribution to their customers.
"Once again, it is clear that the top product performers produce most of the sales and profit day after day, week after week, year after year," said Dietz. "Yet, all too often those products -- which consumers vote for with their dollars -- are not in stock, or are replaced by flash-in-the pan products that have a short life cycle and end up gathering dust on the shelf."
A solution, Dietz said, is to apply category management technology to the warehouse-delivered snack category.
"Distributors have an opportunity to use category management to help improve retailer profitability in the snack category, offering a better margin on the products that they deliver compared to the DSD brands. Distributors have much higher margins to offer, and brands are strong. Yet, all too often, distributors are not achieving proper aisle placement in the stores," he declared.
And so, he advised distributors to focus on core snack products, just as they are doing in the candy category.
He said that with the thousands of products in the channel, there is increased and unnecessary complexity of operations, and resulting high costs.
"By thinking strategically about product assortment, by focusing on those that will deliver sales and profit consistently, dramatic improvements in the bottom line can be realized," he said.
Dietz acknowledged that "you can't just whack SKUs," noting that one of biggest problems that has always existed in the industry is that when non-performing SKUs are eliminated, there are always complaints by those customers who might purchase them, even if only rarely or occasionally.
But by identifying customers who are purchasing the poor performers, and then replacing those products with better performers, sales will improve, he predicted.
"Customers will be happy. Consumers will find what they want. And, profits will follow," he said.