Leveraging Category Management to Provide Differentiation
The world of retailing has been evolving and changing over the past few years. Your competitors now aren’t the same ones they have been in the past; small stores are the brick-and-mortar stores of the future; competition has increased and become much more aggressive; and every day, we hear about more disruption happening in the online retail space and in omnichannel.
As the retail industry continues to become more challenging, and as stores try to differentiate themselves from their competitors, what can you do better to compete in this new and changing world?
The opportunity is to focus on and continue to meet the needs of the all-important shopper within your store. By considering different factors associated with your unique store, you can develop a simple store strategy that helps create the foundation from which you make decisions.
A Clearly Articulated Store Strategy
When I refer to "store strategy," I’m talking about the foundations from which your store runs. At some level, as a small operator or store manager, you need to be aligned to strategies developed at the wholesale or corporate headquarters level. But there are still many decisions that need to be made in your store. Think of these strategies as the rules and principles from which your store runs.
Your overall store strategy should consider the following:
1. Define your overall services
They may be "low price," "exceptional customer service," "broad product assortment," "educated and knowledgeable staff," "quick and convenient," "high quality," "local" or "fresh" — or a combination of these things.
2. Define your target shopper groups
Saying "everyone shops in my store" isn’t good enough. There are many sources of information that will help you define your target shopper groups, including: your headquarters or wholesaler; the salespeople/distributors that call on your store; in-store observations; in-store surveys; and/or census data based on the zip code for your area.
Who is it that you are trying to attract (and keep coming back) to your store? As an example, you may identify that one of your target shopper groups is dual income, no kids, well-educated and focused on a fitness and healthy lifestyle. You may have come to this conclusion from seeing them come into your store, coupled with the fact that there is a fitness center across the street from your business, and many of them visit to buy meals after their workouts. They are hungry and looking for quick, fresh and healthy meal solutions when they come into your store.
3. Determine your most important categories
Determine your "destination categories" based on the largest volume and profit categories plus consideration of your target shopper. There may be some categories that aren’t in your "Top 5" for sales, but that are very important to your target shopper.
4. Define your pricing strategies
Proactive pricing maximizes value to your shoppers and improves customer satisfaction. You need to develop regular pricing strategies that don’t just focus on margin, but also ensure you maintain competitive pricing — particularly in those categories you defined in Step 3.
You can do this by doing regular price checks at competitive retailers around your store to ensure your prices on your most important categories are competitive with them. Consider competitors with a similar format to yours (who are trying to attract the same shopper with similar store trips). So, other small stores like convenience stores and gas stations.
5. Define overall assortment strategies
Making decisions about product assortment — the products you carry in your store — is an investment in time, but slow-selling products tie up valuable inventory space and dollars, so it’s worth the investment.
Your assortment strategy should address:
- Which categories should be included in your store assortment? This is an opportunity to ensure you are appealing to your target shopper, with the emphasis on (or exclusion of) certain categories that appeal specifically to that shopper. For example, products for healthy shoppers.
- Guidelines on listing new items (a "one in, one out mentality" is not a strategic approach!) and delisting items (including clear-out policies). For your most important categories — like healthy products — you may want to ensure you get the latest and greatest new products in your store immediately when they become available (for your healthy target shopper). Ask your distributors or wholesalers for market-level data to help you determine the right items to be carrying.
- "Share of assortment" strategies. You should have a higher allocation of items in the brands and segments you want to be most developed, relative to their sales, or in segments that are important to your target shopper.
6. Describe how you will use your store to market to your target shopper
Visual impact is an important part of in-store merchandising. Customers entering a store are influenced by the visual information they gather in the store.
Your merchandising strategy should:
- Request planograms from your distributor or wholesaler and determine the ones that best match your store. A planogram is a graphic image that indicates the placement of products for a category shelf. Good planograms consider things like: shelf layout (the flow and blocking on the shelf should match how the shopper shops the section); case plus requirements; putting the most popular products at “eye level;” shelving heavy products on the bottom shelf; and preventing out-of-stocks.
- Have stocking procedures for your staff to keep the shelves well-stocked and organized. This should include rotating stock, removing expired and damaged product, keeping the shelves clean, and ensuring it’s shelved according to the planogram and not filling empty shelf space with the wrong merchandise.
- Define how to maximize use of display ends in your store through cross-merchandising, impactful and meaningful displays, seasonal displays, educational displays, etc. Don’t use displays to store excess inventory! Displays build incremental sales and profit for your store, and you want to strategically use them to help you sell more product.
- Drive a consistent display approach that ties in with promotional planning and what the target shopper is looking for. In the example for our healthy shopper, you may want to dedicate some display ends to products that appeal specifically to them.
- Consider seasonality when setting up your display ends. For example, back to school, Halloween, Christmas, Super Bowl, Easter and the summer holidays. Review the sales data for your store to understand which seasons are most important to your shoppers, which generate the most sales and profit for you, and/or which products are peak in these seasonal times. Make sure you capitalize on these incremental sales and profit opportunities by merchandising them effectively in your store.
The examples above are just that — examples only. Of course, you will develop strategies that match best with your overall store type and who your target shopper is.
Once you have developed your overall store strategies, they should be shared with your store managers and all employees that have an influence on these strategies in your store. You should also have corresponding processes and responsibilities in place to ensure the work completed in your store aligns to the strategies you have defined.
While small operators should continue to leverage the scale provided by their wholesaler or corporate head office, having store-level strategies and plans is the key that will allow them to really connect with the target shoppers of their store and find continued success in a highly competitive market.
Editor's note: The opinions expressed in this article are the author’s and do not necessarily reflect the views of Convenience Store News.