By Ray Florio, Jamil Satchu and John Porter

 

Almost two decades ago, smaller “mom and pop” shops started to worry about the large-format, big-box stores moving into the neighborhood. These big, one-stop shops with low prices and huge product assortments were attractive to busy consumers and made it challenging for  smaller stores to compete on price and product availability. Interestingly, consumer sentiment has shifted again – away from the “biggest box” retailing options. Big retailers have responded by opening small-format versions of their traditional stores and adjusting their store layouts and assortments to meet changing consumer preferences. Walmart is often-cited as a good example of this but Giant Eagle, Tesco and other key retailers have also rolled out smaller express and neighborhood markets.

This shift in retail formats is accompanied by further shifts in shopper behavior. Ask anyone you know about the number of stores they visit to do their grocery shopping and you will certainly hear more than one. More than 80 percent of American shoppers visit at least three stores for their food and non-food CPG shopping and, e-commerce, while still a small portion of overall CPG sales, is expected to increase significantly over the next five years. Millennials, as their spending power increases and they start families, are going to be powering this bigger shift towards online CPG shopping.

With physical and digital channels expanding, the consumer demand for more personalization, and the rise in multicultural Americans, the shopper journey is getting more complex. This means that your assortment strategy is challenged, too. To be more effective in store, your assortment decisions need to shift away from the traditional supply chain push approach (“Let’s put as many of our brands in the store that we can!”) to more of a pull framework that’s based on a deeper understanding of the shopper and what they need.

The good news is that all of these changes in the marketplace allow category managers to more efficiently identify where to build or rationalize their product portfolios to adapt to changing in-store space and localize needs (physical or digital) by using more advanced merchandising and analytical strategies.

It starts with identifying the specific demands of shoppers at the store level and ensuring that your assortments reflect those needs. Of course, the complexity and cost of managing an individualized assortment strategy for every store your brands are in can be worth it in some cases but completely onerous in others. Store clustering, that is, grouping stores together that have common characteristics, can give you a powerful option to still address individual shopper needs.

Since incorporating localization into your assortment strategy is extremely important, organizing store clusters to reflect shopper demand first and geography later is much more successful in driving consumer purchases. This is especially important for smaller-format locations, as they must stock only items that sell well in order for the store to be successful. Several leading grocers and supercenters have learned this lesson in recent years and are clustering their stores to better localize the assortment of their key CPG categories.

If you’re still not convinced, know that effective store clustering alone can improve sales by as much as 1 percent – even before the retailer makes more advanced assortment planning decisions.

Understanding which products should be in which channels can only be achieved with the right data, solutions and processes. Read more about how to do this in our paper, The Changing Face of Retail, or email us at Ray.Florio@IRIworldwide.com, Jamil.Satchu@IRIworldwide.com or John.Porter@IRIworldwide.com to talk about ways your assortment strategy could deliver better results.