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There are many perfect store execution blogs out there, mainly from software providers (like us) or field agencies, so why another blog?
The inspiration for this article came from a conversation with an FMCG client - who were looking to overhaul their retail execution and rebrand it as a “Perfect Store” initiative.
In our discussions, we realized that a lot of specialized knowledge about building perfect stores programmes lies in silos - within companies or in the heads of practitioners and experts.
So we present to you a series of articles about the perfect store programmes (PSP) -
- Part A - Key questions a CPG manufacturer must consider before starting a PSP.
- Part B - A framework we suggest for building effective PSPs
- Part C - How to measure effectiveness and ensure perfect store execution.
In this article, we draw on our experience and inputs from experts, to create a comprehensive framework for thinking about perfect retail execution programmes.
Key Questions to Consider
The principles for perfect store execution are generic, but the details depend on context. The right perfect store strategy depends on the market, category and channels you operate in. So here are some key questions you should consider -
#1. Is retail execution a part of your organization’s priorities?
It’s important to assess whether your company’s leadership views retail visibility execution as core to growth strategy. There are cases where the company has a very dominant brand (through superior product or exceptional marketing) and they don’t need to work very hard on retail execution.
There are two ways through which brands create a connection with consumers - One is through advertising and other through retail visibility execution. Research shows that 50% of purchase decisions are made in-store (influenced by retail visibility execution), while the other 50% are already made before entering the store (influenced by advertising).
Some of the best FMCG companies in the world - like Nestle, Unilever - view marketing and sales execution as equally important. They go for the two pronged attack. This enables them to gain leadership positions even in the new markets and product categories that they enter.
After evaluating whether retail execution is a priority for the FMCG , we probe further and understand the market one operates in.
#2. What kind of market do you operate in?
The kind of market encapsulates three factors that are interdependent on each other. They are:
- Product category.
- Channel of distribution
- Market region
The FMCG company based on product category can be classified as dealing with healthcare (includes over-the-counter drugs, dietary supplements, oral care and others) or the personal care industry (includes skincare, cosmetics, others) or the food and beverages category. To cater to these markets, a different modus operandi has to be employed for generating sales and performing retail execution.
The distribution channel for consumer goods can be supermarkets, grocery stores, speciality stores and others.
Market region is a very important player. Every region has a different economy. This not only influences the channel of distribution but also consumption of consumer goods. Not only this, the population of the region is another factor. For instance, there’s bound to be more distribution channels designed and more consumption of consumer goods in a populous country like India, as opposed to say, Ireland.
Moreover, if you are in the US, big chains like Walmart and CostCo would account for a sizable chunk of revenue share. But that would mean lesser power in influencing shelf-layout. However, that may not be the case for Bodegas, where you have more wriggle room.
If you are in India, small independent stores (called Kirana outlets) account for 80% of sales. In Indonesia, it's the organized and some unorganized convenience stores which are the fastest growing channels, where brands prefer to focus.
So the perfect store strategy really depends on which market you are in. It's important to focus on the lowest hanging fruit and then make improvements every year.
#3. What’s your market share, how big is the category?
You can be an unequivocal leader or your market share can be divided due to stiff competition. Both scenarios will bring a change in your mode of retail execution.
Why would that happen? Because, there are differences in how companies operate depending on their market position. Being a market leader helps you have a better say on the planogram arrangement for the category. We have seen market leading brands using the perfect store programmes to grow the category and create new sub-categories.
If you are a challenger brand, you would need to employ some unconventional means to attract attention on the shelf like attractive promotions and packaging.
#4. What kind of category do you operate in?
There are many ways FMCG goods could be categorized. They can be beverages, confectionery, pharmaceuticals, dairy products and others.
Another important classification is that of impulse category. Herein, a person enters the store with a mind to buy a particular product but ends up buying something extra as well. Spike in impulse buys is very useful in identifying adjacencies and building up a new category altogether through clever product placement and attractive promotions.
Moreover, one is more likely to encounter the concept of impulse category in the food and beverages part of FMCG but rarely in the pharmaceutical part.
If your brand is engaged in an impulse category, then visibility is super important, but if you are selling bulk items - like branded rice - you may not get the requisite space to enhance its visibility. It's important to understand where and how the perfect store programme can help categories, improve product visibility and provide a quality sales driven growth.
#5. Do you have the right team and processes to execute this?
According to a report by Nielsen, A planogram will generate a “SMART” shelf only if it has the right balance of art and science. A SMART shelf is – Shopper friendly, Maximizes sales and profits, Avoids out-of stocks, Reduces operational inefficiencies and Triggers experimentation.
Thus, a SMART shelf will help shoppers, manufacturers and retailers. To implement this, a right team is required.
A right team is one that puts in place the correct processes to design and calibrate the right systems in place. This setup is most important because brands need vetted insights to make managerial decisions.
A most important requirement is a standard KPI system used by the entire organization which would help in producing measurable results. This would make results easy to compare which in turn, would generate actionable insights. Not having aligned systems for measuring sales in , say Modern trade and General trade would mean that the source of leakage of a good sales opportunity would not be timely identified and plugged. This is why you need a KPI driven organization to build and execute a perfect store programme.
Another way to achieve this is to have incentives linked to performance. The sales’ team can have monthly goals. On their completion, bonuses could be distributed. The idea is to make the sales’ reps more invested in the sales process and subsequently, the brand health.
#6. How are you serving and auditing the stores?
For an FMCG, the work doesn’t end with manufacturing. The brand has to trace the entire life cycle of the product (yes, down to its environmentally sustainable disposal). Servicing the stores is an important part of this process.
The idea is to pump the products in the distribution channel and observe the trajectory it takes. While this process is underway, sales reps can examine the brand health, get insights from the retailers’ about shoppers’ mindset and redress grievances. This is done alongside evaluating the sales growth and conducting audits.
Some FMCGs serve the stores through distributors, some through their own employees, while others do it through a 3rd party. Some brands even encourage store owners to undertake the execution and put in place checks and balances.
#7. Have you taken your retail partners on-board?
Retail partners and the brands have one goal in common: good sales driven growth. That is why oftentimes, retailers are interested in getting FMCG companies to execute perfect store programmes. It helps with higher offtake and to grow the category.
How is this beneficial for a perfect store programme, you ask ?
Since there’s an alignment of interest, retail partners can be made to come on-board. Making them a stakeholder in the sales process helps increase their investment in brand health. Retailers can be encouraged to themselves audit the stores and develop a database for the same. This could enhance efficiency. A good example of this, is the approach with which Ferrero engages with its retail partners in UK.
#8. Have you considered getting marketing on-board with retail execution?
In case of an FMCG, sales cannot be wholly segregated from marketing. Brand creation is not just about creating a quality product. It's also the attributes people associate with that product which matter. These attributes are established by the marketing team. Therefore it makes sense that they are well informed about the ground reality.
It's the retail execution teams comprising sales reps’ that collect data on ground. This data is converted to meaningful insights by the marketing team. So it makes sense that both sales and marketing should be in sync. One has to remember that , it's incredibly easy for new launches advertised on TV to fail if the product is not available on the shelves.
Do you know this today? If yes, how much are you spending to get these insights?
#9. What kind of Return on Investment (RoI) one can get?
I know you will hate to hear this, but the answer is - it depends. The only right way to know it is to conduct an A/B test. RoI depends on the baseline as well. The impact can range from 2% to 10% of incremental sales.
You should also consider the 2nd order effects. That is, if I run perfect store programmes in 20% of the stores, it has an impact on the other 80% as well.
There are of course ways that can supplement RoI. Making sales reps’ use image recognition AI solutions helps collect raw, unbiased data. This exercise gives rise to data driven decision- making. This entire process could help prioritize and sort the stores that could benefit from the perfect store programme.
This is most definitely an industry-wide challenge. Unfortunately there are gaps in execution. We don’t want to toot our own horn - but these gaps can be addressed by taking help from some processes and technology.
#10. How difficult is the perfect store programme to execute ?
A standardized KPI driven system when paired with an intelligent image recognition solution would be helpful. Not only this, the stakeholders should be brought on-board to promote their investment in the product success.
The key is to successfully bring together people from a multitude of disciplines and align their interests with that of the brand. This would not only help in building and executing a perfect store programme, but also foster a spirit of inclusion in the entire organization.
In the next section, we will get more into the framework for designing a perfect store programme.
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