Planogramming for sales and profits
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine. A long-time Harris Teeter executive, Mr. Harris is a former chairman of the National Frozen & Refrigerated Foods Association and a member of the Refrigerated Foods Hall of Fame.
Not having good planogram compliance can cost you lost sales and gross profit.
Here’s a little advice based on what I’ve experienced over the years.
1. Keep basic store layouts the same across the chain. Customers get used to knowing where to find the cheese, the produce and the frozen food aisle. If they visit another of your stores 20 miles away, don’t give them a magical misery tour.
2. Understand that when your traffic flows to the right, your planograms should be opposite from those found in stores where traffic flows to the left. Also, check your planograms in-store against what the space management folk worked out. It’s amazing how often shelf sets can be exactly backwards compared with what’s on the planogram.
3. If something just seems dumb to you, bring it up with those space management folks. Ask about the numbers on sales velocity and profits and facings. Sam Walton once said that your biggest danger is not in what you don’t know, but in what you think you know but isn’t true.
4. Be as consistent as possible about where you merchandise private label. I always liked to have my private label seen first in the traffic flow. Others like it between two brands, or to the right or left of the leading brand. Flexibility is required sometimes, so don’t micromanage.
5. If you’re doing regional or chainwide planograms, don’t force the same number of facings of a given SKU if it doesn’t make sense.
6. Vendors or brokers can make recommendations, and be truly helpful with good insights but don’t let them have the final say. They may say "I give you huge amounts in slotting and promo money," but the final decision is yours. Vendors and brokers just naturally have a bias to their own products, and I don’t fault them for that. But I’m aware of it, and do what’s best for us and our customers.
7. Work with vendors and brokers if they can help get you speed to shelf. That’s important to everybody. Nothing justifiably irritates vendors more than paying for 100 percent shelf compliance on a new product and then seeing Nielsen numbers saying you achieved 80 percent. Store labor is always a problem. Even though cycles for resets and category reviews are getting shorter, doing a quick fix on a planogram to cut in a new item shouldn’t take an act of Congress.
Discussion Questions
What common mistakes or shortcomings do you see retailers make when executing planograms? What tips would you add to those offered in the article?
I think these are great tips. A lot of our time is spent on testing planograms (with virtual reality shopping). It’s very frustrating to see a lot of effort put in to defining a good shelf set, then seeing execution fail at the store. We’d like to see more testing, not only because it’s good for our business, but because there are so many ideas out there that sound good, but turn out to be mediocre from a sales point of view. Only 15 percent of our tests show a win-win for the brand and the category. Testing lets you reduce the costs of resetting shelves and confusing your shoppers with constantly changing sets.
Planograms are both art and science.
As Mr. Harris points out, there is value in achieving consistency, at least in terms of the look and feel of the stores. It can assist consumers in navigating to find things in large-store formats.
A planogram is literally a blueprint for how to arrange space, facings, etc. All too often, they become rigid executions in order to meet retail headquarters’ desires, or vendor requirements for promo money.
Local store managers need to be given planogram guidance, but have some freedom to adapt to local conditions and consumers. They literally see how planograms work every day in practice.
Results count—everything else is conversation. There are many opinions about what constitutes a good planogram. The art needs to be balanced by the science of measuring what produces more revenue and profit per square foot, larger market baskets, and consumer satisfaction.
The biggest failure in retail today is operating on assumptions. There is a general lack of testing planogram variables to identify and quantify what works better where.
Common errors include: Filling in empty spaces on the shelf from out-of-stocks with surplus inventory from slower moving products, using planogram tool assumptions that do not mirror reality (four-shelves vs. five-shelves, split shelf heights and/or amount of running feet dedicated to a category), creating the planogram without input of shoppers actually shopping the category (or total store in a macro sense).
I would add to the tips: 1. Recognize that the shoppers in one store may not shop like the shoppers in another store (family size, demographics, tourists vs. residents, etc.) 2. Acknowledge the impact of pricing and promotion on space management and allocation on the shelf, and 3. Synchronize replenishment buying to ensure inventory levels mirror space management protocols.
Common mistakes are around one-size-fits-all thinking. Due to geographic or demographic reasons, some stores may only need 4 feet of a specific category while other may need 16 feet. Using today’s technology, it is easy to configure your planograms for optimal performance.
Don’t let the buyer/merchandiser have the only say. Use the data sales/square foot GM/square foot to highlight opportunities.
Adjacency matters. Make it easy for the consumer to complete his/her purchase without going on the “misery tour.”
Give the local store manager ability to flex sets based on frontline knowledge.
A common mistake is not talking to people in the stores. The folks in the stores can give you insight to the store or department layout, space management, equipment, traffic flow, and local preferences that can have a huge impact on sales. Not all stores are cookie-cutter, even if designed that way.
Having managed both internal and external merchandising teams across several retailers, the level of execution varies for a plethora of reasons. Retailers should consider the following: check internal sales reporting after planograms have been set to see if the changes have taken place, closely partner with store operations to ensure the labor needed to execute new merchandising is properly allocated and scheduled, and consider hiring a third party merchandising firm to assist with the initiative or to audit compliance.
One of the game changers in planogramming is vendors “buying space.” In these cases, the retailer is not really in charge of their planograms. The vendor may not be able to dictate exactly where the product goes, but they may have contracted for X space of Y category. Unfortunately, that may be too much space for the sales they generate.
Making this even more painful, some vendor contracts tie space and items carried to pricing. If you want the best price you then have to allow them not only have the space, but force the retailer to carry items that are part of their line but don’t warrant being carried.
Although the terminology in this article seems to have grocery influence, there are many formats of retail to which these great tips apply. One other piece is taking the “gut feel” out of merchandising. In a typical format supermarket, 80%+ of all SKUs move less than one case per month per store. Yet, the fast moving “Top 250” SKUs will often have the same shelf presence in terms of facings and positioning as the 80%-ers. Crazy, but true in most cases.
Most stores can handle appropriate shelf allocation for every SKU—yes, EVERY SKU—to hold enough inventory on the shelf to carry from one delivery to the next, and therefore to require zero reserve stock except for promoted items. Most stores carry far too much reserve stock, bottom line. You need to do a true velocity analysis.
The single biggest mistake is space allocation within the planogram. Chain operators almost never spec a planogram themselves, but leave that to the category captain who always over allocates space to his products and usually to private label. This over allocated space (which usually can be determined by store velocity reports) should be dealt with on a store by store basis (unless the planogram is a contractual issue with the supplier/category captain). The excess space should then be used to eliminate OOS situations on faster moving products in the category (also can be determined by velocity reports, consumer complaints, rain checks written or employee observation).
The objective of a planogram should be to eliminate OOS situations. If a planogram does not effectively address this issue (major loss of revenue and primary source of customer frustration) then the captain should be fired and someone more responsible should be placed in charge of the category.
There’s a balancing act between the goal of “store specific planograms” and KISS. Sometimes people over complicate it. In reality there are probably a smaller number of variations to the planograms for store groups, that matter from store to store, relative to product selection, and some smaller sections of designated aisles where the store specific flavor can be managed.
I agree that planogramming is both art and science. Unfortunately, for some objectivity is overlooked. The goal should be to satisfy shoppers with an assortment that meets their needs, is logically arranged for ease of selection and balances movement and profits.
For some, the goals of the organization or their manufacturer partners trump shopper expectations which invariably results in a breakdown at the retail level. Unrealistic planograms can lead to dissatisfied consumers, disgruntled employees, poor retail execution and lost sales.
Great post! In my opinion using the best planogram helps to maximize the shelf and display space while making products more appealing and accessible to the customers. Anyone in the retail space should be able to use planograms.