According to a study from IRI, CPG companies are facing a "merchandising crisis" as retailers have cut back significantly on point-of-sale display space at a time when manufacturers need it most, given the declining effectiveness of traditional advertising vehicles.
"CPG companies are buffeted by the twin problems of advertising ineffectiveness, combined with the loss of in-store display options as retailers are taking charge of branding the consumer shopping experience," said IRI Retail Solutions and Strategic Consulting President Thom Blischok, in a statement. "CPG companies must demonstrate that their products and merchandising programs fit into the retailer’s comprehensive growth strategies."
According to the CPG Merchandising Trends 2007: New Strategies for a New Retail Environment report, traditional merchandising, including displays, feature ads and price reductions, is still prevalent across CPG products. In nearly two-thirds of CPG categories, 30 percent or more of volume is sold with merchandising support. But, activity is slowly declining, according to the report. Within grocery stores, for instance, 60 percent of categories experienced declines in overall merchandising activity, and the number of grocery store displays has decreased almost 10 percent in just two years.
Further, no category appears to be immune to this trend. Even heavily-merchandised, expandable categories, such as carbonated beverages and cookies, had significantly fewer displays this year than last. Private label products, it must be noted, have seen comparable declines in merchandising activity relative to branded products.
"Retailers are placing heavy restrictions on the number, size and characteristics of displays," said Mr. Blischok. "Merchandising now needs to be much more closely aligned with overall retailer growth strategies. Account-specific merchandising plans will be required, driving a much greater need for collaboration between retailers and manufacturers."
IRI also found that merchandising support continues to drive volume sales. Among two-thirds of CPG categories, average volume increases from merchandising support are 50 percent or higher. What is alarming, however, is the fact that merchandising lift is slowly deteriorating. Nearly three-quarters of CPG categories experienced a reduction in the average volume lift achieved through merchandising versus last year.
"As prime merchandising opportunities, such as front-of-store displays, diminish, average lift will continue to erode, prompting more experimentation among manufacturers with new in-store marketing vehicles, a stepped-up investment in merchandising innovation, and a greater need for pre-testing and monitoring of merchandising executions," added Mr. Blischok.
Discussion Question: Why are retailers cutting back the frequency and space devoted to displays? What are the implications of this action?