Make the case for space and win the shelf.
There is good news and bad news for consumer packaged goods companies looking to increase distribution with retailers. The bad news is several factors make it more challenging than ever to win the shelf. This is true whether a CPG is introducing a new item, looking to expand facings in a growing category or maintain a presence in a contracting category.
The good news for CPGs is powerful trends are in place and advanced capabilities exist that can be exploited to battle the headwinds allied against them. Before exploring the good news of how CPGs can leverage technology to make the case for space, here’s a look at some of the key challenges hindering CPGs’ efforts to win the shelf:
- Space availability is under pressure. Smaller-format stores have gained popularity as retailers seek expansion opportunities in densely populated areas and they look to right size their existing fleet to manage occupancy costs. Space for CPG products in larger stores is under pressure too due to remodeling efforts which may involve expansion of service departments and/or the reallocation of space for e-commerce fulfillment activities. Finally the increased adoption of online shopping means fewer traditional new store openings as dark stores and direct-from-DC fulfillment models gain traction.
- Retailers intent on increasing margins and enhancing differentiation are expanding their own brand portfolios at a rapid pace. Store brand penetration rates are at or approaching 30% with U.S. grocers and are even higher for European grocers, especially fast-growing hard discounters.
- Assortment optimization is a goal for many retailers who want to get a handle on SKU proliferation by leveraging technology. It’s the “less is more” philosophy come to life, supported by the rationale that an edited assortment can both simplify operations and increase sales. Even retailers who embrace the ‘endless aisle’ possibilities online are limiting in-store SKUs to simplify supply chains and merchandising and alleviate the pain of staffing shortages.
- Shopper behavior is more dynamic than ever, and post-pandemic brand loyalty is under pressure. Inflation has added fuel to the fire because CPGs faced with increased input costs pushed through price increases that have tested the tolerance of retailers and their shoppers.
To summarize, CPGs face increased competition for reduced shelf space with retailers wary of cost increases and waning shopper brand loyalty. While hardly an ideal environment in which to be a branded CPG supplier, there are good news offsets that can help CPGs make the case for space. For example:
- The great truth of grocery retail is that a perpetual need exists for innovative new items with good margins that help grow category sales. Major and mid-tier CPGs who provide exciting items and legitimate innovation can help retailers keep their shoppers happy.
- Regarding shoppers, there’s never been more information available about their behavior and product preferences thanks to loyalty programs, growing online purchases and an abundance of third-party data sources. Powerful AI-powered solutions exist to help CPGs uncover differentiated and actionable insights that help merchants achieve results.
- Obtaining a strategic advantage has, in some respects, never been easier for CPGs thanks to technology. CPGs who use integrated assortment and space management solutions gain a solid upper hand. AI-based solutions help CPGs understand key issues such as demand transference, space elasticity and incrementality that can influence retailers’ assortment optimization efforts.
- A fact-based selling approach backed by data science enables CPGs to recommend actions with an increased certainty of outcome. Knowing that a new item introduction or category space recommendation has a high probability of achieving desired results removes risk from the retailer’s decision.
There will always be challenges associated with working with retailers. That’s just the nature of an ever-evolving industry. Fortunately for CPGs, that evolution has brought changes such as advanced technologies and unprecedented shopper insights that can be leveraged to satisfy retailers’ perpetual need for newness to satisfy demanding shoppers.
That’s how CPGs can ensure assortment decisions are data driven and backed by the latest science to achieve the highest probability of success. CPGs most adept at this approach and armed with the latest tools will be doing a huge service to their trading partners and thus greatly improve their odds of winning the shelf. My colleague Gina Hargrave also offers insightful perspective on the CPG battle for shelf space.
For more insight on this topic, watch the replay of the Category Management Association webinar “Win the Shelf: Making the Case for Space.” Learn more and access the recording here.