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The Next Space Optimiser?

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The dairy aisle may be one of the most low-key but top-performing areas of the supermarket. Space is at a premium in the dairy department, with introductions of new products almost daily. The probiotic craze continues to produce an abundance of new items needing a spot on dairy shelves. Many grocers are struggling with the best use of available space for products, to give customers what they want and at the same time grab the most profit.

The dairy aisle generates plenty of positive statistics that prove its value to total supermarket sales. While produce or deli departments may be the “glamour” areas featured in commercials, the quiet dairy department serves 99.6 percent of households and generates 47.4 store trips per year (Nielsen Channel Facts; Total Outlets). In center store, dairy is the largest aisle by dollar volume and has the highest growth trends (fiveyear growth ending Nov. 29, 2008: dairy = 22.9 percent; dry grocery = 12.4 percent; frozen = 11.7 percent, Nielsen Strategic Planner).
Dairy category managers use a variety of diagrams, formulas, software and vendor programs to set the aisle for maximum sales and profit. Manufacturers are always willing to help grocers make room for their products. One of the newest space allocation plans, Aisle Leadership, comes from , Inc.
Optimizing Dairy Space
General Mills and Yoplait won Progressive Grocer’s 2008 Category Captain award in the perimeter department of dairy. The food giant received the award based on work its category advisor teams did with 24 major retailers to increase dollar volume by 10.6 percent vs. 7.9 percent at remaining accounts (Nielsen data, 52 weeks ending May 24, 2008). The company has worked with grocers to boost the base footprint by four to eight feet at a time, and has generated a 9 percent increase for nationwide, with corresponding category sales growth of 13 percent, according to Information Resources, Inc. (IRI) figures.
The manufacturer of Yoplait, the leading yogurt brand in the United States, introduced a new product allocation method the company says will become the next industry-wide space and adjacency optimising system. Just as category management replaced brand management as the premier space allocator, so aisle leadership will change the way grocers look at space and proximity of products, General Mills says.
“Aisle leadership looks beyond the impact a change will have on a single category, to the impact it will have on the entire aisle,” says Sherman Oglesby, General Mills national category development manager. The company joined with several suppliers to use aisle leadership principles in developing a method specific to dairy. Data and research augment the proprietary process in examining the interactions of categories within the aisle. Tests determine how these interactions drive sales. Grocers can receive recommendations on maximising profit, managing inventory, reducing out-of-stocks and improving shopper experience in the dairy aisle, he says.
General Mills developed dairy aisle leadership by using data from several sources. Aisle trends, conditions and share were determined by using the Nielsen Strategic (FDM)/ Account Planner. Willard Bishop’s ABC Super Study 2007 helped determine the optimal days of supply and profitability. National, regional and customer conditions pulled from IRI’s In-Store Annual Shelf Audit determined optimised aisle flow, adjacency alignment and space Optimisation.
With dairy aisle leadership, General Mills considered several questions. First, for category space optimisation, how should a grocer allocate space within the aisle to improve stock levels? For category adjacency interaction, how can grocers maximise sales rates and profitability by using the interaction of categories within the dairy aisle? For shopper behavior, what customer segments shop the dairy aisle? For aisle visualisation, how can grocers test and learn space allocation scenarios without actually resetting the section? The first consideration of improving space allocation in the dairy department is ensuring the balance of holding power throughout all dairy categories. The dairy aisle has a unique difference in comparison with other grocery aisles because days of supply are critically important.
“The dairy aisle turns inventory every five days, or every seven days excludingmilk and eggs, according to company figures,” notes Oglesby. “When looking at ways to gain more space in the category, it is crucial to identify which categories have significantly over or less than seven-day turns.”
Working With Grocer Partners
The Minneapolis-based food giant has been working closely with almost all of its top 25 national grocer partners to create custom plans for dairy departments. In some cases, small adjustments to space allocation have resulted in sales growth. In other situations, an overhaul of the dairy aisle was necessary. A primary recommendation from General Mills is that grocers balance high turns and lower profit of some dairy categories with slower turns but significantly higher profit of other department categories.
A Midwest grocer used its own storespecific data and General Mills’ space allocation tool to reduce refrigerated puddings and desserts by four linear feet and expand the yogurt section by four linear feet. The change resulted in a net sales increase of 17 percent.  Grocers planning to remodel or open a new store have a ready-made opportunity to re-evaluate category adjacencies or relationships.
Many retailers have seen how General Mills’ method of strategically placing anchor categories to pull shoppers through the aisle can influence the categories that drive most shopper trips. Through a proprietary audit, the company discovered five anchor categories in the dairy aisle: milk, cheese, eggs, yogurt and juice. The research identified optimal locations relative to the five anchors for all other dairy categories. Based on the research, some retailers have adjusted their floor plans for new construction and remodels to add the key ideas of General Mills’ dairy adjacencies and space allocation.
To learn how shoppers feel about the dairy aisle, General Mills commissioned a Nielsen consumer behavior study. The survey, which included 125,000 panel households and over 104 weeks of data ending in 2007, identified four shopping segments within the dairy aisle: less affluent households with kids, affluent households with kids, less affluent households without kids and affluent households without kids. By varying assortment and merchandising strategy based on this shopper segmentation, grocers can ensure that their stores attract the most profitable shoppers available in each store’s trade area.
Through commissioned research, General Mills has learned what’s important to shoppers in the dairy aisle. First, consumer needs must be satisfied, such as having the desired products in stock and in date. Other factors include the overall dairy shopping experience, including store cleanliness and even the odor and smell of the dairy aisle. Access to healthy products can also influence consumer attitudes about a store. To demonstrate how dairy aisle leadership space and adjacency changes work, General Mills allows grocers to use its virtual store technology.
The virtual store is a 30-footlong screen, surrounded by a multimedia centre, to allow grocers to make instant changes to aisle layout with the click of a mouse. Results are also available on a portable device. When General Mills is working with a grocer customer, the customer can use his or her own store-level data to re-create the store environment accurately within the virtual store.
General Mills has used the virtual store to highlight overall dairy aisle flow, category adjacency realignment, category shelf set and category sell down for many of its top grocery retailers. The virtual store can also show how holding power on a shelf changes throughout the course of a day.
Looking to the future, General Mills has developed its Vision for 2020. By that time, it’s expected that the yogurt category will have doubled in size and outpace growth of any other dairy section category. Predictions are that growth will come from the continuing strength of core yogurt segments as well as new segments such as probiotics.