February 14, 2019
What Are You Selling?
b2b Solutions met with a c-store retailer this month, brand new to this industry, who was looking for help with product selection. The partners in the site had some internal conflict over how they should select vendors and products. One faction wanted to collect all the “free” money that they could from the vendors and the other was concerned that they select the right vendors and products to meet their customers’ needs.
That still begs the question — how should they weigh the two sides of the issue? Which is more important — the short term money or meeting the customers’ needs. There is no right answer.
In some cases there really is no choice. If you don’t sign up for the Philip Morris contract and get the buy down, the cost of your cigarettes means your retails will be non-competitive. The same is true for the other cigarette contracts. In fact, your issue is not whether to sign, but how to get the big three to agree to share the space. In other cases, it also seems like the answer is really pretty easy.
Should you take the money from Coke and Pepsi for space in your cooler? Depending on your agreement, if you don’t you again could find yourself with unrealistic retails. On the other hand, you still have to have cooler space for items (other than theirs) in the water, isotonic and energy drink categories. With Coke and Pepsi it makes sense to start with how much space do you have to devote to their products and then allocate it between them. Who gets what will be driven by local market conditions.
Sometimes the choice is a little harder. Should you take that candy display or this one? These guys are offering a lot of money for placement, but the other guy’s candy sells better. Ask yourself, would you take the display if there were no moneys attached to it? Is it a product that you currently carry in your store? How long will it take you to sell through? The answers to these questions should help make the decision easier.
In our minds the easiest decisions are those that relate to all the various “trinkets and trash” items that offer placement money. We recently visited some stores in a chain of 150+ c-stores. They had shortened the gondolas to make the reduced inventory look better and allow easier customer access – definitely the right thing to do. Then came the pressure to increase store margins. Now there was a double row of free standing racks full of various items at the end of each shelving run. Some merited the space and others were simply there because someone was willing to pay placement money. The impact was very negative from a customer’s point of view.
b2b Solutions believes it was also negative from the financial point of view. No one had looked at the carrying cost of the extra inventory or the increase in shrink that occurred for having these items in the store. No one had looked at the fact that the displays were blocking the view of the coffee area. This was a clear case where taking placement money was a bad idea!
The underlying issue is simple — are you in the business of selling space to your suppliers or products to your customers. Long term, there is no question in our mind which is the right approach. You have to please your customers. b2b Solutions has seen large companies go out of business because they got addicted to the short term money and forgot what it was doing to their customer satisfaction levels (not to mention their inventory levels, store conditions, etc.).