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Tue 26 Feb 2008 04:00 AM

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The space battle

The annual trading agreement has been slammed as a barrier to sophisticated category management. Retail News investigates the growing toll.

The annual trading agreement has been slammed as a barrier to sophisticated category management. Retail News investigates the growing toll.

The industry is warning of a toxic mix of rising commodity prices and falling profits now rampant in the Middle East's FMCG sector, however retailers and suppliers should rally together to maximise category value.

If retailers and brand owners see the consumer as king, this needs to be reflected within category strategies that mirror consumer purchase behaviour.

"If retailers and brand owners see the consumer as king, this needs to be reflected in category strategies mirroring consumer purchase behaviour. This will become the cornerstone to category initiatives and lead to full-scale category management.

Mark Tully, founder of Dubai-based competency solutions provider Gameplan, is adamant that such steps will improve category performance substantially and result in superior customer service.

"I think a key point to be embraced by retailers and manufacturers is that purchase behaviour is being influenced by merchandising. Current business practices are influencing the consumer.

"In some instances, these will be positive, but in others these will actually negatively influence the consumer and hinder category performance."

Merchandising is an arena in which retailers and supply partners interact for considerable amounts of time, however the approach to shelf layout and ranging in the GCC has been swayed to the extreme by the annual agreement, which is perceived by some professionals as an overpowering obstacle in the fight for innovation and added value products.

Compared to other developed retail markets globally, the method employed by Middle East players is best described as ‘traditional'. Sophistication and strong category management cultures have permeated in other markets, and in turn harvested real improvements for retailers, suppliers and consumers, with the latter group impressed by enhanced quality, service, availability, value for money and functional benefits.

Leading GCC dairy company Al Marai has continually pledged its commitment to driving positive change. David Cochrane, the company's divisional trade services manager, says positive change within the food and beverage industry will fuelled largely by effective merchandising and category management behaviour tools.

"This is great news for all consumers as they will be able to enjoy all the added value benefits these successful techniques will deliver.

"Developing new category and product solutions based on consumer understanding will become essential to ensure that both the retailer and manufacture will continue to grow effectively together, enabling future investment opportunities to generate more innovation and smarter added value functional solutions.

According to Tully, successful category, brand and range strategies are built around the consumer, and these consumer-based plans and activities will create sustainable profitable solutions.

"The supply partner who brings category-based thinking and plans, supported with tangible consumer, market and performance insights, is bringing the potential for far more value to the retailer.

"This approach becomes far more strategic, long-term and sustainable, and has the potential to build strong powerful relationships and mutually beneficial business agendas to influence future consumer decision-making.

Tully explains that category-based merchandising fronted by insights into the market, consumers and performance are beneficial to retailers as:

The developments should have a further spiral effect in the form of increased frequency of purchase, increased weight value of purchase, and the opportunity to leverage trial and unplanned purchases, unquestionably outputs which are equally advantageous to retailers and supply partners in the Middle East.

Successful merchandising appears to have shot up as a crucial component for retailers as it enables them to engage shoppers with their fixtures and encourage incremental and impulse purchases through the use of eye catching and emotional in-store marketing.

Shoppers can navigate their way around the category if retailers use ‘beacon' brands to denote sectors and keep merchandising simple and neat, and put simply, merchandising attracts the attention of consumers as they walk down a supermarket aisle.
It is commonly accepted that up to 75% of consumer purchase decisions are made by impulse within the supermarket outlet, so store layout, category location and range assortment combined with attractive segmented brand and product layout considerations can heavily influence the consumer in a positive or negative manner.

The primary objective for both retailer and supply partner is to maximise sales productivity and margins generated from every category within its allocated space. However, if current merchandising practices are based predominantly on ‘traditional' supplier contracted displays to reflecting trading terms rather than consumer demand, the fundamental category components driving the performance are at risk of being suppressed and overshadowed by commercial considerations.

The supply partner who brings category-based thinking and plans, supported with tangible consumer, market and performance insights, is bringing the potential for far more value to the retailer.

The traditional trading agreement can result in irregularities in the level of ageing stock and unnecessary high levels of inventory of slow selling products, which ultimately reduce cash flow. Meanwhile the correct proportion of space for fast selling brands and products is compromised, which will ultimately determine the overall service level to the consumer and fuel potential lost revenue.

Failure to consider the consumer within the category, range and merchandising decision-making process limits any chances to drive the category performance and associated essential results forward, which can be more beneficial to the retailer than more short-term trading term improvements.

Tully argues that if current merchandising practices are determined solely by space rental trading terms, it is very unlikely incremental category growth and value targets and expectations can be achieved.

"After all, the consumer buys brands, and the consumer should in essence be a major stakeholder in the decision-making considerations and processes, to determine the correct and ultimately fair proportion of shelf space and range selection, and not the other way around.

The proliferation of new media channels is constantly influencing consumer behaviour and expectations, according to Tully, which have reduced the effectiveness of established and traditional communication channels.

"The role of in-store, localised and e-marketing is, therefore, taking on a greater role of importance in communicating and influencing the consumer decision making at the point of purchase. In addition, inside the four walls remains the platform where marketers can, with new innovative and creative solutions, connect in a more tangible manner and increase the level of influence with the consumer, thereby offering greater scope for ROI through high quality strategic execution," Tully adds.

Changing the focus and re-orientating the dialogue towards a more directional, long-term category plan is imperative to achieve strong collaboration between retailers and suppliers.

Although replenishment is a huge focus for retailers, merchandising and point of purchase marketing have been steered strategically to the forefront of their priority lists, in an effort to unlock more value via category performance.

Key concentrations for retailers include improvements to service and quality, supply chain efficiencies, reduction and management of costs, and the obliteration of unnecessary costs in the supply chain.

"I believe that as retailers and manufacturers alike seek to exploit the growth momentums that have been experienced in the regional market, a greater shift in emphasis from replenishment to development in the context to merchandising and shelf-space productivity will be required," Tully comments.

"The ongoing challenge to secure shelf space should evolve to focus on maximising consumer spend by providing a consumer-orientated category presentation at the point of purchase.

"Some of the constituent elements of category management include range assortment, space allocation and shelf layouts, and the presentation needs to be built on fact-based data that includes meaningful insights into consumers' shopping behaviour in the region.
There is evidence from other developed markets, Tully highlights, in which growths in active participation between manufacturers and retailers have produced incremental gains in category performance, often significant. Such an approach in the Middle East could potentially exceed gains witnessed in the process - frequently proclaimed as a painful one by retailers - of extracting improvements from suppliers with traditional trading terms and space rental agreements.

The ongoing challenge to secure shelf space should evolve to focus on maximising consumer spend by providing a consumer orientated category presentation at the point of purchase.

Focus on the consumer, however, must be at the pinnacle of the agenda. The trading relationship requires freedom from traditional adversarial constraints focusing on the short-term.

Trading agreements are evidently the pivotal commercial component of any trading relationship.

However, retailers should consider the architecture within the agreements that influence category decisions, in a bid to enable appropriate strategic category management opportunities.

Tully predicts that there will inevitably be winners and losers.

"In business there are no guarantees. Some brands and their shelf space will be at risk, others will grow and flourish, driving the category to new levels of performance.

Brands flourish and plummet according to their strength, equity and level of consumer loyalty within the marketplace, Tully says.

He calls for retailers and suppliers to come to consumer-centric decisions after collaborative thinking into ranging, space allocation and Planogramming, so it becomes "rational, logical, simple and very importantly fact-based." Cochrane concedes that, for the retail customer and supplier partner to maximise category value and growth at the point of purchase requires a much closer collaborative relationship and essential top management commitment and leadership.

"Collaboration is the key to unlocking new opportunities, creating a foundation of trust to enable further investment and innovation which will increase consumer loyalty and expenditure by leveraging the strength of the leading brands and sustaining a profitable category.

Value creation derives from combined resources and expertise - to include the use of retailers' sales data combined with market trends, category and consumer insights captured by the brand principles - Tully says, and the mutual decision to take action will develop a vibrant category.

His observations are valuable for retailers at a time when hikes in various product categories caused by commodity price rises could be offset with heavy price promotions in other areas.

They could also be a possible comfort with multinationals boasting a portfolio of brands and healthy operating margins yet struggling in certain sectors.

• The category layouts support consumer decision making, influence purchases and maximise expenditure.

• The stores are visually aesthetic, which makes the consumer experience simple and pleasurable.

• There is typically improved category performance in gross sales and gross profit.

• It results in better inventory control and inventory management, balanced space allocation results in balanced inventories.

• Improved cash-flow management can be achieved by reducing cases of overstocking of slow selling items, and reducing off-sales of faster selling items.

Key brand principles and distributors have the opportunity to work collaboratively with retailers and attain category captain status.

"To achieve this, the relevant customer-interfacing personnel require the skills, knowledge and technical tools in order to engage with the retailers in the right manner and to create effective solutions," Tully says.

In order to convey the winning approach, account managers should make the effort to heighten their understanding of trade marketing methodologies.

However, "this can only take root by re-positioning the role of customer management and providing the required skills to take the business agenda forward.

"By doing so, this approach can clearly differentiate a supplier and bring more value to the relationship than one that is centred on the annual trading terms.

Where this is done well, the relationship moves from short-term and tactical, to long-term and strategic," he adds.

Top Campaign: Milco’s Yoghurt Smoothies

The UAE-based dairy products manufacturer Milco has stifled competition by providing the market with an extension to its healthy food and beverage portfolio.

The marketing spend built on the brand's healthy, premium and convenient positioning and carried the message that consumers' busy lifestyles should not present a barrier to their access to an abundance of nutritious products.

The yoghurt-based fruit drinks are available in exotic peach and strawberry flavours, and packed with healthy B-complex, A, D and E vitamins and folic acid.

The range features 330ml packs and feminine bottle designs, and is aimed primarily at middle to upper class females aged between 20 and 45. The company has attempted to respond to trends in the UAE backed by AC Nielsen's latest research and increased coverage of obesity, diabetes and health concerns in the media.

The latest findings have indicated that professionals in the emirates have struggled to consumer three meals a day as they go about their hectic daily lives, with breakfast proving to be the meal most often skipped.

Nadine Traboulsi, senior brand manager for Milco has engaged its audience by conducting a healthy mix of in-store marketing and a flurry of advertising across a wide spectrum of mediums including an eight-second TV tag-on, 30-second radio spots, lamppost advertisements, print advertising campaigns and ads on the back of its trucks.

Target sampling activities have been pivotal to this new launch. As part of the campaign, Milco set up in-store POS materials, cut-outs, danglers and gondola ends and developed a clever partnership with Carrefour for an exclusive launch over a fortnight.

This is a brand that truly connects with its ‘on the go' audience. The firm's Rocketman concept has involved sending promotional staff to distribute the new products to employees at snack times across Dubai. Young professionals and students have been approached by Milco's team when they entering their office buildings in the morning and leaving in the evening. The strategy bolstered the range's tagline: ‘the healthy snack. Any place. Any time.

"Consumers want to eat healthy and look fit, but struggle to find the right products to suit their lifestyles, yet snacking options generally include unhealthy products which are high in fat, sugar and salt," Traboulsi commented.

In its bid to show how Yoghurt Smoothies are different, the company has placed unique kiosks to reflect the brand identity over 2m x 2m floor areas, incorporating its display stand, a glass chair and a product mock-up, complimented by the vibrant pink and blue colour scheme of the packaging in the back drop.

Traboulsi said consumers have become more aware of the products they put into their bodies, and are unwilling to abandon bad habits. In turn, they have embarked on a search for the fast track to good health, a trend that Milco has aptly chased in its launch, the success of which can be measured in its widespread visibility.

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