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Sun 8 Jun 2008 04:00 AM

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To rent or to ruin?

Retail businesses’ real estate tactics could reduce category management to a shambles.

Retail businesses’ real estate tactics could reduce category management to a shambles, according to experts.

Retailers in the Middle East are making their money through listing and gondola fees and basing their decision of whether to stock products on whether the brand owner is willing to pay rent, according to David Edwards, managing director, IMES Consulting Group.

The benefits of proper category management are not being considered, and drastic improvements to the retailing concept are desperately required in Saudi Arabia, Edwards believes.

"With tough competition for prices and squeezed margins, retailers are making profits by selling gondola ends and metres of shelving, which flies completely in the face of category management," he says.

The strategic management of product groups through trade partnerships to maximise sales and profit by satisfying consumer and shopper needs must be addressed, as store managers often have complete autonomy over what appears on shelves, he continues.

"At least in the UAE there has been an influence from international retailers for a long time. I have counted 25 different brands of canned tuna at a supermarket in Saudi Arabia.

"If you went to Tesco in the UK, there would be three brands. The attitude is if anyone wants to come in, pay us and we'll list your product."

Edwards says that true category management is about sharing information, thinking and understanding between the retailers and the suppliers, "and that doesn't happen here."

In other global markets where category management is one of the main concerns, suppliers are expected, indeed in many cases, mandated to only suggest new product introductions, a new Planogram, or promotional activity, if it is expected to have a beneficial effect on the turnover or profit of the total category and be beneficial to the shoppers of that.

The introduction of Category Management imposed the condition that all actions undertaken, such as new promotions, new products, re-vamped planogram, introduction of point of sale advertising were beneficial to the retailer and the shopper in the store.

Overflowing shelves at some supermarkets in the Middle East stand in shocking opposition to the rules of the category management concept, in which the total range of products sold by a retailer is broken down into discrete groups of similar or related products.

"In order to tweak the category offering, it is useful for the supplier - who is doing consumer research - and the retailer to compare notes and decide how to optimise sales. They don't share data effectively here. They hang onto it, he says," he says.

Grocery retailers in the UAE are under pressure to satisfy the needs of the population makeup of 25% locals, 25% other Arabs, 35% South Asians and a smattering of expatriates.

"Baqala owners knew their own neighbourhoods and catered to that, however, hypermarket operators have to be all things to all men, resulting in stores with 35-50,000 SKUs as opposed to 25-30,000 in Europe or the US.

"The high number of brands on shelves is partially driven by the fact they are trying to stock a group of products that will appeal to everyone, from Filipino and Emirati consumers to Western expatriates," says Edwards.

Only two of the top 20 retailers in the world Géant and Carrefour are operating in the UAE, which has permitted category management failures, however "it would get a lot tougher if one of them arrives. There are no Tesco, Wal-Mart or Metro stores, so local retailers don't realise how easy they have it now," he says.

"If you are the anchor store in a shopping mall and another opens up the road, you could find your customers drifting away. There is now a tendency among consumers to go to the new places, and the Dubai Mall and Mall of Arabia will have hypermarkets," he adds.

Stores are not using POS systems to capture market movement effectively and share that with the suppliers.

"Most of the stores have POS systems, but to get people through the tills quicker. They are not using it for loyalty and category management," he says.

"If you're a Tesco loyalty cardholder, your purchases are linked to that. If you're buying baby food, retailers can be reasonably confident you have a baby and send money-off vouchers through the post for add-ons. They can monitor and target those people specifically.

Aside from the UAE's diversity of nationalities posing a big challenge, "companies are scared of Saudi Arabia, scared of the prohibitions, scared that women cannot drive, and that puts people off doing business," he explains.

"Despite the big opportunity of its 25 million-strong population and their relatively high disposable incomes, it is the most frightening market for a lot of companies.

An important facet of category management is the shift in relationship between retailer and supplier. Instead of the traditional adversarial relationship, the relationship moves to one of collaboration, exchange of information and data and joint business building.Edwards says failures in supply chain and customer relationship management cannot be ignored.

If you're a Tesco, suppliers go to the central warehouse and control everything. Individual suppliers are delivering to stores, with many deliveries every day, lack of information, under and overstock on shelves, and no data to give you," he adds.

Own label is in its inception in the region and "has not really taken off yet". For a start, if you have 25 brands on a shelf why would you create your own label? Retailers do it because they make bigger margins than with branded products. The constraint on own label is the retailers do not have strong and respected brands," he says.

"Do you trust one brand more than another? In the UK, up to 45% of some categories go to own label.

Edwards first joined IMES Consulting Group, which moved its regional headquarters from London to Dubai Media City in 2004, back in 1985. IMES' first Middle East project was a study of the market for mango juice in several countries undertaken in 1975.

Founded in London in 1971, the company originally known as International Marketing and Economic Services was the brainchild of Don Moore, a management consultant with extensive experience in both the private sector and with international agencies.

Throughout the 1970s the company was involved in a wide range of international projects throughout the world, working for an exceedingly diverse client base including both multinational companies and organisations, such as the Commonwealth Secretariat and the United Nations.

By the early 1990s, more than half of IMES' revenues were related to the Arab countries, but this was severely disrupted by the First Gulf War. As stability returned to the region, the decision was taken to open a local office.

After a long search for a suitable local partner, an office was opened in September 2001 in Jeddah, Saudi Arabia, in conjunction with Dr. Abdullah Basodan, a leading Saudi businessman.

Retailers in the Middle East market should be motivated and take profitable inspiration from Tesco's recent announcement of plans to monitor and record the shopping habits of more than 60 million customers around the world in an unprecedented deal with the Big Brother company behind its Clubcard loyalty card scheme.

The supermarket chain's partnership with Dunnhumby, the market research specialist, is being rolled out to nine countries where Tesco operates, including Thailand, South Korea and China but not, as yet, the United States.

Dunnhumby, which is majority owned by Tesco, generates most of its revenue by selling on the data in an anonymous form to some of the world's biggest companies, such as Coca-Cola and Unilever, to help them to devise marketing campaigns.

Tesco's international director Phil Clarke commented recently: "We've never had this level of insight capability before, and this will help us to improve our ranges, make better price investments and run sharper promotions. Dunnhumby will now be working with us almost everywhere we operate.

Faced with an increasingly competitive climate and unprecedented levels of inflation in some markets, retailers the Middle East could follow a similar strategy to assess which products the most price-sensitive customers are buying and target promotions and customer management initiatives to those areas.

An increased interest in category management and loyalty schemes in this region could allow businesses to target the groups prowling their aisles: the price sensitive shoppers, the traditional shoppers, the mainstream shoppers, the healthy shoppers, the convenience shoppers and the affluent finer foods shoppers, keen to cook from scratch and buy from specialist butchers and fishmongers and hunt for organic meat and fruit.

Speculation has arisen recently that 60% of British suppliers whose products are being exports are not aware of their presence in the market, as products are sent out in batches by UK wholesalers and distributors and placed on shelves with no focus on branding, price positioning and marketing.

According to Jayaprakash, head of merchandise - food, Géant Saudi Ltd, "one of the major issue we [hypermarkets] are facing in the Saudi market is getting 100% product availability; the current supply [full rate] ratio is a maximum of 50-60%, even from leading FMCG brands".

"Due to various reasons, local suppliers or manufacturers are unable to always maintain regular stock to cater to the growing modern trade, he says.

Jayaprakash claims suppliers are not taking proactive moves to improve their efficiency in the supply chain and ensure continuous availability of merchandise.

"The current fill rate is approximately 10% of the sales, and certainly this area must be improved," he adds.

Dubai's Grass Roots recently set out to report on the service levels in the UAE for its Are You Being Served? survey, and its general manager Jason De Winne says that based on the visits by mystery shoppers, "stores are finding it difficult to meet levels of service that customers are seeking".

"Customers are left disappointed by the lack of basic knowledge of the goods on sales, lack of initiative and a general failure to ascertain their needs." Initative is sorely lacking; 33.8% of shoppers said they would not return to the outlet they visited and 38.1% said they would not recommend the outlet to friends or family.

According to De Winne, UAE customers are "dissatisfied due to the lack of intelligent service. He adds: "Retail staff are unwilling to go the extra mile to make sure customers' needs are met.

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