As the grocery industry grows increasingly obsessed with hard discounters and big data, as well as dealing with belatedly facing into paying staff a living wage and rising costs, it feels like the era of expanded shopper choice may be coming to an end.
The idea of making choice accessible to all helped Tesco achieve such dominance in the UK market. They overtook Sainsbury’s and put clear blue water between them and their rivals by giving the less affluent access to more variety than ever before and letting the better off buy budget products without any stigma. It may be taken for granted now, but the launch of Tesco Finest arguably helped to unlock the “foodie” inside us of all, while I will always remember a customer who had a good job in the City demanding that we stock Value Orange Juice in Bishopsgate Metro.
However, the modern obsessions are not compatible with choice. Indeed, much of the success of Aldi and Lidl has been attributed to the idea of “edited choice”. An Aldi will carry less than 3,000 SKUs – less than a 10th of what you’ll find in an average superstore. It is a tribute to their buyers just how they have managed to grow such a successful business with a tight reign on range proliferation. I’ve produced store ranges for projects at Tesco and Asda with a similar SKU-count target myself, and it is not easy to hit the target and keep all your customers happy. The success of the edited choice in discounters has made the traditional grocers feel they have excessive ranges and we’ve seen some dramatic cuts in range count across the big four as a result. But one of the biggest differences between ranging in a discounter and a traditional grocer is the role of branded goods. Although Aldi, and moreso Lidl, do have brands, it’s very limited. Aldi’s official stance is that they will only carry a brand if their private label manufacturers can’t emulate it to their high benchmark. The traditional grocers may have strong own label brands, but they are still very much attached to branded goods – especially the funding from the manufacturers that comes attached.
In truth, many grocers were carrying too many products that didn’t warrant space on the shelf based on rate of sale or shopper need. The byzantine world of Joint Business Plans and category management plus the funding linked to shelf presence, distribution levels and launching new products, helped grocers make money without the need to actually sell their stock. So, while high SKU counts might make sense to the P&L sheet, the products selected weren’t shopper-focused. In other words, the problem was range curation not range count.
Then enter the data. Data is a very important part of good range curation, but has a tendency to lose the subtlety of shopper decisions. No matter how complex the data or clever the algorithms, you will always be dealing with two major restrictions. The first is that data will always be historic – it doesn’t matter how much of it you have, that will never change. The other restriction is a flawed assumption that a group of individual shoppers who did the same thing in the past will all act together when exposed to new stimuli. Anyone who has followed the trajectory of a “perfect” new product launch will tell you that there’s always something that doesn’t work as you’d expect it to. By changing our focus so much to Big Data, we’re in danger of the next generation of retailers lacking the knowledge to understand why these things happen. To use an analogy, Big Data makes the haystack bigger, but the needle stays the same size.
It is of course wrong to assume that lots of choice is always a good thing. Choice can lead to waste, it can add to shopper complexity and can have negative impacts on the environment with multiple suppliers all moving the same products around in separate trucks. If choice was a major driver of sales, Ocado would be lording it over us all (867 cereals listed at the moment if you want one example!).
The challenge is that us shoppers have got used to it, and that’s why 85% of grocery spend is NOT with Aldi and Lidl. With every cut of range, you risk upsetting someone and no amount of data will predict who that will be and, crucially, what their reaction will be. Some customers are less loyal and will make a quick substitution, but others will leave a trolley-full of shopping in the aisle, or abandon their online basket, if the exact brand or flavour variation is now not available to them. Add in increased promiscuity with shoppers choosing to spread their spending and you can see the difficulty in persuading them to maximise their spend in your store.
Good retailers will face into these paradoxes by looking at their offer across all categories. In this new world, stores need to have their space allocated based on range count need as well as sales and volume performance. That drills down to midi level space as well, if space is used to its full potential in delivering a great range choice with less products. It’s very tempting to give more space to fast growing categories or sub-categories, but a more granular understanding of what’s driving that is always needed. Is it just one brand? Is it just the leading flavours? The worse decision can be to increase space and then fill it with dust-gatherers. Meanwhile, a less exciting category might be failing to fulfil its potential by being restricted in the space available. Interestingly, this is caused by a “one size fits all” mentality that has permeated the grocery trade in recent years. Often the range culls are accompanied by a strict percentage reduction target which fails to acknowledge the subtleties between categories.
If choice is not to revert to the exclusive domain of the rich, who are more likely to be able to afford to shop in specialist stores or Ocado, then it will take some brave decisions from retailers to hold their nerve, but also stronger will from Category Management teams at the manufacturers to recommend what is right by the shopper rather than the Sales team. As always in retail, you can’t beat proper shopper insights – qualitative as well as quantitative – to help make the right decision. Choice isn’t dead yet, but with no sign of consumer spending on food being able to increase in the immediate future, we may find it won’t be around in the same way for much longer.