Consumer packaged goods (CPG) and food product retailers specifically design their shelf space to maximize space and profitability for their high-margin, relatively low-cost, fast moving products.
Retailers generally place products with higher margins and higher turnover at or around eye-level, while factoring in considerations such as: accessibility and ease of location, product groupings and the flow of in store traffic. They aim to improve the shopping experience and drive sales. Traditionally, retailers use a "plan-o-gram" as a method to map shelf layouts for products. In addition, retailers will use “category management” or “shelf-space allocation”, along with technology to manage the merchandise or assortment, which helps to provide the framework for evaluating pricing, promotion, arrangement and selections for individual items to achieve an optimized mix of products.
Technology centered around category management enables retailers to strategically organize products into specific groups of related products, such as health and beauty products, detergents, organic ingredients, etc. Each of these groups is identified as a product category and run like a mini business. Retailers are then able to monitor individual category sales, gross margins, and develop an informed decision to determine if that category is contributing to the bottom line or not.
As important as it is, the science behind category management is still evolving slowly, and often lacks the use of current data to help predict direction for future maximum profitability. It also very rarely factors critical cost drivers of the supply chain into the total profitability equation. Retailers who really want to get the most from their shelf space should be looking at additional factors that can impact their profitability overall, including:
- Cost of logistics per cube for shipment to stores (including fuel and freight charges which are necessary to ship from the warehouse to the store)
- Cost of necessary packaging for storage, protection, and transport such as secondary and tertiary packaging, pallets, etc.
- Labor costs for stocking and replenishment
- Costs for slow selling, damaged or expired products
- Shrinkage resulting from theft and pricing errors
- Sales lost from stock outages
- Restocking/Returning picked goods which were not purchased
A major opportunity for improvement to the supply chain remains in increasing product and package densities. And, one of the best ways to accomplish this is to "right-size" your packaging to eliminate wasted space and enable you to fit more product on the shelves. Today's customers want to consume, use and pay for their products, but not the packaging housing their products. Contact QPSI to make sure your packaging is optimized for shelf space and cost-effective to maximize your profitability. We design all of our retail packaging solutions based on tried and true retail market research.