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AMVE Merchandising Drives Snack/Confection Sales and Profits
The AWMA Warehouse-Delivered Snacks Committee is fueling profits by leveraging collaborative warehouse-delivered multi-vendor retail strategies in the c-store channel.
By Kit Dietz
Retailers, wholesalers and manufacturers are enjoying significant snack category growth in the c-store channel since the roll-out of the Warehouse-Delivered (WD) Snacks Multi-Vendor End-Cap (MVE). Appco Convenience Centers, an early adopter of the snack MVE, is growing total snack category sales and profits at an exceptional pace in their 58 stores located in Tennessee, Virginia and Kentucky. Danny Blackburn, president of Appco Convenience Centers, has realized a 242 percent increase in sales of the items on the snack MVE planogram and a hefty 72 percent increase in total warehouse-delivered snacks.
"We are working very closely with our supplier, The H.T. Hackney Company, to improve our overall snack sales and gross margins by merchandising great brands that return margins in excess of 40 percent," says Blackburn. "Consumers are more aggressively shopping for snacks in our stores. During this same time period, our DSD snack sales grew by 12 percent. It’s clear to me that multi-vendor strategies work and we will continue to find new ways to better meet consumer’s expectations and drive total category sales and gross margins."
Channel pressure
C-store wholesalers and retailers are feeling tremendous pressure to find new sales and margin opportunities as profits are being challenged in core categories on multiple fronts. The AWMA/NACS C/Scape Study of 2000 documented the c-store channel’s dependence on cigarettes for profitability. Since the study, the major cigarette manufacturers’ wholesale and retail programs have declined and so has measurable (legal) carton volume as state after state piles on excise taxes and more cities adopt public smoking bans. Fuel margins for retailers are challenged by cross-channel competition, which puts more pressure on wholesalers’ margins, as retailers try to improve profitability inside the store. How can we meet these challenges? We have to do a better job of understanding the consumer, managing product mix to meet their expectations and maximize profit in the most highly visible areas of the store.
Warehouse-Delivered Snacks Committee rooted in C/Scape
C/Scape’s retail purpose was to: (a) assist retailers in understanding their cost structures so they could make better decisions; (b) provide retailers with a process to assist them in determining where to grow their business; and (c) to strengthen the competitive position of the convenience channel. The study documented cost of space as the single largest cost component at retail (foodservice was excluded in the study) and called out the need for effective assortment and category re-sizing. Convenience channel supply chain collaboration was identified as a big opportunity to improve profitability, and prompted the formation of the AWMA Warehouse-Delivered Snacks (WDS) Committee.
The WDS Committee is comprised of big brand snack and confection manufacturers and wholesale distributors (ConAgra, General Mills, The Hershey Company, Jack Link’s, Kellogg’s Company, Kraft Foods, Masterfoods, Nestle USA, Procter & Gamble, Core-Mark International, Dot Foods, Eby-Brown Company, Grocery Supply Company, The H.T. Hackney Company, Master Distributors and McLane Company) that are focused on total snack category growth.
Mission of the WDS Committee
The work of the committee provides customer solutions to promote the benefits of warehouse-delivered snacks. These solutions provide opportunities focused in three areas: (a) meeting consumer demand in store; (b) maximizing the snack category's performance; and (c) increasing retailer margin and profitability.
Successful strategies are supported by highly executable tactics. The first tactic was the development of the WDS MVE concept, which was based on C/Scape learnings. A six-chain c-store study revealed that even without prominent positioning, warehouse-delivered snacks generated very similar sales as DSD snacks (per square foot basis). This identified the opportunity for a warehouse-delivered solution. How much more could we sell by taking a category approach? The program was designed to provide great brands in optimal selling locations on the snack MVE fixture, which would be updated on a regular basis. We wanted to provide consumers with a great variety of warehouse snacks across major categories including cookies, crackers, chips, meat snacks, snack nuts, snack mixed, confections, gum and sweet snacks. Great brands such as Oreo, Cheez-It, Pringles, Jack Link’s, Slim Jims, Combo's, Chex Mix, Hershey, Powerbars, Planter’s, etc., are grabbing the consumer’s attention.
The best of the best in snacks at 40 percent to 50 percent plus retail margins, consumers aren’t the only ones noticing. Retailers are jumping on the opportunity. To date over 13,000 warehouse-delivered snack multi-vendor end-caps have been placed in optimal locations at retail, delivering stellar sales and gross margin increases.
WDS MVE study group 1 results
In order to validate the snacks MVE concept, I have conducted several studies on behalf of the committee. Study Group 1 was our first look at the performance of the snacks MVE and its impact on all warehouse-delivered snacks. Study Group 1 consisted of 7 convenience chains of varying size, with a total store count of 186 stores. We used comparative data for a 17-week period, same year versus prior, and measured MVE item sales and total warehouse-delivered snacks according to the NACS categories which included the sub-categories of packaged sweet snacks, salty and alternative. As a group, the overall warehouse-delivered snack category grew by 63 percent and the snack items on the MVE grew by 114 percent. The top performing chain of the study group experienced a 110 percent increase in warehouse-delivered snacks and snack MVE item sales increased by 284 percent. These results were outstanding, but we knew that we needed to have a broader look to understand the impact to total snack category sales and gross margins, including DSD.
Understanding the role of the snack category and the roles of DSD and warehouse-delivered snacks within the category is paramount in developing a successful strategy. DSD snacks, at average margins of 27 percent to 33 percent, play an important role in the category as a traffic builder. WD snacks, at average margins of 40 percent to 50 percent are critical to increasing overall category sales and gross margins. Striking the proper balance between DSD and warehouse-delivered snacks spells success.
FasMart study
Brad Chivington, vice president of marketing at FasMart, agreed to participate in a study measuring total snack category performance in 58 of their 161 convenience stores located in Virginia, Delaware, Maryland and North Carolina. These 58 stores were selected on a basis of having good comparable retail scan data, both before and after the placement of their McLane-supplied snack MVE. We measured same store snack category sales and gross margins for WD and DSD, using a year-to-year comparison of item level data rolled up to the NACS sub-category and category level.
FasMart experienced total snack category sales growth of 18.5 percent and a total snack category gross margin increase of 22.3 percent. The snacks MVE item sales grew by 67.8 percent, overall warehouse-delivered snack sales grew by 49.9 percent and DSD snack sales were flat. The sales and gross margin gains were incremental with no cannibalization of DSD snacks! FasMart created a much improved balance within the category driving sales and gross margin dollars.
Warehouse-delivered snack sales growth of 49.9 percent was achieved by growing alternative snacks by 71.9 percent, salty snacks at 42.4 percent and packaged sweet snacks at 27.2 percent. These sales gains were the result of increased sales of the MVE snack items and greater sales inside the snack aisle. The MVE seems to create a greater awareness with consumers and draw them into the snacking isle. The average store weekly increase in warehouse-delivered snack sales was $205.73 and warehouse-delivered snack margins increased by $82.24. FasMart expects similar results across the chain. On an annualized basis these results project across the chain to a potential annual sales increase of $1,700,000 and incremental margin of $689,000.
Marty Monserez, convenience channel leader at Procter & Gamble, has been instrumental in the success of the snack MVE concept. Marty is passionate when it comes to maximizing the opportunity by gaining broad implementation in c-stores. "Too often we are unable to identify successful strategies for all trading partners. Driving sales and margin for retailers, volume for distributors and scale for manufacturers is a big win that we need to capitalize on," says Marty.
Jim Sterbenz, vice president of c-store for Kraft Foods, states, "The WDS MVE is one of the finest examples I have seen of manufacturers, distributors and retailers working hand- in-hand to deliver solutions. Major manufacturers, including Kraft, are more focused than ever to reach consumers by working together for core category management principles, applying a more holistic approach that is consumer-centric." This approach should and will be applied to other categories as we build upon the success of the multi-vendor concept.
Driving delivery profit
Cigarettes are what I call the oil of the supply chain in the convenience channel. By nature they are small cube, light weight, efficient to handle and 80 percent of sales are typically driven by the top ten brands creating economies of scale. Distributors’ profit per delivery is dramatically challenged by declining cigarette carton volume. Let’s examine the impact of carton volume declines to a distributor’s profitability.
I’ll use a hypothetical example to demonstrate my point. You’re supplying a 50-store chain, with a three-year supply agreement receiving one delivery per week. In year one, your average weekly carton volume is 200 cartons per week. We’ll assume a 5 percent carton volume decline per year over the term of the agreement and that the distributors gross margin per carton is 60 cents. In year one the distributor’s cigarette gross margin is $312,000. In year two the gross margin decreases to $296,400 and in year three to $281,580. That’s a reduction of $46,000 in cigarette gross margin.
A distributor’s cost structures can be categorized in two areas, fixed and variable cost. There is no change in fixed cost related to the volume change. Some of the variable cost factors include receiving the order, inventory, purchasing, pick creation, order selection, loading the truck, invoicing, transportation, product cube/weight and accounts receivable carrying cost. Given the volume decline, the only savings for the distributor is a modest savings in inventory and accounts receivable carry costs and no other variable costs are affected. On an annualized basis the savings is about $2,200 against a decline in margin of $46,000.
My point is, distributor profit is based on the mix and margin of all warehouse-delivered products and in order to maintain profitable deliveries, collaborating with your manufacturer partners and retail customers to build sales in other categories is critical. Distributor margins are thin and the competitive pressure in the market dictates pricing, making incremental growth within existing accounts a focal point for successful distributors.
Confections and snacks new item MVE
According to the Masterfood’s Speed to Shelf Study, new items account for 60 percent of growth in confections and deliver five times more sales than under performing skus. In order to leverage the power of new products retailers must gain placements within eight weeks of the initial shipments in order to secure market leadership position and capitalize on early sales. You can drive category sales by using manufacturer support to promote new items and synchronize with national advertising campaigns, while maintaining high visibility and an always in-stock position.
The convenience channel has lagged other channels in getting new items in front of the consumer quickly. Another key focus of the WDS committee this year is the development of the Snack & Confection New Item MVE concept. Just like the snacks MVE, the new item MVE will be a distributor-based initiative. Several distributors have already developed and placed their new item MVE at retail. This two-foot roller rack is dedicated to new snack and confection items, located in a prime position to capture impulse purchases and to build the consumers awareness of a dedicated rack for new items. Key elements to the program include; automatic distribution of new items to capitalize on early sales opportunities, keep new items on display for 60 to 90 days in order to determine if the product merits a home in your planogram or should be discontinued.
Convenience channel collaboration is delivering great results. "The development of the snacks MVE and the confections/snacks new item MVE has increased our snack sales more than anything we have ever done in the category," says Tommy Thomas, director of sales for The H.T. Hackney Company and chairman of the Warehouse-Delivered Snacks Committee. "We will continue to drive the multi-vendor approach in every category in the store."
If would like information on how to develop your own snacks MVE or new item MVE, please contact Bob Pignato (vice president of marketing, communications and membership) at (703) 208-1642 or robertp@awmanet.org.
Kit Dietz is president of Dietz Consulting LLC, Huron, OH. He can be reached at kit@dietz-consulting.com.
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