Tag: store layout

OM in the News: Fighting for Shelf Space

The contest for supermarket and grocery shelf space is heating up as brands—including more lower-cost offerings from grocery stores themselves—vie for a shrinking number of spots in the aisles. Grocers are trimming both the number of items they stock and their overall physical space, reports The Wall Street Journal (Aug. 16, 2024).

Which products are placed where on shelves can move sales up or down significantly.

 U.S. consumers are looking for ways to cut grocery bills that have soared. In response, supermarkets and grocery stores are becoming more selective as they stock their shelves with an eye toward reining in prices for shoppers.  Between 2009 and 2023, square footage in supermarkets decreased 3.3%. Meanwhile, between 2020 and last year, retailers cut unique products by nearly 9%.

A confluence of factors influences which brands make the cut. Among them are brand recognition and whether brands’ products are selling, or are expected to. Retailers also charge slotting fees, a topic in Chapter 9 of your Heizer/Render/Munson text, for aisle space.

The fees, which food companies pay retailers in exchange for shelf space for their goods (and a topic of negotiation), depend on the retailers and brands, as well as on categories. Most companies think of slotting fees as a cost of entry for shelf space. The fees can add up quickly, on average ranging anywhere from around $100 per item per store to five or even six figures. Leading brands may also influence what is on shelves as so-called “category captains,” which are generally a retailer’s top sellers of goods such as coffee, snacks and cheese.

The aim behind these actions isn’t to get just any shelf space—it is to be in a prime location, which is around eye level. Having the choice placement, referred to with descriptors such as the “strike zone” or the “bull’s-eye,” can be significant for sales. “We want to be right there in your sightline…because that really drives consumption,” said one product exec. “If you’re up in the gutter or down in the crack, it’s harder to get the consumer to know you’re even there.”

Once on a shelf, major shelf resets generally follow a strict schedule. Stores usually assess their shelves to determine whether they have the right mix of products and brands just once a year. Minor product changes happen midyear.  If a product doesn’t get its space, then it must wait for the next reset.

Classroom discussion questions::

  1. Slotting fees put small and local companies at a disadvantage. Are they ethical?
  2. What are the sellers options in getting shelf space?

OM in the News: Berkeley Bans Junk Food in Grocery Checkout Aisles

The city of Berkeley, California, is trying to make its residents healthier, reports CNN.com (Sept. 25, 2020). As part of a health initiative, Berkeley is getting ready to become the first city in the US (in March, 2021) to require large grocery stores to stop selling junk food and candy in checkout aisles. So now instead of candy and soda and other high calories items, shoppers can expect to see fresh fruit and whole grain alternatives at checkout counters.

“Placement of unhealthy snacks near a register increases the likelihood that customers will purchase these foods and drinks when willpower is weak at the end of a long shopping trip,” said a City Council member. The new rule will affect at least 25 retailers in Berkeley. These include Whole Foods, CVS, Walgreens and Safeway.

Stores can still sell candy and soda, just not at a child’s eye level in the checkout. The council said the shift to selling more healthy products at checkouts will still be profitable for stores because data shows customers are looking for more low sugar and low sodium products anyway. “The idea of healthy checkout is that it offers parents more opportunities to say yes to their kids, and it also helps us to re-envision what treats are,” said a member of Berkeley’s sugar-sweetened beverage commission. Retailers in test cases around the country and in California have seen dramatic increases in sales of healthy foods since they changed their checkouts to include more fresh options in displays.
As we point out on page 374 of Chapter 9, layout of retail stores is a scientific OM issue whose “objective is to maximize profitability per square foot of floor space.” But checkout counter locations, valuable because of their high exposure rate, are traditionally sold to food manufacturers by the inch!
Classroom discussion questions:
1. Is it a good strategy for governments to dictate supermarket product layouts?
2. Why is this an OM issue?

OM in the News and Video Tip: The Pros and Cons of Slotting Fees

Ice cream can be one of the most expensive slotting fees areas because of the expense of freezer dispays
Ice cream can be one of the most costly slotting fees areas because of expensive freezer displays

When considering a late-night carton of ice cream, most people aren’t thinking about how it got on the shelf. But behind each freezer door is a secondary market that determines what you have the option to buy. “Slotting fees” (see Chapter 9) are fees that manufacturers pay retailers to appear on their scarce shelves. It can cost millions of dollars to launch a product in the nation’s groceries, and through that cost, these fees shape our supermarkets and diets.

“It’s easy to think that these fees show supermarkets are ‘rigged’ — against both consumers and smaller manufacturers that can’t afford the fees,” reports vox.com (Nov. 22, 2016). But as this 7 minute video shows, the debate is an intense one, with decent arguments on both sides.

Cons: Supermarkets charge significant fees before retailers see their products on shelves. A discount fee to introduce a new product might be as high as $30,000 to appear in just 350 stores. These fees exist for a wide range of products, from ice creams to chips and soda, not to mention the scarce space near the checkouts. The implication is clear: Retail power reduces competition and makes it harder for small businesses to compete against big buyers. These advantages for large companies are only compounded by their ability to buy up enough shelf space that they can effectively design a store’s layout.

Pros: Slotting fees emerged in the 1980s, as retailers began to introduce dramatically more products to shelves. Thanks to technological improvements like scanners, it became easier to create many more SKUs without a lot of extra effort. So manufacturers threw numerous extra products at retailers. That created a problem, as 80-90% of new products fail. And despite the availability of all these new products, shelf space was just as scarce. Fees helped remove some of the risk for retailers, signaled to them that a new product might be successful, and helped limit product proliferation.

Classroom discussion questions:

  1. Why are slotting fees an important issue in retail layout?
  2. What are the pros and cons of these fees?