08: Marketing
Merchandising
The hardest part of selling a CPG brand isn’t getting on shelf at a retailer, the hardest part is selling off the shelf. Why? As an emerging brand, you’re one of 10,000+ products for customers to choose from in any given grocery store AND have a retailers attention to make sure your product is positioned to sell. That’s why the key to success in retail is properly merchandising your products.
But first, a story. In 2018, my product TeaSquares launched in 100 Mariano’s grocery stores throughout Chicagoland. The buyer agreed to add us in between category resets and place our products at checkout. What a win! After selling the product in, the buyer recommended we work with a specific DSD Distributor (Direct Store Delivery). I talked with them but was shocked to find out they took a 35% fee, which I couldn’t afford. Instead, I decided to work with our existing regional distributor who covered Mariano’s.
We received our opening order from Mariano’s, produced the product, and it was picked up by the distributor. That’s when the problems started.
First, the product was rejected because there was a mistake in Mariano’s inventory system and they couldn’t receive it. Took 3 weeks to get this resolved.
I finally received word that the product was stocked in store, but when I visited, it took me 30 minutes to find it. Literally. I asked multiple team members and finally found it in… the supplement aisle… when the product was an energy bar. After 10 store visits I found the product in 5 different locations around the store:
- Checkout
- Energy Bar Set
- Granola Set
- Supplement Food Set
- Packaged Snacks Set
I mean, I couldn’t even find my product, how would I expect customers to? Why did this happen? We didn’t have a merchandising strategy. You see, our distributor simply dropped the product off at the back dock and relied on staff to stock it. The other DSD company would’ve actually taken the product to the shelf and merchandised it in the correct set for every store.
So what happened? After just 9 months we lost our shelf placement because our product wasn’t selling.
Some stores do a great job at stocking product. Some require a DSD Distributor. Others benefit from having a 3rd party merchandiser.
A good merchandising strategy presents your product to the right people at the right time the right way and the right place.
Over the following sections, we’re going to use this framework to breakdown how to plan your merchandising strategy.
There are a LOT of new terms, so we include a glossary at the bottom.
What is Merchandising
Merchandising is the process of making sure you present your product to the right people at the right time the right way and in the right place. For most brands, merchandising includes:
- Coordinating New Retailer Launches.
- Checking inventory levels at the store.
- Verifying promotion tags on the shelf
- Adding shelf talkers and other displays in store.
- Setting up off-shelf displays, end-caps.
Who does merchandising?
Founders – At early-stage companies, founders are often the ones doing store visits and checking to make sure everything is going according to plan.
DSD Distributors – These specialized distributors are also conducting merchandising activities in-store. This can be efficient because you have one company taking orders, stocking products, and merchandising.
Merchandising Companies – Services can include simple options like photo store checks, or more advanced services including display setups. Brands have the flexibility of doing “spot checks” at a few stores, which can be more economical, or do full coverage.
Next, let’s dive into how to create a merchandising strategy for your brand.
Who does merchandising?
Founders – At early-stage companies, founders are often the ones doing store visits and checking to make sure everything is going according to plan.
DSD Distributors – These specialized distributors are also conducting merchandising activities in-store. This can be efficient because you have one company taking orders, stocking products, and merchandising.
Merchandising Companies – Services can include simple options like photo store checks, or more advanced services including display setups. Brands have the flexibility of doing “spot checks” at a few stores, which can be more economical, or do full coverage.
Next, let’s dive into how to create a merchandising strategy for your brand.
Merchandising Strategy
Merchandising can attract new customers to the category and to your brand. There are 3 main types of shopper awareness in the store. Shoppers who:
- Don’t shop the category —> Awareness Goal.
- Shop the category but don’t shop your brand —> Consideration + Purchase Goal.
- Shop for your brand —> Repeat Goal.
Customers who don’t shop the category.
Out of Aisle placement can help consumers discover not only your product but the category itself. This can be accomplished with end-cap displays and stand-alone displays in other parts of the store. This way your products may catch the eye of shoppers who don’t normally purchase products like yours and entice them to buy.
As an example, if you have a BBQ sauce, try getting the store to display your sauces in the fresh meat department. When I shop at Whole Foods, I’ll buy the brioche hot dog and hamburger buns next to the meat section, instead of going to the bakery across the store.
Customers who shop the category but don’t shop your brand.
Again, this is where an end-cap or stand-alone display can help your brand stand out. Work with retailers to create an in-aisle display that highlights your products and catches the attention of shoppers.
Use shelf-talkers to literally stand out from the aisle. These can display a photo of you the founder, have product benefits, or offer a discount code. Aisle allows founders to offer discounts or free products to customers by scanning a QR code and redeeming through text. Not only can you drive new trial, but you can also collect customer information for future offers and build them into your community.
Temporary Price Reductions (TPRs) are the little sale tags on your product in the aisle. TPRs are a great way to drive initial trial, but the execution by retailers isn’t always great. It’s common to fund a discount to a retailer by selling them product at a lower cost, but then they take 1-4 weeks to actually place the discount stickers on all the store shelves.
During this time you’re missing out on sales and the retailer gets to keep any discounted product not sold and sell for the normal price, making a larger margin. Use merchandisers to actually make sure those sale tags are making it on shelf and the discount is ringing through the checkout.
Customers who Shop for your brand.
It takes customers at least 3 purchases before your products become a regular habit, and even then, you need to remind them to continue buying.
TPRs are a great tactic to reward current customers and encourage volume buying. While it may feel like you’re losing margin, you are gaining loyal customers. Just make sure you’re careful about your promotional schedule or else you can train consumers to only buy on discount. The yogurt category used to rotate brands each week that offered a $1 TPR, and I would typically stock up only when they had a sale, since it happened every 2 weeks or so.
Merchandising at the Right Time
Having promotion and merchandising activations can be really expensive to run all year. It’s important to build an activation calendar around key periods to maximize your effectiveness.
If you’re selling Ice Cream, you may plan for Awareness, Consideration + Purchase, and Repeat goal activations during June, July, and August for the summer. This is when you’ll find new category shoppers, brand switchers, and repeat customers. In the winter months, you may just plan repeat goal activations to encourage your best customers to rebuy.
Merchandising can be planned around these methods:
- Continuous year-round
- New Retailer Launches with 90-day support.
- Key Selling Seasons.
- Random Spot Checks.
Continuous year-round
- Some larger brands essentially run activations all year around and have a high trade-spend budget to do so. The reason is that it always helps to keep the products/ brand top of mind to the consumer.
- Different activations can be alternated, so the products aren’t always on discount. There might be an out-of-aisle display for 2 months followed by a TPR the next and a seasonal display after.
New Retailer Launches with 90-day support.
- The first 90 days of launching at a new retailer are crucial, so it makes sense to really concentrate merchandising activities here.
- New products have a notoriously difficult time getting on the shelf (as I shared in my story) so it’s important you have a team supporting your distributors in making sure the product is on the shelf in the correct aisle at the agreed-upon price.
- During this time, retailers are looking to understand how your products are going to perform, existing customers want to be able to easily find you, and new customers are most interested when a new product hits the store shelves.
- Selling through all your inventory in your first 90 days will impress retail buyers and they’ll usually offer you special opportunities.
Key Selling Seasons
- Many CPG products have peak selling seasons based on weather changes, holidays, or events.
- Identify the selling seasons post relevant to your products.
- Plan activations during these seasons to attract buyers to the category, within the category, and existing customers.
Random Spot Checks
- If you’re on a budget then random spot checks can be an economical way of keeping tabs on stores and uncovering potential issues.
- It won’t give you a full view of what’s going on but will be an indicator of where you need to look further.
Measuring Success
You need to set a goal to measure how effective your activations are in order to understand the value of merchandising. “Lift” is the core metric to determine success and is a measure of how much your sales increase during the promotion/activation compared to your baseline sales.
Let’s do an example. Say your baseline sales velocity is 5 units/ store/ week, and you run a TPR. During that time period, you measure that your sales velocity increased to 10 units/ store/ week. In this example, the brand saw a “lift” of 5 units/ store/ week.
Now, this is helpful, but what happens after the promotional/activation period? The change in sales velocity AFTER a promotional/activation is called Sustained Lift.
Using the same example above, let’s say that after the promotion, sales velocity settled at 7 units/ store/ week. The product saw a Sustained Lift of 2 units/ store/ week.
Now when measuring the success of the campaign, you need to know your baseline sales velocity, measure the lift during the promotion/activation period, and then measure the sustained lift afterward.
I recommend using Glimpse’s free data dashboard to measure sales velocity, lift, and sustained lift as it creates a really easy and visual way to do so.