By Annie Gasparro and Jaewon Kang
The biggest U.S. food makers, already dealing with increased
competition and shifting consumer tastes, now face an additional
threat: supermarkets are taking away prime shelf space.
Grocers are relying on their own proprietary research to decide
how and where to shelve certain products, rather than relying on
companies that sell well-known brands to tell them what to put on
what shelf at what price. The shift is resulting in less space for
traditional supermarket staples from companies such as General
Mills Inc. and Clorox Co. in favor of niche items and store brands
that deliver higher margins and are often in higher demand.
"Our retailers have better information now," General Mills Chief
Executive Jeff Harmening said. "So more of our conversation is
about 'How do we drive growth together?'"
Retailers such as Kroger Co. and Walmart Inc. are using
increasingly sophisticated software to decide where to place items
and which products to shelve next to one another -- factors that
can move sales up or down several percentage points -- according to
food-industry executives. The software, which can incorporate
video-surveillance and other data, helps them create so-called
planograms of the products on their shelves.
Grocers are incorporating into the software's algorithms such
metrics as "walk rates," which measure how much time a typical
customer is willing to spend looking for certain products before
giving up and leaving without buying anything. High-selling
products with short walk rates get to be in the "strike zone," just
below eye level, where retailers often put products they want
consumers to notice, said Phil Stanley, chief sales officer at
Hershey Co.
"There's a lot more precision in how we think about the aisle
today," said Mr. Stanley, who added that Hershey is stepping up its
own analysis capabilities.
Kroger, the largest U.S. supermarket chain, has invested in
beefing up its ability to collect and analyze data from customers.
That is changing the grocer's relationships with suppliers and the
way it lays out stores, said Michael McGowan, vice president of the
company's data analytics division.
"We're also looking at customer loyalty metrics to assess how
folks engage with brands," Mr. McGowan said.
The increased use of software and proprietary data by grocers is
dealing another blow to the makers of decades-old packaged foods,
which in many cases have fallen out of step with trends toward more
natural and healthy foods and lost some influence over grocers.
The diminished power of "category captains" -- the top sellers
of products such as soup or cereal -- is the biggest change to the
way food is sold since Walmart Inc. expanded its grocery offerings
30 years ago, industry veterans say.
Retailers once relied on big consumer-goods companies when
making decisions about allocating shelf space because the companies
were the experts in their respective food categories, such as
Campbell Soup Co. in soup, Kellogg Co. in cereal, and Kraft Heinz
Co. in cheese and condiments. Grocers also didn't want to invest in
consumer insights, and they were happy to take the hefty slotting
fees big brands pay for prime space.
Now, retailers are more focused on doing what it takes to
maximize sales growth even if it means giving up some of those fees
by stocking more of their store-branded products. "Retailers began
to realize that when they rely heavily on category captains, they
are at a disadvantage because there's an inherent bias," said
AlixPartners managing partner Jonathan Greenway, who consults for
brands and retailers.
Over the past 18 months, as retailers started to develop their
own systems, the category-captain role began dissolving, said
packaged-food analyst Alexia Howard of Bernstein.
"They have a big brand telling them to do it one way, and their
own analytics telling them to feature more private-label or
challenger brands," she said.
Now, grocers are devoting more space to new products to show
customers that they offer, for example, the trendiest varieties of
healthy snacks and infused beverages. Some $17 billion of annual
packaged-food sales, roughly 3.5% of the market, has shifted from
incumbents to startups since 2013, according to Nielsen data.
Large, publicly traded food makers have faced declining retail
distribution over the past year. In January, their total points of
distribution were down 2.8% from a year earlier, according to
Nielsen data.
General Mills' sales of baking mixes and ingredients have
declined over the past five years. The company's Betty Crocker,
Bisquick and Gold Medal flour brands are losing shoppers to smaller
rivals and store brands. For example, Kodiak Cakes LLC, a
family-run maker of high-protein pancake mix, has taken market
share from Bisquick and other competitors, according to
market-research firm Spins. Even though Kodiak's annual revenue is
less than one-tenth of General Mills' baking sales, Kodiak is
gaining shelf space.
"We are the ones with the growth," said Joel Clark, Kodiak's
founder and chief executive.
Clorox said earlier this month that its quarterly sales were
hurt by retailers' decisions to cut back on shelf space for Glad
products in response to higher prices.
General Mills said it is working harder to provide more insights
than retailers or smaller brands can in order to remain relevant to
grocery executives. It is also trying not to be biased.
"Our competitive advantage doesn't come from looking at two
different versions of truth and trying to talk them into something
they shouldn't do," Mr. Harmening said.
Supermarkets are also gaining leverage over retailers with
generic products sold under their own brands at cheaper prices than
name-brand goods. Kroger owns 33 manufacturing plants to make
various store-branded products such as maple syrup and flour. Those
products make up a growing share of its sales and shelf space.
A former Kroger executive said the relationship between
retailers and food makers has changed. "It used to be more of a
personal relationship, " he said. "It's become cold, hard facts
that make decisions."
Write to Annie Gasparro at annie.gasparro@wsj.com and Jaewon
Kang at jaewon.kang@wsj.com
(END) Dow Jones Newswires
February 19, 2020 05:44 ET (10:44 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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