How to Succeed
in Convenience Retail
A Practical Guide for Product Suppliers
Sponsored by
The Association for Convenience & Petroleum Retailing
Prepared by
March 2007
Table of Contents
Page
Acknowledgements
2
Overview
3
Understanding Convenience Retail
4
Differentiating the Product Offer
5
Aligning with Retailer Values
6
Selling Through Wholesalers
17
Working with Convenience Brokers
20
Leveraging NACS Resources
24
Summary
25
About NACS and Willard Bishop
26
Endnotes
27
1
© Copyright 2007 NACS. All rights reserved.
Acknowledgements
NACS wishes to thank the following companies for taking the time to
share their various perspectives on such an important topic that will
ultimately benefit the entire convenience retail industry.
` Advantage Sales and Marketing, LLC
` American Wholesale Marketers Association
` Chevron Corporation
` Eby-Brown Company, LLC
` ExxonMobil
` McLane Company, Inc.
` Pine State Trading Company
` Quick Chek Corporation
` Royal Buying Group, Inc.
` TNT Marketing
` Valero Energy Corporation
` Wawa, Inc.
NACS extends special thanks to David Bishop, partner at Willard Bishop,
for leading this effort and moderating the industry panel at NACS Show
2006 on the topic.
Last, NACS would like to recognize Michael Davis and the NACS
Supplier Board Membership Committee for providing oversight and
guidance throughout the process.
2
© Copyright 2007 NACS. All rights reserved.
Overview
Product suppliers face many challenges in their efforts to sell more
effectively to convenience and petroleum retailers—challenges involving
wholesale distribution and retailing functions being handled by
completely different companies, sales and marketing organizations that
can provide broader account coverage than most direct sales forces, and
the constantly evolving number of outlets that are operated by
independents or franchisees.
The objective of this guide is to provide product suppliers who are
interested in penetrating the channel with a better understanding of how
to do business with convenience and petroleum retailers. This guide
delivers against the objective by:
` Identifying what retailers want or value from product suppliers
relative to information and support,
` Uncovering issues that product suppliers may encounter across the
supply chain when going to market with new and/or existing
products,
` Sharing lessons learned based on the experiences of marketing and
sales organizations, retailers, and wholesale distributors with product
suppliers, and
` Outlining actionable insights that suppliers can take away to enhance
their current go-to-market strategies in areas such as products,
programs, and presentations.
The guide concludes by highlighting other resources that NACS makes
available to its supplier members, which should help suppliers build a
more successful business with convenience and petroleum retailers.
Important Note:
This guide uses the terms “product supplier,” “supplier,” “manufacturer,”
and “product manufacturer” interchangeably to refer to any company that
is selling a product to a retailer for resale in the retailer’s store. Also, the
terms “broker,” “MSO,” and “sales and marketing organizations”
generally refer to service companies that offer administration,
communication, marketing, merchandising, or selling support to product
suppliers.
3
© Copyright 2007 NACS. All rights reserved.
Understanding Convenience Retail
Despite the fact that the growth of in-store dollar sales in the convenience
channel has outpaced the total retail industry four out of the last five
years1, convenience retailing has several difficult strategic issues that
challenge the way the business is managed. Product suppliers can benefit
by better understanding at least three key business issues impacting
convenience retail today.
“Consumers are
changing where they
buy fuel.”
Issue #1: Increasing Competition in Fuels
Today’s consumers have more shopping alternatives for purchasing motor
fuel. This is significant because motor fuel represents the single largest
part of the convenience retailing business on a dollar-sales basis2 and is
generally how many retailers drive consumer traffic on to their location.
The growing number of hypermarkets that also sell fuel has grown at a 5year compounded average growth rate of nearly 12.5% since 2001. As a
result, more than 3,600 hypermarket fuel sites controlled approximately
10% of the motor fuel marketing in the U.S. by the end of 20053.
“Consumers are
shifting tobacco
purchases.”
Issue #2: Changing Dynamics in Tobacco
Consumers are buying tobacco at different locations and are also
purchasing different types of tobacco. This is important because tobacco
is the largest in-store category in dollar sales and gross profits.4 Demand
for cigarettes continues to decline steadily5, while moist smokeless and
cigars are experiencing robust growth. Greater smoking restrictions have
contributed to a reduction in cigarette usage occasions and have
stimulated demand for smokeless tobacco products. Increasing cigarette
taxation is shifting consumer demand among states to the Internet, to even
black and grey markets. And, retailer gross profit margins are
compressing due to changes in cigarette manufacturer trade programs.
“Consumers are
searching for new
meal solutions.”
Issue #3: Evolving Role of Foodservice
Consumer lifestyles are changing, resulting in changing demands for
products relative to food away from home. Convenience retailers have an
opportunity to gain significant business and build competitive
differentiation beyond their core offerings. Foodservice is already
growing at a faster rate than in-store merchandise and offers significantly
stronger retail gross margins. In addition, convenience stores can
leverage their already strong customer traffic during the morning and
lunch day-parts to generate even stronger performance with more
effective consumer programs that more closely fit in with the consumer
phenomenon known as “dashboard dining.”
These types of channel issues affect the way convenience retailers
reposition their stores and evaluate what each store offers.6
4
© Copyright 2007 NACS. All rights reserved.
Differentiating the Product Offer
The need for suppliers to demonstrate why their products are unique or
better than other products is driven by a few operational realities in the
convenience store business.
The size of 86% of
convenience stores is
between 2,000 and
2,999 square feet.7
` First, convenience stores are more physically constrained than any
other trade channel. In fact, convenience stores have fewer square
feet than any other retail food channel.
` Second, convenience stores carry a fairly limited number of products
and this affects their ability to evaluate a new product.
“For
“For us
us to
to introduce
introduce aa new
new product,
product, itit usually
usually means
means discontinuing
discontinuing an
an
existing
existing one.
one. [Therefore]
[Therefore] we
we need
need to
to understand
understand how
how itit [the
[the new
new
product]
product] isis unique
unique or
or significantly
significantly better
better than
than another
another product.
product. IfIf it's
it's
neither
neither of
of these,
these, then
then itit needs
needs to
to be
be significantly
significantly cheaper
cheaper to
to buy,
buy, and
and
that’s
that’s not
not aa guarantee
guarantee we’ll
we’ll take
take it.”
it.”
Developing clear points of differentiation becomes even more important
when you consider that approximately 25,000 new products are
introduced into the U.S. grocery retail market each year.8 While this
figure reflects products sold through all trade channels—brand
extensions, seasonal products, conversion items, or genuinely new
products—suppliers need to recognize that these are the products they are
competing against for shelf space at retail.
6,737
Average SKUs carried
by wholesale
distributor.9
4,338
Average SKUs carried
by convenience
retailer.10
The absolute number of new products easily exceeds the demand for new
products. Driven in part by the store’s square footage, convenience
retailers will offer between 1,500 and 4,500 SKUs at any given time.11
We’ve also learned through separate analyses that nearly 80% of a
retailer’s overall product mix also remains the same year after year.12
And, depending on the growth of the category, the strength of the current
brands and the role of new products, this percentage could be even higher,
making it even more challenging to differentiate the product offering.13
5
© Copyright 2007 NACS. All rights reserved.
Aligning with Retailer Values
Recognizing that all trade activities are intended to enhance the retailer’s
ability to sell products more effectively, it’s important that product
suppliers get a better idea of what it is retailers value/want from their
suppliers.
This section outlines the general value system of convenience and
petroleum retailers and highlights practices suppliers should incorporate
into their go-to-market strategies, beginning with proper planning all the
way through to effective execution at the store level.
Understand the Convenience Channel
Learn the channel’s
economics,
understand the
consumer dynamics
and offer products
that fit.
In four of the last five years, convenience retail has consistently outpaced
the overall retail industry in sales growth.14 As a result, product suppliers
are looking more closely at convenience as a growth channel for their
businesses. However, one issue they face is that convenience retailers
often perceive them as simply attempting to introduce products that are
sold in the grocery channel.
“In
“In the
the past,
past, manufacturers
manufacturers looked
looked at
at convenience
convenience as
as another
another store
store to
to
sell
their
grocery
products.
They
[manufacturers]
used
grocery
sell their grocery products. They [manufacturers] used grocery
strategies
strategies to
to sell
sell grocery
grocery products
products to
to convenience
convenience retail,
retail, which
which doesn’t
doesn’t
work
work for
for us.”
us.”
“Know
“Know the
the business
business we’re
we’re in.
in. And,
And, ifif you
you don’t
don’t know
know it,
it, don’t
don’t present
present to
to
me.
me. IfIf you
you do
do know
know what
what the
the [convenience]
[convenience] stores
stores are
are about
about and
and what
what
the
the consumers
consumers want
want to
to buy,
buy, you’ll
you’ll have
have most
most of
of the
the answers
answers before
before you
you
ever
ever present
present to
to me.”
me.”
Suppliers interested in growing their businesses via convenience stores
need to learn the channel’s economics, understand the consumer
dynamics and offer product solutions that fit those needs.
6
© Copyright 2007 NACS. All rights reserved.
Aligning with Retailer Values
Know the Retailer’s Business
Offering products that align with the needs of the convenience channel is
just the first step for suppliers who want to grow their businesses through
the convenience channel. Given the diversity in today’s convenience
retail, e.g., geographical, organizational and cultural factors, it’s critical
that suppliers know who their target retail customer is and why a product
is a good fit for a retailer, because retailers will ask this question.
An effective way to
learn the business is
by simply visiting
stores.
“One
“One supplier
supplier kept
kept mentioning
mentioning that
that they
they just
just got
got their
their products
products into
into
another
chain
in
our
market.
It
was
clear
to
us
that
they
didn't
know
another chain in our market. It was clear to us that they didn't know
how
how we
we were
were different,
different, so
so we
we took
took them
them to
to one
one of
of our
our stores
stores and
and one
one of
of
the
the rival's
rival's stores
stores to
to illustrate
illustrate the
the stark
stark contrast
contrast between
between us.
us. Then
Then they
they
realized
realized why
why their
their product
product wasn’t
wasn’t right
right for
for us.”
us.”
“We
“We had
had one
one manufacturer
manufacturer present
present to
to us
us and
and make
make grossly
grossly inaccurate
inaccurate
statements
statements about
about our
our business.
business. Another
Another manufacturer
manufacturer came
came in
in and
and
demonstrated
a
solid
knowledge
of
the
business.
Why
the
difference?
demonstrated a solid knowledge of the business. Why the difference?
The
The second
second manufacturer
manufacturer immersed
immersed themselves
themselves in
in our
our stores,
stores, basically
basically
spending
spending three
three weeks
weeks eating
eating breakfast,
breakfast, lunch
lunch and
and dinner
dinner in
in our
our stores,
stores,
which
blew
us
away.
Needless
to
say,
we
went
with
the
second.”
which blew us away. Needless to say, we went with the second.”
As retailers have highlighted, suppliers need to know the business of the
retailer they’re presenting their products to. Suppliers can improve their
selling effectiveness by developing a clear customer profile and targeting
retailers that fit that general profile. One proven way to target the
appropriate retailer is to visit and walk through the store(s), and talk to
store employees.15
7
© Copyright 2007 NACS. All rights reserved.
Aligning with Retailer Values
Leverage Third Parties to Learn the Business
Due to the complexity
of the channel,
capitalize on the
strengths of other
companies.
Store visits may be the best way for a supplier to learn more about a
retailer’s business. However, the reality is that they probably don’t have
the internal resources to make store visits to all the retail customers they’d
like to sell to in convenience.
For this reason, product suppliers should try to develop relationships early
on with third-party companies in order to get the assistance they’d like to
have with planning, marketing and selling activities.
“We
“We don't
don't sell
sell [product
[product category]
category] in
in our
our stores.
stores. It's
It's not
not our
our business,
business,
and
and itit never
never has
has been.
been. AA manufacturer
manufacturer would
would benefit
benefit by
by recognizing
recognizing this
this
and
not
trying
to
sell
us
something
that
we
don't
want
or
need.
Our
and not trying to sell us something that we don't want or need. Our
wholesaler
wholesaler has
has aa good
good understanding
understanding of
of what
what we're
we're doing
doing and
and therefore
therefore
can
can help
help bring
bring or
or redirect
redirect manufacturers
manufacturers for
for us.”
us.”
Suppliers can leverage the experience and/or scale of third parties to help
build your knowledge base, customer profile and a market segmentation
highlighting retailers that fit the profile.
8
© Copyright 2007 NACS. All rights reserved.
Aligning with Retailer Values
Demonstrate How Your Product Will Help Grow the Business
Retailers know that a small percentage of products drive the majority of
their businesses, and they also realize that a large percentage of the
products they carry contribute very little. As a result, they’re very
sensitive to the costs associated with introducing a new product,
especially since so many of the new products aren’t successful.
Retailers want to see and hear compelling reasons why they should carry
a new product.
Suppliers should
recognize the various
ways to “grow the
business.”
“We
“We usually
usually ask
ask suppliers
suppliers to
to tell
tell us
us what
what makes
makes their
their new
new product
product
different
and/or
better
than
an
existing
product
we
already
different and/or better than an existing product we already sell.
sell. For
For
instance,
instance, we
we see
see aa lot
lot of
of new
new suppliers
suppliers in
in [product
[product category]
category] because
because of
of
the
the category’s
category’s explosive
explosive growth.
growth. We
We want
want to
to know
know what’s
what’s so
so great
great about
about
this
this new
new product
product that
that isis going
going to
to cause
cause aa consumer
consumer to
to switch
switch brands.”
brands.”
“Tell
“Tell me
me why
why the
the product
product isis going
going to
to sell,
sell, where
where itit should
should go
go in
in the
the store,
store,
and
why
we
need
to
carry
it.
I
need
to
know
these
things
because
our
and why we need to carry it. I need to know these things because our
store
store has
has aa lot
lot of
of products
products we
we call
call ‘dust
‘dust collectors.’
collectors.’ These
These are
are products
products
that
that don’t
don’t serve
serve anyone
anyone –– the
the consumer,
consumer, wholesaler,
wholesaler, retailer,
retailer, or
or supplier.
supplier.
Because
of
our
store
size,
we
can’t
afford
to
keep
products
on
the
Because of our store size, we can’t afford to keep products on the shelf
shelf
that
that no
no one
one isis buying.”
buying.”
Suppliers should clarify what “growing the business” means to a retailer
because different retailers have different views. For instance, one retailer
may be interested in new products that help shift consumers to a more
expensive item because of the value they offer, contributing to a higher
dollar ring. Another retailer may be looking for new products that help
build a particular day-part like breakfast or mid-day. And, another
retailer may simply want the lowest-cost product so they can strengthen
their price position to drive volume.
Knowing what a retailer is looking for and how he or she defines growth
will help suppliers develop a more compelling product proposition.
While this approach is more persuasive to a retailer, it’s more complex
for a manufacturer and reinforces the value of leveraging relevant third
parties.
9
© Copyright 2007 NACS. All rights reserved.
Aligning with Retailer Values
Suppliers should be prepared to discuss how they’ll share in the risk
associated with introducing the new product. Some retailers may ask for
back-loaded agreements relative to liquidating the inventory, e.g., markdowns, and others will request up-front allowances, such as a free product
fill per store. While this topic usually falls under the topic of having an
exit strategy, suppliers need to demonstrate to retailers the risks that
they’re willing to take to make the product launch a success. Besides the
prior two examples, this could also take the form of offering support to
cut the product into the set, providing additional promotional support, or
funding for sales contests amongst store operations.
10
© Copyright 2007 NACS. All rights reserved.
Aligning with Retailer Values
Support Product Claims with Facts and Figures
Product suppliers know that a critical element of demonstrating how a
product will help a retailer’s business is to make specific statements or
claims about the product that support the assertion that it’s a good fit or
better than a competing product for a retailer. Retailers expect supplier
claims to be supported by some form of evidence.
Providing facts and
figures can help
category managers
“make the case” to
other stakeholders.
“Don’t
“Don’t make
make assumptions
assumptions about
about the
the business.
business. We
We can’t
can’t make
make decisions
decisions
based
based on
on assumptions.
assumptions. Use
Use fact-based
fact-based data
data so
so that
that you
you can
can talk
talk
intelligently
intelligently about
about the
the business
business and
and the
the opportunity.”
opportunity.”
“If
“If aa manufacturer
manufacturer makes
makes any
any statements
statements about
about why
why the
the product
product isis
better,
we
expect
and
ask
for
[the]
evidence
to
support
it.
better, we expect and ask for [the] evidence to support it. This
This
[evidence]
[evidence] should
should be
be based
based on
on some
some type
type of
of consumer
consumer research.”
research.”
Whether it is consumer research, test market results, or sales performance
from another class of trade, retailers prefer evidence that supports
statements so they can make an informed decision about a product. In
cases where a retailer operates in a “pull environment,” this evidence can
help a corporate category manager increase take rates with stores that
have authority to make assortment decisions.
Suppliers who provide credible information will be in a better position to
demonstrate the value of their product and also help category managers
“make the case” for adding the product. In both cases, the supplier
benefits by reducing the perceived risk to the retailer associated with
adding a new product.
11
© Copyright 2007 NACS. All rights reserved.
Aligning with Retailer Values
Ensure That Information is Complete and Relevant
Information Types
` Product
categorization
(Category, subcategory, etc.)
` Test market
results
(Re-purchase rates,
volume, etc.)
` Product
specifications
(Case count,
dimensions, etc.)
` Product financials
(SRP, unit cost,
etc.)
` Supply availability
(First order date,
distribution, etc.)
Simply having the evidence to support a product’s claim isn’t enough; the
information must also be meaningful to the retailer. This is especially
true when suppliers make statements about projecting the volume rates
for a new product, and goes back to knowing the retailer’s business.
“We'd
“We'd like
like to
to get
get aa sense
sense of
of how
how well
well the
the product
product isis likely
likely to
to perform
perform in
in
our
stores.
However,
this
can
be
a
double-edged
sword
[for
the
our stores. However, this can be a double-edged sword [for the
supplier]
supplier] as
as it's
it's important
important to
to understand
understand the
the retailer's
retailer's business.
business. [For
[For
example]
example] We
We had
had aa manufacturer
manufacturer present
present volume
volume projections
projections which
which
were
were based
based on
on the
the convenience
convenience channel.
channel. IfIf they
they knew
knew our
our business
business
better,
they
would’ve
known
that
the
estimates
were
low.”
better, they would’ve known that the estimates were low.”
Retailers also need enough information—beyond volume projections—to
complete an internal evaluation of the product. This typically involves
identifying low-performing products that possess similar attributes which
helps the retailer determine the necessary hurdle rate to justify rotating in
a new product.
Suppliers can help themselves immensely by making sure they know and
can provide what retailers need to make a decision about authorizing or
even testing a new product. The side-bar outlines some of the
information required by most convenience retailers.
12
© Copyright 2007 NACS. All rights reserved.
Aligning with Retailer Values
Demonstrate How You Plan to Stimulate Consumer Demand
Simply getting a new product on a retailer’s shelves won’t guarantee
demand for that product. Retailers want to understand how a product
supplier will create consumer demand for that product in the market,
underscoring the importance of presenting an effective media plan.
“We
“We like
like to
to see
see the
the media
media plan
plan because
because itit helps
helps us
us understand
understand how
how aa
manufacturer
plans
to
create
a
buzz
or
consumer
awareness
of
manufacturer plans to create a buzz or consumer awareness of the
the
product.
product. This
This isis important
important since
since awareness
awareness builds
builds interest,
interest, and
and interest
interest
stimulates
stimulates trial.
trial. And,
And, ifif aa consumer
consumer likes
likes itit after
after the
the initial
initial trial,
trial, we
we gain
gain
repurchase,
repurchase, which
which isis what
what we’re
we’re really
really after.
after. Another
Another reason
reason we
we like
like to
to
see
the
plan
is
that
it
helps
indicate
the
level
of
commitment
they
have
see the plan is that it helps indicate the level of commitment they have to
to
creating
creating the
the initial
initial consumer
consumer demand.”
demand.”
Review tactics other
suppliers have utilized
to successfully
introduce products in
convenience.
One element of the overall media plan retailers are interested in is the offsite strategies a supplier is using to motivate that initial product trial.
This could include sampling, direct-mailings, sweepstakes/contest, etc.
Retailers also want to understand how a supplier plans to generate
demand for the product via in-store tactics, e.g., shelf dangler, shelf
coupons, etc.
Suppliers should identify and review some of the ways other suppliers
have successfully introduced similar types of products into convenience.
This can help highlight strategies that were particularly effective when
developing the in-store components of the plan.
Knowing the channel and how consumers shop for specific products in
convenience stores will go a long way in guiding strategies and tactics
that are important to the success of a product’s launch plan. This is
another area where product suppliers can leverage third-party expertise to
shorten their learning curve.
13
© Copyright 2007 NACS. All rights reserved.
Aligning with Retailer Values
Recognize the Differences Between Chains and Independents
Nearly two-thirds of the convenience stores in the U.S. are managed by
companies that operate between 1 and 10 stores, i.e., independents.16
This fact alone highlights the sizable role that the “independent” retailer
plays in a supplier’s eventual success in the channel and the importance
of developing programs that appeal to both chains and independents.
The main lesson learned from those most familiar with the independents
sector, is that while their business issues may be similar to chain
accounts, they react differently to supplier programs.
Suppliers would
benefit by developing
multi-tiered sales
programs.
“Manufacturers
“Manufacturers need
need structured
structured programs
programs related
related to
to what
what makes
makes them
them
[independents]
[independents] respond,
respond, which
which generally
generally isis money.
money. Suppliers
Suppliers need
need to
to
develop
develop clear
clear goals
goals and
and strict
strict guidelines
guidelines for
for compliance,
compliance, and
and then
then
reward
reward them
them for
for performance.
performance. It’s
It’s also
also critical
critical that
that suppliers
suppliers be
be patient
patient
with
with independents
independents since
since itit takes
takes time
time to
to earn
earn their
their trust.
trust. But
But once
once you’ve
you’ve
earned
earned it,
it, they’ll
they’ll reward
reward you
you with
with stronger
stronger support.
support. The
The hardest
hardest part
part isis
the
the communication
communication because
because owners
owners have
have aa lot
lot of
of things
things to
to do
do and
and don’t
don’t
have
have the
the necessary
necessary infrastructure.
infrastructure. The
The key
key isis to
to communicate
communicate the
the key
key
aspects
aspects of
of the
the programs
programs so
so they
they understand
understand the
the value
value of
of complying.”
complying.”
“While
“While they
they [independents]
[independents] like
like to
to sometimes
sometimes make
make aa deal,
deal, margins
margins are
are
thin
thin so
so they
they can’t
can’t make
make too
too many
many mistakes.
mistakes. We
We [buying
[buying groups]
groups] try
try to
to
guide
guide them
them to
to quality
quality supplier
supplier programs.
programs. At
At NACS
NACS Show
Show 2006
2006 there
there
were
over
300
new
companies.
When
we
meet
with
these
new
were over 300 new companies. When we meet with these new suppliers,
suppliers,
we
we like
like to
to know
know what
what their
their threethree- to
to five-year
five-year plan
plan isis because
because itit could
could be
be
aa long
development
cycle.
And,
because
some
[independents]
give
it
long development cycle. And, because some [independents] give it
[new
[new product]
product] 90
90 days
days and
and others
others only
only 30
30 days,
days, we
we want
want to
to know
know what
what
type
type of
of promotions
promotions are
are they
they using
using to
to build
build awareness
awareness to
to drive
drive trial.”
trial.”
Suppliers would benefit by developing multi-tiered sales programs to
increase success with these two major types of retail customers. Talking
with independent retailers is an excellent way to find out what they like.
And, this comes back to an early supplier issue relative to resources and
expertise—which is where other third-party organizations can be
leveraged to support the entry into convenience.
A key success factor in building the independent business is the ability to
track compliance and store performance and reward for execution of any
program.
14
© Copyright 2007 NACS. All rights reserved.
Aligning with Retailer Values
Develop an Effective Store Coverage Plan
Previous trade analyses have documented the challenges of getting new
products onto the convenience store shelf and keeping them in-stock.17
Regardless of the root cause, retailers are all too familiar with suppliers
who believe their work is done after the category manager has authorized
the product. Without a store coverage plan, suppliers may never realize
the fruits of their labor.
Here’s what retailers generally expressed as making up an effective
coverage plan.
“Help
“Help get
get the
the product
product on
on the
the shelf
shelf quickly.”
quickly.” This
This enables
enables the
the product
product to
to
benefit
benefit from
from effects
effects of
of the
the media
media plan,
plan, resulting
resulting in
in higher
higher unit
unit volumes
volumes
for
for both
both the
the retailer
retailer and
and supplier.
supplier.
Suppliers who can
address…issues upfront…improve their
own chances of
success.
“Make
“Make sure
sure that
that the
the product
product remains
remains available
available even
even after
after the
the initial
initial
order
sells
through.”
Sometimes
this
can
be
an
issue
if
the
product
order sells through.” Sometimes this can be an issue if the product isn’t
isn’t
in
in the
the retailer’s
retailer’s order
order guide,
guide, because
because the
the store
store isn’t
isn’t used
used to
to ordering
ordering it,
it, or
or
the
the shelf
shelf tag
tag isis missing,
missing, which
which isis the
the next
next point.
point.
“Ensure
“Ensure that
that shelf
shelf tags
tags are
are present
present and
and accurate.”
accurate.” This
This isis critical
critical for
for
communicating
communicating price
price to
to the
the consumers
consumers and
and allowing
allowing the
the store
store to
to reorder
reorder
the
the product.
product.
“Enforce
“Enforce plan-o-gram
plan-o-gram compliance.”
compliance.” This
This isis important
important given
given that
that the
the
retailer
has
a
rationale
for
the
product’s
placement
in
the
category
set.
retailer has a rationale for the product’s placement in the category set.
“Only
“Only use
use authorized
authorized promotional
promotional items.”
items.” This
This isis critical
critical since
since the
the
retailer
may
have
very
clear
policies
relative
to
merchandising
practices,
retailer may have very clear policies relative to merchandising practices,
e.g.,
e.g., shippers,
shippers, shelf
shelf danglers,
danglers, etc.
etc.
Suppliers who can address these issues up-front through store coverage
plans improve their own chances of success. It also demonstrates a
supplier’s commitment to building a successful business.
It’s also important for suppliers to know if a retailer expects them to
provide support in other ways, e.g., via a third-party merchandiser
directly contracted by the retail account. Brokers and wholesalers should
be aware of specific retailer practices and are a logical resource in this
area relative to providing “feet-on-the-street” coverage.
Retailers also indicated that one of the worst situations a supplier can get
into with a new product is to over-extend beyond production capacity,
which leads to an unstable product supply that can leave a retailer’s
shelves empty.
15
© Copyright 2007 NACS. All rights reserved.
Aligning with Retailer Values
Know What You Need to Make to Stay in Business
Due to the volatility associated with the petroleum side of the business,
many convenience retailers place greater pressure on the in-store part of
the business which contributes a larger share of the profits. And, because
of the increasing competition from hypermarkets for the convenience
consumer, convenience and petroleum retailers demand a lot from their
product suppliers.
While retailers are motivated to protect their businesses by ensuring a
steady, stable supply of products from product suppliers, they cannot
prevent a supplier from making bad business decisions.
It’s a retailer’s job to
ask and it’s the
supplier’s job to know
when to say “no.”
“We
“We need
need to
to all
all make
make aa profit
profit at
at the
the end
end of
of the
the day.
day. ItIt all
all ends
ends up
up by
by
knowing
what
it
will
take
to
make
an
acceptable
return.
Suppliers
knowing what it will take to make an acceptable return. Suppliers need
need
to
to think
think about
about what
what they
they need
need and
and why,
why, because,
because, we’re
we’re going
going to
to be
be in
in
business
for
a
long
time
–
are
you?”
business for a long time – are you?”
“All
“All too
too often
often we
we see
see startups
startups agreeing
agreeing to
to aa price
price that
that doesn't
doesn't allow
allow them
them
to
make
any
money.
While
we're
in
business
to
earn
a
profit,
we
also
to make any money. While we're in business to earn a profit, we also
recognize
recognize the
the need
need to
to ensure
ensure that
that our
our manufacturers
manufacturers do
do so,
so, too.
too. Be
Be
realistic
realistic about
about how
how much
much profit
profit you
you need
need to
to make.”
make.”
Since retailers seldom evaluate a supplier more than once, new suppliers
should lead with their best deal that yields an acceptable return. And, if
the product is authorized, the supplier can reinvest into building the
business further.
Equally important, suppliers should know how a retailer measures the
success of a new product since the method can differ dramatically across
retailers. This means knowing the performance metric, e.g., unit sales,
gross profits, etc., length of the evaluation period and the hurdle rate
required to maintain/expand distribution. Ultimately, suppliers must
make sure they understand these expectations if they want to improve
their chances of success.
16
© Copyright 2007 NACS. All rights reserved.
Selling Through Wholesalers
Wholesale distributors play a critical role in the convenience value chain.
They supply between 60% and 80% of all the volume sold through a
traditional convenience store.18 And, unlike other classes of trade, the
vast majority of convenience retailers depend on wholesalers to distribute
their non-DSD products. As a result, wholesalers often act as gatekeepers
for new products, screening and evaluating products that may not be
currently sold in the channel.
80% of wholesaler
revenue is generated
by tobacco products.19
It’s also useful for suppliers to know that most convenience wholesalers
began as candy and tobacco distributors before expanding into all the
other product categories that their retail customers want to offer.
However, as one wholesaler described it, “We’re still heavily dependent
on tobacco,” and nearly 80% of a wholesaler’s revenue is still derived
from tobacco.19
Suppliers should leverage the value of wholesalers beyond their core
competency in logistics and distribution. As some distributors indicated:
“Wholesalers
“Wholesalers can
can help
help generate
generate exposure
exposure for
for new
new products.”
products.”
“We
“We [wholesalers]
[wholesalers] focus
focus on
on using
using data
data to
to identify
identify what
what our
our customers
customers
and
and their
their consumers
consumers are
are looking
looking for.
for. And,
And, then
then we
we spend
spend aa lot
lot of
of time
time
finding
new
products
and
a
means
of
getting
them
to
the
street
and
finding new products and a means of getting them to the street and on
on
the
the retail
retail shelf.”
shelf.”
While the wholesaler’s core competencies can help identify and capitalize
on new opportunities, suppliers need to be aware of the retailerwholesaler dynamics as they relate to new products—particularly those
offered by suppliers less experienced in convenience.
“If
“If aa new
new supplier
supplier wants
wants to
to present
present their
their product
product to
to me
me [a
[a retailer],
retailer], one
one
of
of the
the first
first questions
questions II ask
ask before
before committing
committing to
to aa meeting
meeting isis whether
whether the
the
product
product isis already
already offered
offered through
through my
my distributor.
distributor. IfIf itit isn’t
isn’t available
available
through
through my
my distributor,
distributor, I’m
I’m not
not likely
likely to
to even
even evaluate
evaluate the
the product.”
product.”
“If
“If it's
it's not
not aa [retail]
[retail] customer
customer request
request or
or aa really
really compelling
compelling offer,
offer, we
we
will
probably
not
pick
it
up.
Smaller
wholesalers
don't
generally
create
will probably not pick it up. Smaller wholesalers don't generally create
the
the market
market for
for aa product
product unless
unless they
they have
have aa vested
vested interest,
interest, e.g.,
e.g., private
private
label
label cigarettes.”
cigarettes.”
17
© Copyright 2007 NACS. All rights reserved.
Selling Through Wholesalers
These quotes reveal somewhat of a Catch-22 situation when introducing a
new product into convenience. That is, how does a supplier gain
wholesale distribution for a product when retailers are generally only
interested in a new product if it already has wholesale distribution?
Suppliers can break this circular logic by having, as cited in one of the
quotes, “a really compelling offer.”
This insight reinforces the value that third-party organizations can
provide to a supplier by helping them build a stronger sales story in order
to gain wholesaler authorization for a product. This is also critical
because the wholesaler’s scale will help generate awareness for the
product, especially with the independent retailers. This is particularly
advantageous to a supplier since independents have traditionally been the
most difficult customer segment to reach. However,
“New
“New suppliers
suppliers need
need to
to understand
understand that
that the
the sales
sales effort
effort doesn’t
doesn’t stop
stop
after
getting
authorization
with
a
distributor,
but
rather
they
need
after getting authorization with a distributor, but rather they need to
to
work
work with
with the
the sales
sales force
force to
to get
get to
to retailers
retailers and
and their
their shelves.”
shelves.”
This means having an effective retail coverage plan for retail addressed in
the retailer section. Otherwise, wholesalers can support a new product
launch by tracking shipments to retail, identifying distribution voids,
executing retail communication, and coordinating retail merchandising
activities.
It would benefit suppliers to learn more about the wholesale environment,
e.g., the economics, the issues and the realties associated with gaining
distribution for new products. As one wholesaler stated:
“While
“While new
new items
items are
are the
the life
life blood
blood of
of growth
growth for
for the
the industry,
industry, we
we can’t
can’t
afford
to
carry
products
that
don’t
sell.”
afford to carry products that don’t sell.”
As a result, wholesalers want to know how a new product is going to
create value for all players in the supply chain and, if it doesn’t meet
expectations, what’s the exit strategy?
“Suppliers
“Suppliers need
need to
to demonstrate
demonstrate aa willingness
willingness to
to invest
invest in
in growing
growing the
the
business
and
a
commitment
to
reducing
a
wholesaler’s
risks
in
exiting
business and a commitment to reducing a wholesaler’s risks in exiting
the
the business.
business. In
In other
other words,
words, what
what isis their
their plan
plan to
to address
address aa failed
failed
launch,
launch, e.g.,
e.g., mark
mark down
down at
at retail,
retail, disposal
disposal of
of product
product at
at wholesale,
wholesale,
etc.?”
etc.?”
18
© Copyright 2007 NACS. All rights reserved.
Selling Through Wholesalers
“The
“The days
days of
of buying
buying your
your way
way into
into this
this business
business are
are waning.
waning. Today,
Today,
because
of
technology,
competition
and
razor-thin
margins,
we
because of technology, competition and razor-thin margins, we
[wholesalers]
[wholesalers] use
use aa lot
lot more
more facts
facts and
and figures
figures to
to make
make decisions.”
decisions.”
The days of buying
your way into this
business are waning.
Wholesalers are less interested today in carrying more products in most
categories unless there is a clear financial and/or strategic reason to do so.
Suppliers who want to gain distribution at wholesale need to demonstrate
how their product is unique or better and how it will help grow the
business.
The American Wholesale Marketers Association (www.awmanet.org)
works on behalf of convenience distributors in the United States.
Suggested resources through AWMA include:
` Hershey Industry Performance Analysis (HIPA Report) documents
the economics of the wholesale distributor annually, providing
valuable benchmarks to the business.
` The Distributor Value Equation captures the contribution made by
wholesale distributors, highlights the key business issues that impact
profitability and presents potential solutions that wholesalers should
evaluate to ensure their long-term viability.
` AWMA Business Exchange allows suppliers to pre-schedule and
meet with distributors to discuss new products, trade programs and
other issues impacting the business.
19
© Copyright 2007 NACS. All rights reserved.
Working with Convenience Brokers
Brokers—now commonly referred to as “sales and marketing agencies”—
include companies with a wide range of capabilities and areas of focus
that include headquarters or store calls in addition to administration,
communication, merchandising, planning and selling activities. While
these types of companies can help new suppliers more effectively
penetrate convenience retail, suppliers need to have a solid understanding
of the role brokers would play in getting their product to market.
Know Your Organizational Needs
It’s critical that suppliers identify their resource gaps and requirements
before evaluating brokers, since many of these companies specialize in
certain areas or in specific activities.
“Manufacturers
“Manufacturers should
should have
have aa clear
clear idea
idea of
of their
their go-to-market
go-to-market strategy
strategy
and
and what
what the
the organization’s
organization’s needs
needs are
are relative
relative to
to supporting
supporting that
that
strategy.
strategy. This
This [understanding]
[understanding] will
will establish
establish the
the context
context for
for identifying
identifying
which
which sales
sales and
and marketing
marketing organization
organization isis the
the best
best fit
fit for
for them.”
them.”
This will help suppliers narrow their searches and communicate their
needs more clearly to potential service providers.
20
© Copyright 2007 NACS. All rights reserved.
Working with Convenience Brokers
Assess the Fit Between Companies
After suppliers have a clear idea of their support needs, they can use
industry trade resources to identify potential broker agencies. Once
brokers have been identified, suppliers should set up an exploratory
meeting to discuss the following topics with the candidates.
` What are the agencies’ core capabilities?
` What other brands/manufacturers do they represent?
Suppliers can obtain
information from
various sources,
including:
` How do they generally represent similar product suppliers?
` How would they want to organize the work team to improve
communication, coordination and execution?
` Company Web
sites
` What are these relevant experiences that would demonstrate their
ability to be effective in this product category?
` Other product
suppliers
` What experience do they have that they can draw upon to help us,
and are there strategies that we didn’t share that we should be
considering?
` Wholesalers
` Trade shows
` What planning process do they go through to establish goals, timing,
responsibilities and key performance metrics?
` How is performance tracked against the plan and how often are
supplier business reviews conducted?
These meetings should help suppliers share their visions, current go-tomarket strategies and general organizational needs while learning about
the strengths, services and culture of the prospective broker.
Suppliers should, however, know that the brokers are also using these
meetings to evaluate whether or not they want to represent your products.
As one broker explained,
“We
“We want
want to
to ensure
ensure cultural
cultural alignment
alignment and
and strategic
strategic fit.
fit. Do
Do they
they [the
[the
supplier]
have
a
passion
for
the
business
and
are
they
committed
supplier] have a passion for the business and are they committed to
to the
the
channel
channel with
with dedicated
dedicated resources?
resources? We’re
We’re interested
interested in
in representing
representing
good
good companies
companies that
that have
have products
products that
that are
are good
good for
for our
our retail
retail
customers.”
customers.”
Similar to the retailer or the wholesaler, suppliers need to demonstrate
why their products are better or different in order to help the broker see
the value of representing the product line.
21
© Copyright 2007 NACS. All rights reserved.
Working with Convenience Brokers
Develop a Joint Business Plan
After selecting a broker partner, the supplier should collaborate with that
organization to develop a business plan that covers the initial launch,
post-launch and a contingency plan in the event that the product fails in
the channel.
…It’s imperative that
roles, responsibilities,
timing, and goals are
all clearly defined.
“While
“While you’d
you’d think
think itit wouldn’t
wouldn’t be
be the
the case,
case, we
we have
have aa lot
lot of
of suppliers
suppliers
who
don’t
recognize
the
need
for
establishing
agreed-to
objectives
who don’t recognize the need for establishing agreed-to objectives at
at the
the
start
start of
of the
the relationship.”
relationship.”
These objectives could range from internal planning schedules to the
number of retail calls completed per quarter. And, it’s imperative that
roles, responsibilities, timing, and goals are all clearly defined and
agreed-to by both parties since this plan will guide how both companies
interact and collaborate.
If executed as planned and the product is as good as expected, the plan
will help improve accountability, coordination and mutual business
results for both companies.
22
© Copyright 2007 NACS. All rights reserved.
Working with Convenience Brokers
Leverage the Strength of Brokers
The broker’s experience in convenience offers many advantages to a
supplier who is less familiar with this trade channel. Specifically, brokers
highlighted several ways they can create value for suppliers.
“We
“We ensure
ensure that
that they
they [suppliers]
[suppliers] attend
attend the
the right
right trade
trade events.”
events.” These
These
events
events include
include national
national retail
retail trade
trade conferences,
conferences, wholesaler
wholesaler meetings,
meetings,
vendor
vendor days
days and
and even
even virtual,
virtual, on-line
on-line trade
trade shows
shows which
which are
are becoming
becoming
more
popular
in
this
channel.
more popular in this channel.
“We
“We help
help build
build their
their exposure
exposure at
at various
various events.”
events.” Brokers
Brokers represent
represent
many
different
suppliers,
and
this
enables
them
to
use
many different suppliers, and this enables them to use aa potential
potential
customer’s
customer’s time
time more
more efficiently
efficiently by
by presenting
presenting more
more than
than one
one product
product or
or
product
line
during
a
meeting.
product line during a meeting.
Know your need, find
a good fit, and develop
an effective plan.
“We
“We can
can get
get important
important insights
insights from
from potential
potential customers
customers before
before actually
actually
presenting
the
product.”
Based
upon
on-going
dialogue
with
retailers
presenting the product.” Based upon on-going dialogue with retailers
and
and wholesalers,
wholesalers, brokers
brokers can
can leverage
leverage their
their relationships
relationships to
to gain
gain
guidance
guidance and
and feedback
feedback on
on offers
offers that
that are
are still
still being
being developed.
developed.
“We
“We can
can position
position the
the product
product solution
solution more
more effectively.”
effectively.” Suppliers
Suppliers
should
should appreciate
appreciate that
that brokers
brokers may
may know
know the
the “players,”
“players,” their
their respective
respective
business
issues,
buying
preferences
and
even
their
procurement
business issues, buying preferences and even their procurement and/or
and/or
merchandising
merchandising policies
policies more
more thoroughly,
thoroughly, which
which can
can help
help improve
improve
product
product presentation
presentation to
to potential
potential customers.
customers.
Brokers will likely know how to do business with a certain retailer in
terms of completing the required administration forms, assessing the
account opportunity, scheduling a meeting and presenting the appropriate
information in the preferred manner, all of which can improve a new
supplier’s chances.
Ultimately, the key to an effective broker relationship is based on
knowing your needs, finding a good fit with a company, leveraging the
broker’s strength, developing an effective plan and then managing against
that plan.
The Grocery Manufacturers of America (www.gmabrands.com)
advances the interests of the food, beverage and consumer products
industry on key issues. One suggested resource includes the report:
Value of Outsourcing Sales and Marketing which examines this growing
trend, assesses the value of these services and identifies best practices
relative to outsourcing.
23
© Copyright 2007 NACS. All rights reserved.
Leveraging NACS Resources
Suppliers can gain further insights on how to sell to convenience retail by
listening to the audio coverage of a NACS Show 2006 education session
on this topic. To obtain a copy, go to
http://www.nacsonline.com/NACSShow/Sessions_Events/default.htm and
select “N7: Breaking Into the C-Store Business - A Supplier's How-To
Guide.”
Suppliers should also attend the informative NACS trade events to learn
more about the channel and build stronger trade relationships. These
include:
The NACS Show
The largest annual trade event in the
convenience channel involving retailers,
suppliers and wholesale distributors.
NACS SOI Summit
An annual event that brings executives
from across the industry together to
review and discuss store-level trends
and issues.
NACS Business Exchanges
Pre-scheduled meetings between
suppliers and retailer executives to
discuss mutually agreed upon
opportunities and/or issues.
NACS also offers communications, publications and reports to help
suppliers keep informed about key industry issues, metrics, and trends,
including:
NACS Daily
An electronic newsletter delivered via
e-mail weekdays, summarizing industry,
legislative and regulatory issues and/or
headlines.
NACS Magazine
A monthly publication targeted to
retailer and supplier decision-makers
across a wide range of functional
areas.
NACS State of the Industry
report
An annual industry report that’s
recognized as the most comprehensive
benchmarking source for convenience
retailing.
Last, suppliers should contact NACS to understand the other types of
information, services and tools available to help them understand how to
succeed in convenience retail.
24
© Copyright 2007 NACS. All rights reserved.
Summary
Achieving success in the convenience channel isn’t that different from
achieving success in other trade channels. It begins with a solid
understanding of the consumer and having the right set of products to
satisfy their needs. Given the continued growth in the channel, it makes
real financial sense for suppliers to learn how to succeed in convenience
retail.
The fact that this guide highlights many trade insights that appear to be
straightforward or even intuitive, it doesn’t mean it’s easy for suppliers to
consistently execute an effective business plan for convenience retail.
But the suppliers who are winning in convenience have made real
investments in building their businesses. And, they’ve done so by
recognizing the role of various channel partners and leveraging the
strengths of each to create greater value across the entire value chain.
These efforts have resulted in broader wholesale distribution, faster
speed-to-shelf at retail, greater consumer demand for the product, and
better support for the product after launch, all of which have driven
stronger financial returns for the supplier.
NACS encourages suppliers to leverage their resources to learn more
about the channel, build exposure for their products, and to develop
stronger connections throughout the channel. For more information,
please visit the NACS Web site at www.nacsonline.com.
25
© Copyright 2007 NACS. All rights reserved.
About NACS and Willard Bishop
NACS
NACS, the Association for Convenience & Petroleum Retailing is an
international trade association representing more than 2,200 retail and
1,800 supplier members. The U.S. convenience store industry, with over
140,600 stores across the country, posted $474.3 billion in total sales in
2005, with $329.5 billion in motor fuels sales.
Willard Bishop
A consulting firm working with retail and foodservice companies to solve
business problems and identify opportunities to drive profitable
growth. For over 30 years, we have helped clients in the United States,
Canada, Europe, Asia, and Latin America implement go-to-market
strategies that improve both top-line sales and bottom-line profits. We do
this by going beyond research to develop strategic implications and
actionable recommendations for our clients.
26
© Copyright 2007 NACS. All rights reserved.
Endnotes
1
State of the Industry report, NACS, 2006, p. 8.
2
Ibid, p. 5.
3
Ibid, p. 50. and State of the Industry report, NACS, 2002, p. 65.
4
Ibid, pp. 58 – 59.
5
The Tax Burden on Tobacco, Orzechowski and Walker, 2005, Vol. 40,
Table 3, p. 6.
6
For more information about general consumer shopping trends across
classes of trade or convenience, we suggest contacting ACNielsen,
Information Resources, Inc., or The NPD Group.
7
State of the Industry report, NACS, 2006, Table 52, p. 43.
8
For information on new products launched, we suggest contacting the
Mintel Group, which specializes in tracking and providing coverage of
new products. For information related to how new products are
performing in the convenience channel, we suggest contacting either
ACNielsen or Information Resources, Inc., which both offer syndicated
data services associated with convenience retail.
9
Hershey Industry Performance Analysis, American Wholesale
Marketers Association, p. 12.
10
State of the Industry report, NACS, 2006, Table 17, p. 22.
11
Convenience SuperStudy™, Willard Bishop, 2005.
12
Ibid.
13
For additional insights on the topic of new product introductions in
convenience see “Bringing Product to Market,” Convenience Store
Decisions, December 2006, pp. 18 - 22 or the “CSN New Product
Study,” Convenience Store News, August 2, 2004, pp. 55 – 60.
14
State of the Industry report, NACS, 2006, p. 8.
15
To learn more about what several of the largest convenience retailers
want from product suppliers, we suggest contacting Convenience Store
Petroleum with regard to their on-line “How to Sell to …” conference
series.
16
State of the Industry report, NACS, 2006, p. 10.
27
© Copyright 2007 NACS. All rights reserved.
Endnotes
17
For more information on the out-of-stock issue relative to new products,
see “Leveraging the Power of New Products: A Practical Response for
the Convenience Store Retailer,” Willard Bishop, April 2003, p. 9.
Otherwise, for more details on out-of-stocks in general in convenience,
see either “In-Stock Solutions: Part II of the CSN Out-of-Stocks Study,”
Convenience Store News, 2000, pp. 8 – 12 or “In Stock Means In
Business: Convenience Store Operators Can Capture Lost Sales and
Bolster Customer Loyalty by Reducing Out-of-Stocks,” Convenience
Store News, 1998, p. 11.
18
C/SCAPE™, American Wholesale Marketers Association / NACS /
Willard Bishop, 2000; Convenience SuperStudy™, Willard Bishop,
2005.
19
Hershey Industry Performance Analysis, American Wholesale
Marketers Association, 2006, p. 12.
28
© Copyright 2007 NACS. All rights reserved.
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