You’d probably be surprised at the amount of time that the people who place Coca-Cola products on retailers’ shelves spend thinking about how and why you choose a particular soft drink.
You might not know about the precious nature of shelf space and importance of promotional in-store displays.
And few people see the effort that goes into figuring out the critical “shopper DNA” inherent in each retailing outlet-whether it’s a Wal-Mart, Kroger or local convenience store that stocks Coke products.
But one of those people is Luisa Eichman, director of space planning services at Coca-Cola Enterprises (CCE), a publicly traded and separate business entity from The Coca-Cola Company. CCE is the world’s largest marketer, distributor and producer of Coca-Cola products, such as Coca-Cola Classic, Diet Coke, Sprite, Dasani, Powerade and many other brands.
In 2008, CCE distributed, via its vast supply chain and distribution system, more than 2 billion cases of Coke products to 80 percent of the North American population.
Her team’s mission: Ensure that CCE’s liquid goods are displayed in the most efficient and economical way, and are always in stock. “There’s really a lot of art and science behind it,” Eichman says. “The space in the store is like really valuable real estate, and the efficiency and productivity of that space can make or break the store and also the manufacturer.”
The “science” part of the equation, she says, is “making sure you have the right product at the right price, and that your entire shelf is selling down evenly,” Eichman says. “If you have three days’ of supply of everything, and you replenish that shelf every three days, that’s the perfect nirvana position for everyone to have.”
For the “art,” CCE’s merchandising analysts have long relied on what’s called planograms-schematics the analysts use to determine optimal space-management configurations, such as shelf displays, product assortments and floor plans, within the confines of their allotted retail space. In the past, however, each planogram could take several days to produce and couldn’t be targeted to specific stores.
“The way we did planograms in the past is that we’d generate one planogram that fits all [stores],” Eichman says. But it became apparent, she adds, that “maybe we were really missing the boat.”
Location, Location, Location
So in 2007, CCE embarked on a companywide initiative (called Shopper Segmented Merchandising) to move beyond simple demographics and better understand how and why customers shopped in retail outlets where CCE’s products were sold. “We all agreed that every store is different,” Eichman says, “and all shoppers have different ways of shopping.”
She figured her group would need new space- and category-management software to help produce planograms faster and incorporate retailer point of sale (POS) data. And her team would also need a new way of thinking.
“We were replicating history by continuing to put the products in this particular store because that’s what has sold [in the past],” Eichman says. “But that wasn’t forward-thinking.”
Like many consumer-goods companies, CCE has felt the deep impact of softening demand as well as volatile commodity prices. In 2008, CCE suffered a net income loss of $4.4 billion compared with net income of $711 million in 2007, according to CCE’s 2008 annual report.
As part of the new initiative, Eichman purchased a set of packaged applications from JDA Software called Category Management. JDA’s suite includes the Intactix Knowledge Base, Space Planning, Space Automation and Category Advisor products. (To see how JDA stacks up against other leading supply chain vendors, see “The Top Five Supply Chain Management Vendors.”)
Now, planners can create store-specific planograms in five to 20 minutes.
After the initial rollout and new process implementation in 4,000 grocery stores in 2007 and on into 2008, CCE achieved a 2 percent increase in unit sales and a 2 percent improvement in dollar sales. CCE’s executive suite has taken notice of the results.
“Obviously, any lift in this economy is good,” Eichman says. “But now, they’re even more cognizant of how do we sustain this and really embed this as a way of doing business day in, day out.”
By the end of 2008, data from an additional 4,000 stores was added to JDA relational database to help get deeper insight into consumers’ buying behavior, Eichman says.
“Nowadays, we don’t drink because we’re thirsty; there’s so many reasons for drinking a beverage,” Eichman says. “And the more we understand when and where and why a shopper purchases a certain beverage is even more important for us and our retailers.”
Since its founding, Coca-Cola has operated what’s called a “direct store delivery” system with its North American retailing partners. That means that CCE employees are the ones who deliver the Coca-Cola products to each store and right to the shelves. “We are in control to make sure that we deliver our products to each of the stores,” Eichman says. This also means that CCE can ensure that its planogram strategies are correctly implemented.
Eichman stresses, however, that everything is done as a recommendation to and with the permission of CCE’s retailing partners. “In terms of making sure it happens and gets deployed, it depends on our retailer customers and what other initiatives that they have,” she says. “So what we do is we try to partner with them to ensure we’re both moving forward in the same direction and getting everybody [to achieve their] yearly objectives.”
The advantage of selling more and reducing out-of-stock products is obvious for retailers, but it is even more critical for manufacturers like CCE. With Wal-Mart, Eichman says, CCE’s amount of shelf space is recalculated every year. “You get more space or less space,” she says, “depending on how you did the previous year.”