Tuesday, August 26, 2003

Planograms How is shelf space allocated? In supermarkets and other retailers, the vendors design what is called a planogram. This is basically a map of a sector of shelf space, used to determine what items go where, how much each product can be allowed to take up, and exactly how they are shelved and faced. The planogram replaces the more-or-less haphazard way in which items are displayed at your corner grocery store, if you still have one. In an article by grocery industry writer Ronald Margulis entitled "Making Every Shelf Inch Count at Each Store," we get a glimpse into the way in which computerization has changed the way in which retail companies manage their biggest resources, their shelves. More and more retailers are seeing that wringing out every possible penny from their shelves. That means optimizing every inch for maximum turnover and profitability. In the recent past shelf management has been more an art than a science, but thanks to instant feedback from the cash register and, more important, software that helps mangers analyze that data, each inch of shelving can be micromanaged. Planogramming with intelligence is space management, which requires direct integration of merchandise and sales data using technology that makes it possible to minimize the inventory needed to achieve high in-stock levels. That increases sales, improves inventory turns, and boosts gross margin return on investment. One of the crucial issues that can be tracked is number of average turns. That means the number of times each year the products on the shelves turn over. In addition, stores can track with precision the margins per inch of shelf space. They idea is to allocate the optimal amount of shelf space to each category and each product. In convenience stores, how much space should be allocated to chips, how much to yogurt? In an ideal scenario, the manager can be constantly adjusting and readjusting the products on the shelf. Designing the planogram and delivering the product is not enough. Most major companies that sell through retail stores actively help the stores in setting up their shelves in the first place. Then they have to monitor the shelves to make sure the planogram is being followed, to see that they shelves are being promptly restocked, and that rivals'  products aren't encroaching on the territory. . Oligopolies are particularly well suited to planogramming. It gives a retailer a tool for exercising power over its suppliers; with an objective standard of sales performance, retailers get the upper hand with the suppliers. For example, it can demand price reductions, margin cuts, and promotions to raise the profit per inch. For the bigger suppliers in each category, however, planogramming is a big help as well. It keeps most smaller competitors in line (or even off the shelf), as few can manage to match the profit per inch of highly promoted national brands. It also gives larger companies, with large R & D budgets, the ability to move products in and out, try out lots of products, hold on to the winners and quickly replace the losers. Smaller companies don't have that flexibility. 8:23:37 PM

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