Owning the Traditional Trade — A ‘Window’ of Opportunity for CPG Manufacturers

Modern Trade is cornering CPG brands

It won’t be an exaggeration to call the relationship between CPG companies and retailers as frenemies. As Modern Trade continues to penetrate in the retail space in emerging economies like India, Modern Trade retailers seem to have an upper hand in the negotiations. Nielsen data reveals that in the July-September quarter of 2019, modern trade grew at double the rate of traditional trade, despite an otherwise trying time for the CPG sector. This growth has brought in a huge boost of optimism for the Modern Trade retailers who are using this stat as a bargaining chip for favorable deals.

Based on what is selling the most, retailers are launching their own brands (“private labels”) that are directly competing with the supplier’s brand, sometimes giving inferior visibility to the supplier’s product in order to promote their own brands. Retailers have also started pushing unreasonable pressure for high margins, thus making it difficult for CPG companies to have special displays and promotional activities inside the stores.

Using Traditional Trade to their advantage

Even though Modern Trade is growing at a much better rate, the fact remains that Traditional Trade still occupies a lion’s share in retailing, especially in countries like India, Turkey, China, Philippines, etc. where its share ranges somewhere between 50 to 80%.

Unfortunately, Traditional Trade stores are being overlooked in favor of Modern Trade when it comes to store activation programs. Given the huge presence of traditional trade stores in important markets, this is certainly an opportunity missed.

Thus, investing in visibility improvement programs in Traditional Trade stores can give CPG brands a good competitive advantage and may lead to upliftment in their sales significantly.

What are Perfect Stores?

One of the methods for visibility improvement in Traditional Trade stores is the Perfect Store program.

Perfect Store is a concept popularized by Unilever and Bain that outlines a set of in-store execution standards designed to provide the best shopper experience and maximize sales. While the concept started with modern trade stores, leading CPG manufacturers have adopted the concept for traditional trade stores as well.

Typically, a traditional trade owner will allow a manufacturer to own a space in the store in exchange for better margins or special incentives. CPG manufacturers will then produce a set of merchandising guidelines to make space visually appealing to the consumers and drive sales.

An example of a special merchandised zone in a traditional trade store

It sounds like a simple concept and is indeed one but the road to executing a Perfect Store Program is filled with many operational hurdles. So, let us dive deep and see how we can overcome these challenges and achieve perfect in-store execution of Special Stores.

Challenges in Executing a Perfect Store Program

1. On-Field Execution

The success of a Perfect Store program depends on the efficiency of on-field promoters and merchandisers who are responsible to make sure everything is going as per the execution plan. However, it is easy to set targets, guidelines, processes but incredibly hard to maintain its adherence when it comes to field operations. Since this exercise is done manually in most cases, its slow and prone to many errors.

2. Implementing Protocols

A lot of time and effort of multiple teams is spent on designing optimal displays. Matching displays to protocols can significantly increase brand visibility and boost sales, and deviations from these protocols can hurt the brand image. Missing assets, out of stock SKUs, invasion in special windows are some common issues which are difficult to monitor and fix on a frequent basis.

3. Wear and Tear of Assets

It happens, quite frequently. And you will not know until it’s too late.

In Perfect Store model shopkeepers are responsible to maintain the assets in best conditions and merchandisers should visit the stores frequently and fix it whenever necessary. However, due to operational challenges discussed above, it is difficult to enforce.

4. Visibility for Top Management

Execution of a Perfect Store program requires constant monitoring of metrics by top management and timely corrective actions whenever there are deviations. There are many steps between the collection of data on the ground and its review by the management, and actions decided by management to execute them on the ground.

Monitoring and auditing these programs suffer from usual challenges of errors in data collection, time wastage of field reps, huge time lag in data collection and reporting.

5. Fraud

On-field reps or third party merchandising agencies can outrightly lie about the work that has been done on time and there is no way of knowing it other than expensive third-party auditing, which also gives the report after weeks or months of execution.

The Panacea — Shelfwatch!

The good thing is all the challenges are solvable with the help of the right technology and implementation. Image (or Product) Recognition solutions like Shelfwatch can be the answer to all the challenges mentioned above related to poor in-store execution.

The Shelfwatch app allows the merchandisers and promoters to take photos of these special zones in a store. These images are analyzed and compared to a picture of success as defined by the manufacturer. Insights containing a list of execution gaps are automatically generated from the photos and presented in a dashboard for the management. In places with good internet connectivity, merchandisers can get an instant report to act upon while they are still in the store.

The images clicked by the reps are always available for cross-checking, so the cases of fraud and misreporting can be nullified. In fact, manufacturers who deploy ShelfWatch are able to reduce all the fraudulent activities and ensure that the best performing merchandisers are rewarded appropriately, thus driving behavior changes in their entire field force.

Shelfwatch streamlines the merchandising execution and brings discipline to the whole process. Perfect Store programs can only be as successful as their implementation. As more and more CPG manufacturers identify traditional trade as a window of opportunity to drive growth, it has become more important than ever to fix execution gaps in these stores and consider them as an important channel to drive sales and improve brand health.