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OM in the News: The Changing Technology in Supermarket Layout

February 23, 2020

Which products are placed where on shelves can move sales up or down significantly.

The biggest U.S. food makers are finding that supermarkets are taking away prime shelf space, writes The Wall Street Journal (Feb. 19, 2020).

Grocers are now relying on their own proprietary research to decide how and where to shelve certain products, rather than counting on companies that sell well-known brands to tell them what to put on what shelf at what price. Kroger and Walmart, for example, 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. As we note in Chapter 9, Layout Strategies, “the objective of retail layout is to maximize profitability per linear foot of shelf space.”

Large chains have invested in beefing up their ability to collect and analyze data from customers. That is changing the grocer’s relationships with suppliers and the way it lays out stores. 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 in the past 30 years. 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. Grocers also didn’t want to invest in consumer insights, and they were happy to take the hefty slotting fees (also noted in Ch.9) 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. 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, which make up a growing share of its sales and shelf space.

Classroom discussion questions:

  1. Explain the tradeoff between slotting fees and the new data analytics approach?
  2.  How does supermarket layout differ from department store layout?
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