Planograms – Do these make good business cents?

The challenge for me in this discussion is that I do not have the answer!
And this is because I am not entirely convinced that planograms grow sales or even profitability for that matter, at store level.
What is a planogram?
Essentially it is a diagram that indicates which products go on which shelves – and how many facings of each product need to be on each shelf. The diagram will indicate which variant of a product to stock, and which supplier’s products should be on the shelves.  I see planograms as vastly different to say a store layout – which is also a diagram. To some extent I think these are being confused.
A store layout tells you where to position your pay point, where the fridges should go, where chips, sweets and snacks should be displayed in your store etc. As such I see store layouts as infinitely more helpful to me as a retailer when opening a new store or revamping a store.  And even as you trade – you can review your store layout to better meet the traffic flow in your store. So a store layout can be very useful to me as a retailer.
A store layout will not show which variant of toothpaste to stock. It will indicate however, where toiletries as a category or department should be in your store.  The planogram will indicate actual line item, the colour, size etc – and on which shelf it should be merchandised.
Planograms are the end product of some sophisticated software (that in many cases costs the earth to use or buy outright) – into which all sales of all products are pulled into the system. The software then uses these sales to generate a product layout based on these sales.
So why am I not entirely convinced that planograms can work and drive increased sales at store level?
Well firstly it all depends on where the information is being pulled from. If it is from my store only – then I would concede that there might be merit in using a planogram. However, mostly because the costs of these programs is prohibitively expensive – Franchisors tend to collect information from its entire network  – to drive consistent planograms throughout its network.
Some are fortunate to get down to regional level – but even at this level of information I am not convinced it helps me at store level.
For one thing the information is historical. So it is based on sales that have already taken place either a week ago, last month or even worse – the last six months. And those of us that work on the ground know intuitively that our customers’ tastes continuously change.
I remember a few years back when a large supermarket in our country introduced planograms into their store network. Based on historical sales – planograms were sent out and store staff ordered according to these plans. However, in that particular year down here in the Western Cape – we did not have a winter season. So soups and bread were not the priority purchases that had been incorporated into the planograms. Instead customers were looking for a continued supply of fruit and salads!
The one positive thing that worked in this company’s favour – was that they owned the supply chain – it was not a franchised network.   They supplied their stores out of their own distribution centres. But it did incur some revision of their strategy in this regard – as the whole supply chain was treated as one business entity – so their suppliers and orders had to be reviewed quite quickly.
Those of you that have worked with planograms will know that it is not that easy to comply with product layouts sent to you. And I am sure like me – there will be those of you that look at the product selection and then say to yourself – but these don’t sell in my store! And this is a common complaint from franchisees.
So why is it difficult to implement store planograms on the ground if there is no central distribution centre?
There are a number of reasons why this is so.

  1. You don’t stock an item because it does not sell in your store or region
  2. You do not have the required fixtures and fittings in your store to display the products as depicted in the diagram. This is particularly true when you use pegs and hanging displays
  3.  You don’t sell that variant – your customers for example prefer strawberry yoghurt to vanilla yoghurt
  4.  You don’t like where that product has been positioned on your shelves as your margin on that product is very low
  5.  Your supplier is out of stock – very common in some regions in our country

And by far the biggest challenge for me is that we are basing our future product layouts based on information that may or may not be correct in the first place. They may not be a true reflection of what our customers are looking for.
In this regard a while ago I wrote about a product such as Jelly powder. It really only sells in one month of the year – and if you did not have it last year – it won’t be on the planogram for the next year’s sales.
Don’t get me wrong about those networks that have central distribution points. They too have difficulty in implementing planograms in their networks too – but it is much easier for them than say a franchised network that does not have a DC.
My feeling is that to some extent implementing planograms across a network run by franchisees is hard work for all concerned – and in the end, very few stores are able to comply fully to these at store level.
So my question is why bother in the first place?
I just don’t see the return on the bottom line – except of course perhaps for our suppliers?
Take care out there

Jocelyn Daly 

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  1. #1 by Steven Montgomery on May 31, 2011 - 3:42 pm

    Based on my 35 years as a c-store retailer and consultant in the North America, plan-o-grams do work but only if they are considered living documents to be monitored and updates as necessary. We recommend a minimum of two reset a year – one for the cooler weather and one for summer with “tweaks” in between.

    We have found that the items should be based on what you sell, what your supplier sells in the area and syndicated data to ensure the proper mix ends up on the shelf. Once the items have been selected the it gets into whether you want a vertical or horizontal set, space to sales, carrying capacity of the shelving, etc.

    There is no question that developing the proper planogram is a lot of work but we have seen significant sales and margin lifts. How much will depend on where you started from and the planogram you implement.

    • #2 by Jocelyn on June 1, 2011 - 11:35 am

      Hello Steven

      You have hit the nail on its head! It has to be a living “document”. It has to be more than just a document to be executed because you have been instructed to do so!

      And in our country I do question the legitimacy of the data – and that is where perhaps I am being unfair. We do not in general get store specific data – and that is where I start to doubt the usefulness in its rigidity in application.

      Can it help you – Yes of course! But with common sense prevailing too…

      I really do enjoy your feedback – thanks once again!

      Kind regards
      Jocelyn Daly

  2. #3 by Mike Coen on June 1, 2011 - 12:08 pm

    Hi Jocelyn

    I agree with you entirely about the global planogram of the franchise stores. This gives incorrect allocation of space to the select market some of us operate in especially in the lower income groups. The space allocation is also mismanaged as we get to a situation that rigid parameters are drawn up for the placement of shelving which then does not allow you to maximize on linear space return and this then leverages select ranges out of the layout. Planograms also cause product placement to be in the incorrect space and impulse sale items are then placed into planned areas and the loss of these sales then detrimentally reallocate the sales to smaller layouts.
    I have always believed that the planogram is a living document that should be read, lived and changed accordingly. The placement of high shrinkage items in convenience stores also bodes “loses” to the owners of the businesses as they are restricted to leaving the highly pilferable items in the incorrect control area of the store, a subtle change actually encourages sales and purchases if the categories are correctly placed in the store layout versus being dumped on a planogram.
    Excellent reporting from your team keep it up.
    Regards
    Mike Coen

    • #4 by jocedaly on June 1, 2011 - 4:06 pm

      Thank you Mike for your comments. These all add to this debate. You are absolutely right – in one respect it is the rigidity with which these are applied on the ground that makes them questionable. You mention high shrink areas, good impulse areas – which are seemingly allocated products that most retailers would not agree with.

      Any good retailer worth his salt – would be using the information on the planogram to keep reviewing his store layout throughout the trading year. One size does not fit all – and there are different segments to each of our markets that we need to take into account. I recall opening two new stores in Pretoria, many years ago – one on either side of Atterbury Road. I placed an exact replica for an opening order on our suppliers – so both opened with the same stock – and guess what? Within a month – we were swopping products from one store to the other! in the region of 30% of the product range was wrong for each store. And they were of equal size, on the same road and in the same market space…

      Just goes to show you – one size does not fit all

      Thanks Mike

  3. #5 by Vernon on June 1, 2011 - 3:35 pm

    Hi Jocelyn

    Thank you for the blog once again. A couple of things that got me thinking..

    1) Would it not be an interesting exercise to get correlating info on planograms sent to stores determining product positioning, brand and package size and the “classified” supply agreements between franchisors and suppliers. The important consideration being the rebate agreements that usually come with these. If planograms are there to make business sense, then the business sense to who?, should be the question.

    2) I appreciate the uniformity that store layouts and planograms offer to customers who frequent a particular chain store, which of course makes it easier to know whether to turn left or right at the turnstiles when looking for a specific product catagory. I also however agree that if planograms are implemented then seasonal planograms need to be applied with a trend analysis looking back as well as forward for it to make predictive sense. To make this more effective, why not add a catagory map at the entrance. Yes! I know this dissuades browzing, but more importantly it alleviates shopper frustration which goes a long way to getting repeat business through a pleasant shopping experience.

    3) I would hazard a guess that very few major franchisors do a planogram effectiveness review, coupled with meaningful franchisee feedback and learning sessions. This of course brings me back to point “1”

    Just my 2 cents worth….

    Keep well

    Vernon

    • #6 by jocedaly on June 1, 2011 - 3:57 pm

      Thanks Vernon for your insights into this subject matter! The point has been made by others to my blog – planograms need to be living documents rather than an annual exercise for head office teams. What I am not seeing on the ground in terms of the implementation of these – is basic common sense.

      I also question giving a supplier and their related products preferred status on the shelves – without the supplier giving an undertaking to always have that product in supply throughout the network. The suppliers may or may not be paying rebates based on these planograms – but that does not excuse them from not always having stock on hand. The amount of times I have personally relaid out a store using a planogram – with at least 20% of the required stock not being available is just scary. For that I blame both the franchisor and the supplier….

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