Developing The Next Winner

IN OUR BUSINESS, IT’S GOOD to always think about volume.

I remember years ago when John Antioco left 7-Eleven to go run Circle K. He’s a great speaker and a really funny guy and he’s up on stage at their annual conference asking the audience, “how big can a Big Gulp get?”

Compared to the much smaller size of the bladder, he wondered, could we really handle that much liquid in our collective stomachs?

I thought about that while I was at 7-Eleven managing beverages. I continually asked the big guys, “is the share of stomach increasing or are consumers drinking more variety?” (By they way, they didn’t know). Beverage sales kept climbing; new categories were being developed. Energy drinks went from one shelf to a door.

How far was up?

Okay, fast forward to 2009. It happens. Beverages come to a screeching halt. Nearly every segment is down and those that we felt wouldn’t ever suffer have. LRB’s are down year ending 2008 for the first time since 2003. Predictions say that 2009 will end showing another, albeit slighter, decline. What does this all mean? It means that the belly is full and making the right decisions is even more important. Don’t just listen to me, though: the New York Times ran an article in early October showing that there has been an aggressive shift to warehouse stores. Whether we’re grocery and recognize that the consumer makes those trips at the expense of our sales, or we’re convenience mom-and-pops using these outlets for inventory purchases, we know that warehouses are a big factor in channel blurring. The Times reported that warehouse channel growth ‘outstripped’ other sectors as consumers saved money with bulk purchases. Wal-Mart has been reporting sales increases, and Target is revisiting their strategy as it relates to value.

So, how do we make decisions? I’m sure I’m speaking to the choir when I say that product assortment is the key. I brought this up last time when I had reported that retailers are cleaning up their assortments. Certainly raising the minimum sales requirement by category for staying on the shelf can help boost sales. You continue to make space available for items with high sales volume, new trends, all the while with an eye toward enhancing your value categories.

For example, even as things decline overall, two trends we know well still seem to be maintaining their momentum: private label and functional beverages seem to have the most momentum right now.

Especially, private label and store brands have continued to increase their share of category sales. As it stands now, it seems, developing a good private label strategy is a great choice – if it involves something more than simply copying the leader and putting it on the shelf. Safeway, for example, has been so successful with their O Organics line that they’ll be selling it to other retailers. Talk about thinking outside the box. Safeway opens up a totally new profit center with an idea like this. It’s a smaller growth center in convenience stores, as private label’s share of c-store dollar sales is 1.5 percent (up 4 percent), but that hasn’t stopped this channel from aggressively pursuing it, and with the success I’ve already seen, it’s paying off. I am blown away by 7-Eleven’s new chips and snack foods line. In a recent interview, a pair of Las Vegas franchisees said that 8 of the 10 chips they sold were 7-Select brand chips. AM/PM has likewise developed private label bottled water, alternative beverages and snacks. While water seems to be a great start for many c-store retailers, there are chains across the country that are quickly expanding into other categories.

But if you’re a retailer, you shouldn’t just jump in with your eyes closed. Some of the biggest mistakes you could make would be introducing a brand without marketing, being in-effective with packaging, or failure to develop a clear strategy setting very specific sales and margin goals. In other words, treat a private label line like its own entrepreneurial business venture, but make sure it will also ultimately fit in with your category goals – otherwise, you might end up like one retailer I met with last week, who mentioned that sales of private label in one of their key beverage categories had been so successful that it’s now commanding more and more shelf space and pushing out key items with higher register rings. Establish your strategy and verify its effectiveness to the bottom line.

Secondly, functional beverages and drinks continue to offer clear differentiation against the downward trend. Example? The new category ‘value added waters’ had an increase of 33.9 percent ending 2008, while other beverages lost ground. But, bigger than that, the consumer is asking for their food and beverages to work for them. We saw superfruits become an everyday term shortly after POM Wonderful effectively marketed the idea of drinkable antioxidants to consumers. It’s a race to find the next big functional fruit. I am also seeing relaxation products really start to explode. Is it just a bunch of new products, or is it really meeting a consumer need? Mellow Water introduced both a day and night product and I hear from a friend they are having a great launch. Dr Pepper/Snapple distribution doesn’t hurt – combine the right product and marketing with distribution and it’s on the road to success.

Private label and differentiation may not be new news to you experts in the industry. Just recognize that making decisions that will drive sales and developing the ‘next winner’ is the name of the game!

Debbie Wildrick, the SVP of Sales and Marketing for Equa Water Corporation, is a sales executive and channel strategy specialist in the CPG industry. The former Senior Director of Vault and Proprietary Beverages at 7-Eleven, Inc., she has extensive experience in retailer, supplier, and technology aspects of the consumer packaged goods business.