How New Channels Started To Blur

LAST YEAR, thinking it could combine the popularity of the convenience channel with consumer desire for a wider variety of products, White Hen, a Norwell, MA-based chain of convenience stores, launched an alternative concept store, one that added grocery staples and deli items and subtracted convenience must-haves like tobacco and lottery tickets.

The concept only worked partway. While consumers bought more when they went to the store, they weren’t visiting enough. As the chain, part of the White Hen Pantry franchise, started to rethink the concept, it re-installed many of those convenience items and rebranded it White Hen, rather than Pantry Gourmet. The store had attempted to make an end-run around its convenience roots, but failed.

Still, we can understand why it might have done this. As an experienced member of the industry, I believe that one of the most drastic changes in the way the consumer shops has been the result of the increase in the number of outlets in which they can buy the same products, or at least very similar ones. It’s a challenge for all retailers, but it’s especially hard for beverage marketers.

This situation is called “Channel Blurring.” One good way to understand it is to look at how it evolved.

During my 7-Eleven days, we talked a lot about potential competitors. It appeared, for example, that the neighborhood drugstore was becoming an outlet for single-serve cold beverages. How, we wondered, might that affect our sales?

Such a question now seems quaint, since today, it is amazing the number of outlets you can buy a beverage. If I want to buy a single-serve cold one, I can make it a destination and drive to my nearest convenience store. Or, if not, I know that I can find the opportunity to buy it at nearly any point of thirst. It’s at the checkout stands in grocery stores; it is in an aisle in a drugstore as I walk towards the checkout after leaving the pharmacy. It’s gotten to the point where I can even count on single-serve packaged beverages being sold at nearly any fast food restaurant chain or independent deli. And that’s just if I plan to go out to buy it. What if I want it brought to me? When it comes to multi-pack beverages, the purchase points even include the internet marketplace. Today, Amazon.com reaches millions of consumers, and they have an entire division dedicated to selling groceries on-line, shipped free for buying just $25 worth of product. Not a bad deal, considering the price of gas.

If we look at history, the consumer always had outlet options, but they were specialized. I went to the grocery store for everyday staples, I went to the pharmacy for my health and drug needs, and I went to my local hardware store for household needs. Our first evolution, the “supermarket,” allowed us to find, along with groceries, a limited selection for household needs, and even, wonder of wonders, pharmacies. A term evolved: Consumers had gained the ability to “one-stop shop.” Then an explosion of multiple outlets began with mass merchandisers and club stores. And with these massive stores, discounting became much more prevalent, and, especially if we chose to buy in bulk, packaging complexity became a big factor.

Then, just as we started to understand packaging in bulk, the consumer again made a change, and realized that those large stores are time consuming. The need for convenience began to enter the picture.

I believe the United States thrives on our compulsive drive to work hard and build new products and ideas, and we are always finding new ways to shop that can continue to meet our needs. So, existing suppliers and retailers faced a stressful choice – they had to either find ways to incrementally grow categories with new ideas, or they had to reach consumers’ new sales expectations at retail through added options for purchasing the same products in multiple outlets. And they chose the latter, servicing convenience, as a way to grow categories.

But what if we looked at convenience as a way of implementing new ideas, instead?

That’s what we decided to do at 7-Eleven. We knew that it was known as a destination for beverages and for selection, and therefore, it was also a perfect outlet for differentiation. What we decided to do was to use those two advantages to leap directly into growing and creating categories. It resulted in new beverage sales because new customers came into the store. We continued to deliver on what we were known for, but we’d improved our position to the point where we could select and add new products that would create new segments or categories – and those new segments and categories became the ultimate driver for increasing our beverage sales.

And I think it’s an example that’s even more relevant now. Lately, I’ve been reading quite a few articles on the economy and the retailer. If you put your stake in the ground that price discounting and value will drive them in for more, you’re only viewing it from one angle and you will not win the battle. With a tough economy, differentiation in new products can be the key in 2009.

So, how do we, as suppliers or as retailers, understand today’s marketplace and compete for consumer spending, knowing that we’re in this blurred channel environment? First, we need to understand that much of the power has transitioned from the retailer to the consumer. They understand their options and what they should be paying for those options, and they are reached by an exploding number of marketing messages every day.

Taking that added piece of information into account, in future columns, I’d like to take on this problem of channel blurring. There are multiple ways to address this new complexity from both a supplier and a retailer standpoint. Throughout the year, we’ll dig in deeper to channel-specific opportunities.

As a jumping-off point, let’s think about this: for both suppliers and for retailers, two topics are, regardless of channel, regardless of product, very important – building consumer loyalty by outlet, and increasing sales and profits in-store.

To address those needs, there are three questions that must be answered: Where, within specific outlets, are your products being merchandised? Are there additional opportunities for the retailer to highlight merchandising and/or price point or discounting to reach the consumer in-store? And, what new products or categories can differentiate you?

What we have to do as retailers is to increase our shopper base, increase their number of visits, and increase the amount they spend while in-store. From a retailer perspective, it is of growing importance to understand the demographics that shop our stores and what they purchase. If we leverage categories and brands that will impact these areas, we will be successful. Therefore, partnering with suppliers that understand these dynamics and are interested in the channel – and its specific shoppers – in addition to their support for their own brand, is important.

Among packaged goods categories, beverages rank very high in their use of multiple channels. They have a terrific opportunity to capitalize on the use of loyalty across multiple points of purchase. But beverage suppliers need to become increasingly cognizant of the elements important to a retailer’s success. Understanding and then positioning their products to meet these objectives is imperative.

I look forward to future discussions around both loyalty and points of purchase by channel and what beverage categories will respond to the opportunities.

Debbie Wildrick, the SVP of Sales and Marketing for Equa Water Corporation,is a sales executive and channel strategy specialist in the consumer packaged goods 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.