Retail is Detail & Detail is in the Hell of basics

Everyone is familiar with the quote, "Retail is Detail," but who truly works with attention to detail, and who genuinely understands in your team what it means to work with attention to detail? Is it just about monitoring daily transactions, average basket size, stock levels or looking at once a month how the subcategories go in term of sales, GP, growth? Not quite. These are merely key performance indicators (KPIs), and there are multiple layers of analysis that precede the detailed work, with some of these layers interrelated with other KPIs, leading to the generation of additional layers.

In this sumptuous period, during which retailers worldwide briefly reveled in high inflation rates that bolstered their sales and often their gross margins by simply opening their store doors each morning. Even if sales volumes decreased, inflation easily offset this decline. However, that era starts to come to an end. Sales volumes are now plummeting, customers are abandoning items at checkout due to insufficient funds, and cash payments are regaining prominence. Many retailers are anxious about losing their income, which was based on the yearly expected volume negotiated with vendors and more.

I can imagine retailers convening endless meetings in their quest to turn things around. They might say things like: - "Folks, we need to think outside the box!!" Ugh, I must confess, I hate that saying. But I can't really picture against all odds, someone saying: - "Um, maybe we should look at all the different factors affecting our KPIs to find ways to make them better?". Nope, that doesn't sound very exciting!

In all my articles, I consistently draw from my personal experience and rely on facts and figures and often talk about basics. The task I have chosen to address in this article may seem quite elementary in the realm of Retail, and it might even bring a smile to your face when you will discover it. However, after my demonstration, you will come to realize that even from a seemingly basic task, the potential consequences can be significant in terms of customer shopping experience, sales, and gross profit losses.

To create this article, I chose four top-notch food retailers in their respective countries in the Southeast Asia, each with a presence both offline and online. I believe that any issues experienced online likely exist offline as well. You will observe that I deliberately selected a single item to illustrate a decline in various aspects, and this choice was not arbitrary. I opted for this specific item because it holds a 50% market share in terms of value in the instant coffee segment, which, in turn, constitutes 72% of the coffee category market in Thailand and 60% in the Philippines.

To delve deeper into the statistics, the coffee category represents 3.1% of total grocery food sales in Thailand and 2.5% in the Philippines. When we calculate the contribution of this particular item to the overall sales, it accounts for 1.12% of total sales in Thailand and 1.08% in the Philippines.

Considering the extensive range of products in the supermarket, ranging from 20,000 to 30,000 items, it becomes evident that this item plays a significant role within the product assortment. Therefore, we can expect the team to closely monitor its performance.

Let’s start!

If we look at one of the major KPI. Average basket => layer 1 Total Sales/ Total Transactions or (Total sales/Total Qty sold) x (Total Qty sold/ Total transactions) => Layer 2 Average Price per item x?Number of items per transaction => Layer 3

Let's take a closer look at the Layer 3. In general, we compare this year's figures to those of last year to determine whether we've experienced growth or decline. Regardless of the outcome, it's crucial that we understand the reasons behind it. To gain a deeper understanding, we must identify the factors influencing our customers' decisions to spend more per item and/or purchase more or fewer items this year compared to last year. There are numerous potential explanations, stemming from both internal and external factors, like:

- Promotion - OOS - Price - range rationalization - Planogram - Customer behavior - Economic crisis - Etc,

As mentioned earlier, the list above includes new KPIs like 'Out of Stock' (OOS), which requires us to delve into the underlying layers that contribute to OOS occurrences. While this process may be lengthy, it will ultimately lead to a conclusive endpoint, revealing numerous factors that can impact the average price per item and/or the number of items per transaction.

However, there are other factors that often go unnoticed, as we tend to view things from our perspective only rather than from that of our customers. What's even more concerning, especially in emerging markets like in Southeast Asia, is the tendency for people to conduct tasks for years without questioning or challenging themselves, their colleagues, or even their superiors to find ways to improve. They simply perform these tasks without understanding their fundamental purpose. Why? Because nobody has explained the 'why' behind them. It's as simple as that!

THE Task: Items Creation & Price lifecycle

When we create a new item in the system, we must fill in several pieces of information in the ERP, such as department, sub-department, category, sub-category, product barcode, brand, item description or name, type, capacity, UOM (Unit of Measure), cost, selling price, and other information related to the vendor, replenishment and inventory. We can establish rules for formatting, such as using one space between each word or using symbols like /, _, or -, but it must be standardized.

Typically, we use a specific Excel template that includes all of this information to ensure that no parameters are overlooked. We then upload this data manually or directly through the template into the ERP. Since the Excel template is filled out manually, there is always the possibility that the employee, sometimes even the vendors themselves, in charge of filling it out may make mistakes.

1. Assign the product in the wrong Sub-department, category, sub-category (voluntary or not). 2. Create the product description without respecting some standard & fill a wrong UOM or Type or Capacity. 3. Nonsense selling price if the same product has different UOM or Type or Capacity.

Note: I'm just focusing on these three as it directly affects the customer while shopping

What could be the negative consequences?

1. Assign the product in the wrong Sub-department, category, sub-category.

Offline: When I arrived in Myanmar, I was surprised to see products like Fisherman’s Friends, Ricola, and green tea displayed in the pharmacy's sales area, among other items. I wondered why this was the case, and the Operation and Merchandising team explained to me that the distributor for these brands was a pharmaceutical distributor. We could debate whether these products were originally intended to alleviate throat pain, reduce coughs, or offer health benefits, but the fact remains that I had never seen these products displayed in this manner anywhere else.

I can understand that having a TTA (Trading Terms Agreement) for only one item increases administrative work. I also understand that changing the merchandising structure from the Pharmacy Department to the Grocery Department will make it more challenging to analyze this item because typically, its historical data remains in its original structure until the change. This means you need to review both the Pharmacy for past data and the Grocery Department for current data to understand the 'life' of this item.

However, without making any changes in the back office, it makes sense to keep these products in the pharmacy to avoid disrupting customers who are accustomed to buying them there. Additionally, it makes sense to display the first two products in the Candy section and the third one in the Tea section. This can result in double-digit growth once implemented.

Online: As we all know, the key difference between buying online and buying offline is the convenience of shopping from home and saving time. Therefore, it's crucial to ensure that the online shopping experience is user-friendly and efficient, helping customers find the products they want quickly and easily.

-? Statista's research indicates that, on average, customers spend about 35 minutes completing their online grocery shopping, whereas offline shopping takes approximately 41 minutes without factoring in transport time. Surprisingly, the time difference between online and offline grocery shopping is not significant. -?A study by the University of South Florida found that customers were more likely to cancel orders if more than three items were not available/not found or if they had to substitute more than two items.

It's essential for these products to fulfill the customer promise that shopping online is quick and easy, which means they should be available not only in the Pharmacy section but also in the Candy and Tea sections, just like they are offline. Customers might once again overlook them if they are searching in the Candy and Tea sections, mistakenly assuming that the products they need are not available there. While it's true that customers can search for products by brand name, it's not always easy to remember all the brands of the products we purchase.

-?According to Baymar Institute, 70% of customers use the Search function to locate the items they want, while 35% prefer to browse through categories and sub-categories. -?Product names (such as "eggs," "candy," etc.) are the most searched terms, following by Brand searches and product categories/sub-categories rank third in popularity.

To come back my experience, those 3 items above are created in the system as follow:

Fisherman’s Friend/Ricola: Pharmacy/Dermatology/Lozenge. Dermatology????? Not sure that a customer will looking at this product in this Category. Lozenge??? Is a normal customer knowing what “Lozenge” means?

All green tea: Pharmacy/Healthy/Slimming, Pill, Tea&Gel. Can be acceptable!

-?A study conducted by Nielsen found that 40% of shoppers will abandon their purchase if they cannot find the product they are looking for or if they are unsure about the product versus the label, both in offline and online shopping. This study includes o the item may be out of stock. o the item may be in the wrong place. o the item may be poorly/wrongly labeled. o the retailer may not carry the item. -?A study by the University of Michigan found that 73% of customers said that they had experienced a price discrepancy between the shelf tag and the scanned price at checkout. Of those customers, 42% said that they had abandoned their purchase because of the discrepancy.

2. Create the product description without respecting some standard and/or fill a wrong UOM or Type or Capacity.

Offline: Let's be objective. How many customers in stores actually read the product descriptions on shelf tags? Not many, usually. Instinctively, they tend to focus on the price rather than the product description. They only pay attention to the product description if something seems unusual. When the internal rules are not clearly defined, you might come across creatively written item descriptions. Customers may become skeptical if the shelf tag doesn't provide at least some basic information about the physical product on the shelf. In such cases, customers can either seek assistance from someone nearby if there is anyone available or take the risk of adding the products to their cart and then asking the cashier for clarification during the checkout process. This can potentially cause delays not only for them but also for the customers behind them.

-?The University of Texas at Austin found that 31% of customers said that they had left a product on the shelf because the shelf tag didn't match the physical product. Of those customers, 68% said that they were not satisfied with the explanation given by the store staff.

I couldn't find a study regarding the amount of time a customer is willing to spend resolving an issue at the checkout. However, you can access one of my articles on queuing, which will provide additional information, by clicking the link below. https://www.dhirubhai.net/pulse/queuing-check-out-sales-loss-philippe-roques

Fixing this issue can also improve productivity. Indeed, receivers and pickers won't have to spend hours trying to determine if the physical product in front of their eyes is the right one. The same goes for store operations personnel searching for physical products on shelves when they need to change shelf tags. This is especially valuable if you don't have access to an Electronic Shelf Label (ESL) system, as it reduces the likelihood of making mistakes while labeling products on the shelf.

-?National Retail Federation found that major grocery chains reduced its pricing errors by 50% after implementing ELS. Only pricing not other issues and finally you still have 50% pricing errors!

Online: It's crucial to provide a clear product description along with a corresponding photo of the product. If the item description is vague or does not match the photo, it can create doubt and discourage the customer from purchasing the product. It’s possible to contact customer service via a live chatbot to resolve such issues! Yes, you can! Have you ever tried it before? As for me, I never have.

If you remember the study previously, "40% of shoppers will abandon their purchase if they cannot find a product, they are looking or not being sure about the product vs label in both Offline and Online". o the item may be out of stock. o the item may be in the wrong place. o the item may be poorly labeled. o the retailer does not carry the item.

When it comes to the Unit of Measurement (UOM), Type, or Capacity, discrepancies can also lead to confusion or require customers to put in extra effort to understand. Take the example below, where the descriptions of three items are the same, but the selling price differs.

As a customer, it becomes challenging to make a purchase decision when I don't see the "Capacity" clearly listed. This forces me to click on the product multiple times to find the quantity information, which can be frustrating. Typically, this might not make me abandon my purchase altogether, but it is undeniably tedious. If this happens repeatedly with various products, it's likely that I will eventually leave the site without making a purchase. What about you?

If we have a standard set, the items description could be: Nescafe Redcup instant coffee bag 200Grs x 1 Nescafe Redcup instant coffee bag 100Grs x 1 Nescafe Redcup instant coffee bag 50Grs x 1 Why should I insert "x1"? In this example, the same product is also available in a bag with several sachets inside. Typically, the packaging is different, but a clear product description makes it easier to understand. Nescafe Classic instant coffee bag 7Grs x 30

Here's another example, this time involving the search function. Failing to adhere to established standards can result in not finding the product we're searching for. Just a one-space difference between 'd' and 'c' in 'red cup.' If I type 'redcup' without a space, I'll only find three items, and as a customer, I might think they have only three items. If I'm lucky, the one I need is among those three, but if not, I might decide to buy my Nescafe somewhere else, potentially doing all my grocery shopping elsewhere too.

Note: Perhaps the website's capabilities are limited, but as a customer, that's not my concern! It’s not the subject of this article but it seems that nobody from this company notice this issue.

Assumptions Scenarios 1 and 2 When I began my journey in retail, I remember that our objective was a maximum of 3% in shelf tag mistakes, including wrong prices for items, missing shelf tags, incorrect shelf tags for items, and shelf tags older than 1 month. Three percent is both a low and high figure. When you have 20,000 items, 3% equates to 600 items with errors, which starts to become a significant number. According to a different study, the average out-of-stock (OOS) rate offline worldwide is around 8%, and online it's 10%. Based on my assumption, this means that 1,600 items could be out of stock. I need to include this parameter even if it’s not related with this article for my demonstration below.

We can assume that, on average, retailers face issues every day with 2,200 items out of their 20,000, affecting every store. Even if retailers fix some issues today, new items may have problems tomorrow. It's an ongoing challenge.

As mentioned earlier, "40% of shoppers will abandon their purchase if they cannot find a product they are looking for or if they are unsure about the product matching the label, both in offline and online shopping." o The item is out of stock. o The item is in the wrong place. o The item is poorly labeled. o The retailer does not carry the item. Let’s consider that its part of the OOS

Essentially, 40% of the 2,200 problematic items, which amounts to 880 items, will result in lost sales. If I make a very conservative assumption that we usually sell, on average, 1 piece of each product every day when there are no issues, with an average price per item at $3, the loss generated becomes $2,640 per day, or $963,600 per year for one store.

This assumption includes the OOS (Out of Stock) scenario. If I assume that only 25% of this lost, comes from the two problematic item "Wrong Place" & "Poorly Labeled", the loss value becomes $660/day or $249,900/year/Store

Are you skeptical about my approach? Do your math.

3. Nonsense selling price if the same product has different UOM or Type or Capacity.

This one is my favorite! I've indeed browsed four websites, and I consistently come across the same mistake. Often, this error isn't immediately noticeable to the customer, as it requires a bit of calculation. However, as a professional, I don't have any excuses, as it consistently impacts my sales and gross profit, both in the offline and online realms. Perhaps when this item was initially created, everything was in order, but over time... and the other question is, 'Did we properly check the quotes from our vendors?

If you'd like, you can also read another article I've written about pricing: https://www.dhirubhai.net/pulse/how-ruin-pricing-strategy-food-retail-philippe-roques

Let's continue with the retailers that I'm observing. Do you notice anything unusual there?

Customers are more discerning than we might assume, and they can quickly use their mobile devices to perform a simple calculation to determine whether it's more cost-effective to purchase a single 180g product instead of two 90g ones. It becomes evident that buying 180g is a more economical choice, even if the price difference is not substantial.

However, with Food Retailer C, when you compare the prices of the 92g and 185g options, you'll realize significant savings by opting for the 92g product. Remarkably, this item is not prominently advertised as a promotion or any special deal—it's just one of the regular items on the shelf among others.

As we are in the Hell of detail, I will do the math and calculate the price per gram.

And suddenly…..This exactly what I was looking for! I knew already that I will find this kind of issues as I already met so many times this situation in my career.

So, now, what to do? What are the actions to set for creating pricing that make sense and improve my sales and profitability.

1. Request updated cost information from the vendors to understand the gap between the capacities (40, 90, and 180 grams) and adjust accordingly, assuming the vendor is pricing intelligently. Based on my experience, it's also advisable to double-check.

2. Survey the competitors to understand their pricing. However, it may not be worth or useful in this case as there is no real pricing strategy in place. It appears that conducting price surveys in both countries is not their strength, or even if they do, I don't understand the indices they use!

It’s so simple but you must realize it and it seems that no one did it!

Study case Assumption:

It seems that Food Retailer A wants to be cheaper than B, perhaps as part of its strategy. I delved a bit deeper to understand what the index represents, but unfortunately, I couldn't find a logical explanation. The same observation holds for Retailers C and D, except that the 23g size has the same price, so I will use this selling price as a base.

I'm applying a rule where the price difference per gram between 180g to 90g, 90g to 40g, and 185g to 92g, 92g to 23g must be 0.03.

The new SP will be as below and I’m sure this time that Selling Price are logical.

The total unweighted growth rates will be 0.7%, 1%, 12.7%, and 2.3%, respectively. While these percentages may seem low, let's assume that you sell one unit of each item every day across 50 stores. I don't know for how long the prices of these retailers have been wrongly computed, but I assume it's been several months, maybe even years! To simplify, if we assume that the selling price (SP) remains unchanged for one year, the potential annual losses would be $23,420, $36,900, $326,200, and $58,570, respectively, compared to my initial assumption. Please note that this is for just one reference with declines in three different capacities. Quite impressive, isn't it?

In conclusion, food retailers are constantly seeking innovative ways to attract customers and maintain a competitive edge. This is especially important in an ever-evolving retail industry marked by emerging technologies and trends. While this pursuit of innovation is understandable, it should not come at the expense of the fundamentals. Managing the basics consistently is a complex task that demands time and a deep understanding of all the factors that can negatively impact key performance indicators (KPIs). Ultimately, having the best systems in the world won't matter if your guys don't understand what they are doing and don't delve into the hell of basics.

If you've reached this point, thank you for reading my article, and I hope you enjoyed it. Please, like it and share it

Special bonus below.

What's happening in Myanmar? In Myanmar, they have decided to sell the 225g size cheaper than the 150g size of my favorite instant coffee. Excited about the incredible price, I clicked 'add to cart' to purchase several quantities, and what a disappointment, the price is for a 50g size! :-(