Lessons in trade

Top positions on the internet have become the new currency in the service industry. An establishment that is right at the top of the list in search engines finds it easier to gain new guests. Tools like ad words and ranking booster help improve visibility on the Web. What sounds like an ultra-modern idea is actually an old trading principle: Good placements on supermarket shelves follow similar rules – and are now even more fiercely contested.

Text and interview: Sven Heitkamp  

Crispy green apples, red meat, golden brown croissants: A quick stroll through the supermarket very quickly makes the shopper's mouth water. However, the colourful market filled with delicacies is very good at concealing the fact that behind the very precise positioning of its goods lie a highly sophisticated methodology and fierce competition – just like in the online hotel market: Yes, it is true that hotels can show their best side on the internet and can be found as quickly on booking pages as special offers can be found in the supermarket. However, competitors are often right alongside them only a mouse-click away. Thus a lot can be learned from the food industry – and also from experts like Thomas Roeb.

Roeb is a Professor of Management Sciences at the University of Bonn-Rhein-Sieg and a proven specialist in the area of retail studies. He knows the relationships between suppliers and stores in the food industry, both upfront and behind the scenes: Before he began his career in research, he himself worked as a manager at discount group Aldi. And Roeb says: "It is a long and expensive road from the idea to the position on the supermarket shelf. High barriers have to be scaled to get there." Because every centimetre on the shelf is just as fiercely contested as the listing positions on hotel portals.

This number shows clearly just how narrow this bottleneck is: There are approximately ten times the number of products available on the market than are seen on the supermarket shelf. Retailers assume the function of bouncer here: They decide who can get to the customer – and who cannot.

Six-digit entry fee to the supermarket

Therefore, a manufacturer that develops a new product has to go to a lot of effort to make his idea appeal to the bouncer at the door. "Before a product comes onto the market, a lot of people in the industry have already put a lot of thought into it," Roeb says. That is also absolutely necessary, he says, because a retailer will immediately ask critically: So why are you coming out with yet another new product? "Retailers only want really new products," Roeb says, "and no me-too products like the thirteenth strawberry-flavoured yoghurt."

Thus, in order to get a product listed, it is imperative to present reliable figures, he says: Market research and consumer research, market share of product categories, volume and sales forecasts, including sample calculations for prices and margins, as well as scenarios for the best case, the worst case and a baseline scenario. These basic prerequisites, preparations and studies alone could swallow-up six-digit amounts, Roeb reports.

However, the retail industry does look at new products from well-known manufacturers who are already established suppliers – comparable to large hotel chains – he says. "But if you are only a small provider without personal access to a procurement manager or a certain level of prestige, you are very unlikely to get a meeting with a big retail giant." In order for a product to be accepted as available for order at all, retail chains demand high listing payments in advance, he says – just in case the new product turns out to be a flop. "This could also mean another six-digit amount to be paid," says Roeb. Thus one thing is clear: Anyone who shies away from paying the costs for a good ranking for their hotel on the internet can console themselves with the knowledge that the situation is virtually the same in other sectors.

However, just getting a listing from a major retailer does not mean that the new product is in the shop yet. The vast majority of supermarkets are frequently run by independent retailers. Hence the suppliers have to additionally convince these independent shops to sell their new product. Thus the market entry concept has to include conducting sufficient advertising. "And if the product is not a goer," says Roeb, "you have incurred all that time and expense for nothing."

Retailers dictate, manufacturers must follow

At the next stage, however, it is also important for the manufacturer to get a good supermarket placement at eye level, within easy reach and in the customer's path – in the same way that hotels want to be listed right at the top on portals and search engines. Food manufacturers have to conduct further negotiations on this issue with the retail chains and confer on prices and promotion activities, "advertising cost subsidies" and free goods. What are the special conditions? What supporting payments must be made? How is the retail activity supported? "Frequently, discussions and negotiations about these questions continue for weeks," Roeb recounts. "And sometimes the atmosphere is poisoned because some retailers deal with industry very aggressively."

Disputes also arise about the topic of "facings", in retail jargon – that means the question of how many items of a product are visible on the supermarket shelf. In addition, placements in special locations on the shelf, for example on the end of the row (known as the "end cap") and special promotional campaigns also have to be negotiated down to the last detail. "Special permission is required for all activities, tastings or shopper stoppers. And each permission costs money," Roeb says.

Neuromarketing expert Hans-Georg Häusel also knows from experience that a good supermarket placement is just as important as a good online ranking. "Only 20 to 25 percent of customers carry a shopping list and leave the store by and large with items that are written on this list." However, anyone who has not made a shopping list is more open to new things, he says. "They succumb a little to their subconscious and put unplanned items into their shopping basket too," Häusel says.

"If there was a magic formula, everyone would use it."

However, the notion that customers are seduced into buying by a big show at every corner of the store is an outdated concept, in his opinion. "Today, 80 percent of the design of a supermarket consists of stress avoidance: The aim is to prevent stress caused by searching, temperatures and waiting, because for most people, the buying experience is more duty than pleasure." Today, the big retail chains have only one goal, he says: "To make it as easy and as pleasant as possible for the customer." Just like the portals, that want to enable their customers to have a fast and simple booking experience. The aisles are designed to be wide and are kept free of obstructions. Products are always in the same location so that the customer can find them quickly. The temperature is set at 19 to 20 degrees, so that the customer feels comfortable. Retailers have stopped playing music again, because it tends to distract rather than to put customers in a buying mood. And even at the notorious "pester zone" at the checkout, he says, you are nowadays more likely to find either tobacco or everyday necessities that are easy to forget, rather than sweets. Shaving things, for example, or batteries.

In the end of the day, one thing is clear in the opinion of sector expert Roeb: "If there was a magic formula, everyone would use it." And what applies in the old analogue world has not changed on the internet.

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