Woolworths set to roll out store clustering: what it means for suppliers
At an industry conference last Wednesday, Woolworths’ James Aylen announced the January
2008 rollout of store clustering, or ‘consumer-led ranging’, whereby product range and other
elements of the offer will change according to who shops each local store.
Manufacturers and suppliers need to proactively lead the process in their categories, or risk
losing space and share, according to Norrelle Goldring, Principle of Moxie Market Strategy,
who has worked with major FMCGs including Coke and Nestle for the past 10 years.
Why clustering?
Norrelle says Woolworths is following the lead of international giants such as Tesco and
Safeway who pioneered the practice in grocery, responding to how diverse the grocery
shopper has now become, ‘In mature markets such as America, the UK and Australia, there
is no longer a homogenous mass of grocery shoppers with similar needs like there was 20
years ago.‘In fact there is no longer an “average Australian”, as borne out by the 2006 Census
There is an enormous diversity of incomes, attitudes, family and household types, religious
beliefs and day to day habits,’ Norrelle says. ‘What that means for retailers is that the one size
fits all approach no longer works, and the key to driving sales and profits in the future is to
understand your local shopper.’
How does it work and what does it look like?
Norrelle says the strategy involves looking at shopper data and profiles to determine how
your shopper base is segmented. Then clustering store types to cater to their dominant
shopper, with importance placed on one or more elements such as geo-demographics,
ethnicity, price orientation, values, behaviours and other factors.
‘For example, Tesco has mastered this in the UK. If you visit a Tesco in the inner city, it’s a
smallish store, somewhat like a convenience store here, and the offer is all about grab and go
ready to eat meal solutions for shoppers on the run who want to eat healthy meals at home
but have no time.‘Then, once you get out in to the suburbs the Tesco looks more like a
supermarket would here. Then you’ve got the regional centres that are more like a mass
store.
‘That’s one example where the entire store offer changes quite dramatically. Another is the
retailers who are starting to focus mainly on range clustering. That’s what Woolworths is
doing, based on knowing who their local shopper is, what their category preferences are, and
within each category where they sit on the premium to value scale.
What do suppliers need to do about it?
According to Norrelle, suppliers need to act now. ‘Woolworths is rolling out in January, so
suppliers need to have a segmented ranging and in store execution strategy bedded down
within the next three months. But the hurry doesn’t mean you can’t be strategic about it and
follow a logical segmentation process.’
This process is outlined below as a guideline for suppliers.
There are four major steps to take:
1. Map the shoppers for your categories
2. Develop a segmentation for each of your major categories
3. Apply the insights: what needs to be done differently?
4. Marry your segmented strategy with the retailer store clusters
(ideally this last point would be done in partnership with the retailer from the outset, but this
will be dependent on where they are up to – you may need to lead).
Each step in more detail:
Map the shoppers for your categories
• Who shops, when, where, how and most importantly, WHY? What is the shopper
mission or occasion, and the key sales drivers?
Develop a segmentation for each of your major categories
• Category segmentation is often based around the function the category performs for
the consumer – e.g. if you are in health, does it make you feel healthier or look healthier? Is it
applied in the body or on the body?
• Link your segmentation to your shopper profiles from point 1 (and remember that
consumer and shopper are not always the same thing)
Apply the insights: what needs to be done differently?
The major areas that are impacted on by a retailer segmentation are:
1. Range and Space within your category. Upweights and downweights, packs and
formats – where and why?
2. Visibility and Merchandising – how does this need to change to be more relevant
to your identified shopper types within the category?
3. Pricing – while you may not be able to influence retailer pricing, it is helpful to be
clear on where are you on the premium to value scale versus competitors. If you are at the
extreme of either end, there may be opportunities for you to upweight your range, space and
promotional opportunities in certain store clusters.
4. Ambience, Theatre, Destination - how emotionally involved is your category? If you are
in high emotional involvement categories like health, beauty, pet etc, again there may be
opportunities to lead the creation of ‘destination’ areas in particular store clusters that are
more exciting for the shopper.
5. Marketing and Promotion – What’s in the catalogue? Why? Should there be different
catalogues with different offers for the different clusters? Which products should be on price
promotion and which should not? What other in store promotions (such as sampling and in
store media) should be used based on shopper behaviour?
6. Format, Size, Layout – are you a category brand leader? If so, it’s you the retailer will
be looking to for change leadership – trials of new category layouts – now is your
opportunity!
7. Staffing and Service – this one may not be applicable in grocery, but it’s one to
remember when segmenting for other channels such as pharmacy or specialty retailers. Who
should the staff be? What degree of personalization? In Europe, Loreal is providing health and
beauty advisers in certain store clusters to help drive sales. In the US, staffing is changed
according to ethnicity, age and lifestage.
Norrelle says there is an opportunity for suppliers to partner with Woolworths for the benefit
of both parties. ‘This is an enormous thing Woolworths is undertaking. You can imagine –
some stores with 30-40,000 skus – that is a lot for them to consider and if suppliers can be
proactive about the process it will actually help them.’
‘They may not yet have arrived at what clustering means for your category and brands, in fact
they probably haven’t.
‘You don’t need them to tell you every detail of their clustering strategy, they’re still working
it out. So you can be proactive and determine your own segmentation and clustering
strategy, and work with them in the longer term to marry the two together.
‘It’s fantastic to see this happening in Australia, and there will be big opportunities for both
suppliers and Woolworths to drive sales and profits, and increase their shopper satisfaction at
the same time.’
Norrelle Goldring is principal of Moxie Market Strategy, specialists in segmented and clustered
in store execution, shopper insight application and channel intelligence for major
manufacturing clients including Coca Cola, Nestle and Blackmores.
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For more information or for media enquiries please call Norrelle Goldring 0411 735 190 / Lee McAllistair 0414 941 585 or email enquiries@moxiemarketing.com.au
5 October 2007
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