Retail 101: Part Five with Mike Mauti

Retail 101: Part Five with Mike Mauti

PMG: Mike. Today, we’re talking about the second element of merchandising; placement of fruits and vegetables inside the produce department. Within the context of selling fruit and vegetables, what is placement, and why is it important?

Mauti: Simply put, placement is exactly as it sounds, placing your products in spots within the sales area of your produce department. Sounds easy, doesn’t it? You have products and a sales floor. At the start, the sales floor is a blank slate. So, just fill the empty spaces with product. In reality though, it’s not that easy. Your placement strategy becomes a vital component of your overall merchandising strategy because of the limited resources in a produce retail operation. And one of the most limited of the resources is space. When we talked about assortment, we talked about the cost involved with listing incremental items. But another factor that comes into play when choosing an assortment, is the amount of available space to display it all. For that reason, placement should go hand in hand with assortment and since space is the limiting factor, how one executes their placement strategy can have as big an impact on sales as the assortment itself.

PMG: In what way?

Mauti: I think it is best to view the importance of placement strategy through the lens of a different department in the grocery store. Let’s consider the dry grocery department. Placement is one of the most important parts of the merchandising strategy for a dry grocery merchant. It’s also the area of the merchandising plan where they probably spend a disproportionate amount of their time. The primary placement tool for this category is the planogram. Picture a grocery shelf with hundreds of products lined up, it will probably be about five shelves high. A planogram is a two-dimensional picture of the assortment placed in its proper spot on the shelf. The responsible merchant will use the planogram to dictate different tactics that are important to that business. For example, it will dictate the size of the assortment and the replenishment cycle. It does this by determining the amount of product required on the shelf to fit the desired cycle. If the labor model allows for shelves to replenished once per day, then the planogram needs to allow for enough product on display to get through the day.

Aside from the size of the assortment and the quantity of product on the shelf, a planogram is also used to place products in the spots that will be most beneficial for the overall category. For example, if the merchant wants their most profitable items to be seen most frequently, then they would put them at eye level. If they wanted the top selling product in the category to be most visible, they would put that product at eye level. These types of decisions will change as their priorities change.

Some retail operations want the leading national brands first in flow, followed by private label, others, the opposite. Another tactic might be to have all brands of the most popular size out front and as you go up or down the shelf, you get progressively smaller and larger. In most departments, planograms are used to dictate merchandising priorities as well as operational priorities. And those same sorts of benefits can also be achieved in the produce department.

Although a planogram type vehicle can be used across the entire produce department, we see it used most frequently on a multi-deck merchandiser. This is often the display case used to display value added produce like packaged salads and cut vegetables or processed packaged goods like salad dressing and vegetable dips. Most of the elements that come into play on the grocery shelf are present in the produce multi-deck too. In fact, some of those elements can be more important for a produce operator than for a grocery operator. Take bagged salads for example, you’ll want to make sure your best-selling varieties have multiple facings to minimize the burden on replenishment and reduce the risk of out of stocks leading to lost sales. But if you take that strategy too far, you risk having too much on display leading to shrink. As you can imagine, the margin of error in produce is significantly smaller than in grocery.

PMG: It sounds like planograms are a useful tool, is it used for more than just bagged salads and dressings?

Mauti: It can be, but it’s rarer to see the produce floor planogrammed. Like all elements of the merch plan, there is a little bit of science and a little bit of art. A lot of the artistry plays out on the produce floor. What makes it so fun to build attractive eye-catching displays is the knowledge that you are going to get a lot of customers seeing them. It’s no secret that the produce department generates a lot of foot traffic, that’s why everyone wants their product displayed there. I can remember fielding a lot of calls from other departments looking for space in the produce department for their ‘complimentary’ items. Don’t get me wrong, I am a huge fan of cross merchandising to drive sales, but sometimes the requests were driven more by the promise of foot traffic than it was because the product was truly complimentary.

With that in mind, when you think about placement in the produce department, it is important to remember that traffic is an important element of the produce business. Although the entire department enjoys high foot traffic, there are some spots that are better than others.  For example, end caps and off shelf displays are very good at driving significant incremental sales because of the traffic they get. Getting the right products in these spots is an important part of the merchandising plan and is often a required element needed to meet department objectives. This is why merchants spend a lot of time making plans to populate primary locations with the right items.

PMG: So far, you’ve talked about placement on a shelf or in a specific spot within the produce department. How about where the produce department is located inside the store. I normally see produce being the first department you walk into. Obviously, that is no accident. Is the decision on the location of the produce department part of placement strategy?

Mauti: Absolutely it is. One of my responsibilities during my career in retail was to represent the fresh departments on the store design team. During my time in that role, I discovered that macro placement decisions were very important for enhancing the customer shopping experience.

You suggested that it was no accident that produce is first in flow for most grocery stores. Well, I have a story about that. During my time on the design team, our stores for the most part had produce first in flow. However, we had a division that positioned produce at the back of the store. The thinking at the time was to position it at the back to coax customers to shop more of the store before getting to produce, not dissimilar to the way many grocery stores continue to position fluid milk. At some point we decided to flip the stores around, ensuring that traffic flow opened into produce. It proved to be a good decision because produce sales spiked after each store flip and since we operated a large network of stores it took many years to complete the transition. Over that time, the produce department enjoyed robust sales numbers for as long as it took to complete all the store redesigns. Although macro placement has some different objectives than planograms and other micro placement tools, my experience on the design team demonstrated to me the ability of placement strategy to impact sales, which is a strong proxy for customer satisfaction. If customers are buying, chances are they’re happy.

PMG: When you’re thinking about store design and the placement of specific produce in the department, what is the typical approach? Is there a blueprint of some sort that directs you where to put products and do the customers dictate this because they are used to seeing specific products in a certain location?

MAUTI: There are spots in the department that are specifically designed for a certain type of product and often, those spots have certain requirements. For example, the wet case is designed for loose leafy greens and it is normally located on the side of the department near a power source. Also, most stores have a multi-deck refrigerated unit for packaged salads and value-added fruits and vegetables. If you’ve got one, you need to use it. After these predetermined locations, the rest of the department is normally laid out to take advantage of main traffic spots by using them for products with higher degrees of impulse purchases. For example, typically a store will have fruit on their front tables because the front obviously gets more traffic. Studies have shown that customers are more likely to plan their vegetable purchases than their fruit purchases which are more often decided upon in the store. Since fruit has a high potential to generate impulse purchases, the best fruit will generally get the highest traffic location on the front tables. It used to be that stores would execute seasonal flips on their front tables moving from stone fruit in the summer to citrus in the winter ensuring that the best seasonal fruit was on the front tables all year, but I am seeing more often that berries stay on the front tables year round. This suggests that berries have more impulse power than either stone fruit in the summer or citrus in the winter.

After the front tables are the planned the rest of the department falls in line but keeps with the broader strategy of placing products with higher impulse potential closer to the front where there is more traffic. A typical lineup might be berries up front followed by soft fruit, citrus, apples, tropicals and melons, then the less impulsive categories like tomatoes, field vegetables, root vegetables and finally potatoes. This is not an inclusive list of categories, but I think you get the idea. You can find this general placement of produce items whether a store is setup with rows of tables or pods. And of course, stores in different geographical areas and/or different go to market strategies will classify their impulse items differently which explains why every store looks a little different.  

PMG: So that impulse buy is important, what kind of a bump would you get when you would put something right up front?

MAUTI: I think every store and every kind of retailer would be different. But my walking around number is growth of five times. But there a lot of reasons for that. The big spike in sales is not all a result of more aggressive placement. Usually you’re piling merchandising tactics on top of one another so that you’ve put a product in your ad, you’ve lowered the price and you’ve built a big display that’s in a high traffic location. All that combined will drive a lot of a lot of extra purchases, but placement is as big a part of it as any of them.

PMG: When you talk about placement there are many different tactics I see in stores. For example, color breaks on apples. How much does the visual impression play into the decision-making process?

MAUTI: Visual merchandising is an important element of placement strategy. After all, the old adage ‘eye appeal is buy appeal’ didn’t just come out of nowhere. Drawing customers into your display is necessary if you want to make a sale and creating attractive displays is an important technique to ensure customers are drawn in. But it can be tricky, one person’s attractive presentation is another person’s bland display. Two display imperatives I often consider is to keep the display simple to shop and use elements, such as color breaks, that will force the customer to recognize what is being offered. Satisfying both imperatives can sometimes be difficult. Keeping the display simple to shop usually means keeping like products together or in other words merchandizing by category. But like products are often hard to distinguish visually. However, it can be done. For example, there are many different colors of apples, especially in recent years as we have seen an explosion of apple varieties. Mixing up red, green, yellow and blush apples can make for a rainbow of colors, while keeping the display simple to shop. The same can be said about the many colors of citrus fruit, stone fruit, melons, tomatoes, plus other categories. I discourage mixing categories for the single purpose of achieving color breaks. There are other more important reasons to mix up categories that has nothing to do with color breaks and I am sure we will get into those a little later.

PMG: Recently, the placement of organics has become a hot button issue. What is the right placement strategy for organics?

MAUTI: I think the right placement strategy for organics is different for different stores. The big debate is whether they should be integrated with conventional produce or segregated in their own area. My view is the customer has a lot to say about that. At Execulytics, we recently completed a survey of Canadian consumers asking them where they prefer to shop for organics within their store. The results were nearly 50/50 between integrated and segregated. Looking deeper into the responses, it was interesting that there was a tendency for frequent organic users to want to see them segregated, while occasional users were more likely to prefer integrated. These results suggest that those customers who have completely ‘bought in’ to organics have a lower need for conventional alternatives, which could partially explain the growth of ‘organics only’ retailers. While at the same time, the survey results suggest that those who are ‘undecided’ would prefer to see both alternatives together so they can make a more informed choice.

Given this dynamic, where there is a spectrum of customer preferences, my preferred placement strategy for organics in a large store environment catering to the general population (as opposed to a niche segment) is partial integration. In this method, organics are separate from conventional produce but merchandised by category next to the conventional products within that same category. Picture an apple table with one end displaying all conventional apples, employing the appropriate color breaks, and the other end displaying all organic apples. In this situation, it is important to use some sort of hard separation, like a divider, to ensure there is no co-mingling between the two. Using this method, you allow a compromise between those that have ‘bought in’ and those who are ‘undecided’, ensuring you are satisfying both preferences.

PMG: When you go into a big grocery store, it seems they never make it easy to pick up a gallon of milk, instead, they make you walk to the back of the store to find it, and in the process walk past hundreds of products. Is this a placement strategy that gets use in the produce department?

MAUTI: There are two situations in which this strategy might get used. First is with large bags of potatoes placed at the back of the department. With potatoes being one of the few staples in the produce department, customers who have it on their list need to venture to the back of the department to get it. However, forcing the customer to the back is only one reason to utilize this spot for potatoes. The fact that 10 lb. bags (or larger) of potatoes require lots of space, the back of the department may be the only spot for them to go without blocking sightlines to other produce items. The other scenario could be for advertised items. Putting a hot price on a favored product and then utilizing a small display in some out of the way place in the department will force customers to search for the desired item, making it a sort of treasure hunt scenario. Along the way, customers will undoubtedly get a pretty good tour of the department seeing everything it has to offer. Personally, I am against hiding advertised products. Any benefit you get from the treasure hunt will most likely be overshadowed by disappointed customers who could not get the product they were looking for.

PMG: When you talk about the placement of fruits versus vegetables, do you always want to lead with fruit, or do vegetables also benefit from getting the spotlight? I mean, are you really going to sell more onions depending on where you put them?

MAUTI: Certainly any product that is situated in a more visible spot and enjoys other incremental merchandising activity, such as an ad, is generally going to sell more. It’s not rare to find romaine hearts, cauliflower or broccoli on and end cap throughout the year and it’s a good idea, in my opinion, to highlight asparagus when it is in season by giving it a prime location. In each of these examples you should expect there to be a sales lift. But in my experience, the biggest sales lifts occur on products that can create an impulsive reaction from customers. Think about products capable of eliciting an emotional response, most likely they will be fruit, examples include cherries, strawberries or watermelon. These products can drive sales simply with their aroma and the pleasant memories those aromas are associated with. Put them on an end cap or other off-shelf display and the five times lift we discussed earlier can very likely be a part of the conversation. Don’t get me wrong, there are good operational reasons to put cauliflower or broccoli on an end cap. Not only will they drive incremental sales, but if they are on ad you don’t want to be burdened with replenishing from the cooler every hour or so. Building a bigger display with incremental holding capacity will help sales and department efficiency.   

Prioritizing fruit for the prime locations is just my opinion, of course there are other views out there. And over a career at retail, I’ve seen a lot of different ideas and pilot projects designed to test those ideas. I recall a pilot requiring all wet case products to be moved onto the front table. This occurred at a topflight store that was used as a blank canvas. Out of the box concepts were tested there with the intentions of implementing successful ideas across all stores. The impetus for this pilot project was that most stores, including competitors, prioritize cherries, strawberries, watermelon plus other impulse fruit products. Despite varying degrees of operational skill, most stores have more or less undifferentiated offers of these products. Rarely do operators make fresh leafy greens the top priority in their store. By placing them up front, the store operator was forced to make it the top priority and almost guaranteed the best leafy greens in the area. The big gamble was, would we be able to coax customers to switch stores based on an improvement in fresh greens. What happened? The store ended up having the best greens in their trading area and their sales grew on most of the wet case products. Unfortunately, most of the impulse items dropped too much to make this a worthwhile strategy, so it was short lived. Not all was lost, the pilot project did demonstrate to us the impact of placement. Placing leafy greens on the front table resulted in increased sales and removing fruit from the front tables resulted in sales declines. This single store test adds credence to the idea that lettuce is just not an impulse purchase. You might decide not to buy lettuce on any given day because it doesn’t look fresh, which the pilot corrected, but chances are you’re not going to purchase lettuces on impulse. Whereas you might with some of these other categories.

PMG: When you talk placement and how that influences movement and product rotation, how do you manage replenishment?

MAUTI: The trick is to ensure the operators match display size to sales. During my time in operations, to help in those efforts, we would send a weekly spreadsheet detailing the sales and display standards for each product. The display standards were store specific and calculated to ensure replenishment cycles were appropriate and respected the different shelf life requirements for different products. This means that potatoes had larger displays that required less frequent replenishment than did strawberries. Most importantly it allowed for optimal freshness and operational efficiency. The basic idea is to build displays large enough that it doesn’t require overly frequent replenishment but small enough to ensure product on the shelf was always fresh. The sales velocity determined display size. It’s no surprise that stores that adhered to these or similar processes were in better condition and had better results than those that didn’t.

PMG: When the ad breaks, is that when the department shifts produce placement around a little?

MAUTI: Definitely, each week before a new ad breaks, many departments go through a transformation. It’s useful to think about a produce department in four placement zones. I would call the zones permanent, seasonal, events and ads. Now these are not physical zones, but rather more like placement categories that are found throughout the department. For example, the multi-deck unit that normally houses packaged salads acts like a permanent zone that is not subject to frequent changes. Inline tables will get flipped seasonally and satellite displays are often utilized for events that can last for many weeks. Think about a satellite display of inshell nuts or bins of pomegranates over Christmas. Now for advertised items there will often be premium spots, such as end caps that are used to showcase the featured products and allow for greater holding capacity. When a new ad breaks, those premium spots change to ensure the current featured items are in those locations. Sometimes the entire look and feel of the produce department can change over night based on the products in the weekly flyer.

PMG: Speaking of seasonal placement strategies, would you consider that a good opportunity for locally grown in the summer?

MAUTI: When I think about local placement strategies, I think about them more in terms of event merchandising. Using bin drops for local apples, satellite displays for the next local crop or a farmer’s market type display either in the store or outside before entering the store are great ways to use extra space to showcase the event. Not only will these displays disrupt the shopper’s flow, ensuring visibility, they will also tell the customer where priorities lie. More times than not, prioritizing locally grown produce will put a store on the same page as their customers.

Another interesting customer focused event is a push on flavor and placement can play a large part in an event like that. Using various off shelf vehicles to display the most flavorful items will likewise ensure visibility of a push on great tasting varieties. To draw even more attention, an aggressive placement strategy can be accentuated by a sampling program. There are many customer-oriented stores that sample the most flavorful products in a category. In these situations, a permanent sampling location is often used and essentially becomes a part of the placement strategy.

PMG: Are there other important aspects of placement strategy we have not discussed?

MAUTI:  Yes, another important component of placement strategy is cross-merchandising. Simply put this means merchandising complimentary products alongside each other in the hopes of generating incremental sales. An important element of cross-merchandising is that cross-merchandised products do not fit neatly into category display standards. Examples include lemons displayed in the salad set or basil displayed with tomatoes. Good merchants will see the opportunities across department lines as well. Probably the most recognizable example of cross-merchandising outside the produce department is placing lemons in the seafood department. Customers are hungry for meal and recipe ideas and forward-thinking operators have displayed produce outside the department and have allowed other categories to be displayed within produce to generate sales. A good example is crepes and whipped cream merchandised alongside strawberries. How often will customers purchase crepes without the gentle nudge from fresh strawberries. That’s how cross-merchandising works. Done right, cross-merchandising can drive benefits for produce and for other departments in the store and customers will thank you for it.  

One time, during my days as a produce merchant we combined event and cross merchandising to some pretty impressive results. During an early summer BBQ event headlined by the meat department we took the opportunity to build satellite displays of tray pack corn and portobello mushrooms cross merchandised with striploin steaks, right in the meat department.  We sold more of all products including the steaks. It’s amazing the sales that can be generated using the powers of persuasion and increased visibility. Like I said earlier, customers are hungry for meal ideas.

PMGCan you derive some benefit from putting bananas in different parts of the store for example a small display right by the checkout?

MAUTI: As a produce guy, I would love to see grab and go products at the front checkouts. The reality is a lot of those checkouts generate incremental revenues that are generally not available in produce. But I think that would be a service to health conscience customers and a great opportunity for the produce department. You do see quite frequently a variation of that idea with the use of banana trees. Although not right at the checkout like candy bars and magazines, they are in the general vicinity and get the benefit of incremental foot traffic.  

Really, the idea of a banana tree at the front checkout demonstrates the essence of placement strategy. We’ve been talking around the edges of it during this entire conversation. A basic principal of placement strategy is to put your best products where the customers are going to be. This is why the checkout bar is such a big income generator for stores. Every customer uses the checkouts, so naturally significant traffic goes through them. It’s no different than the power aisle as you enter a store. It stands to reason that if a customer is in the store, they came through the entrance, therefore they will have seen the power aisle, hence it is stacked with great impulse products. When we talked about departments cross-merchandising in the produce department, it starts with merchants who want to benefit from produce traffic. Satellite displays, end caps, and farmers market displays outside the store are all designed to benefit from increased foot traffic. If your readers take anything away from this conversation it should be this: where you place your products in relation to where customers are going to be is an important success factor of the merchandising plan.

PMG: What if our readers were to take two things away from this conversation? Is there another core principal?

Mauti: Absolutely, ensure proper space to sales. It’s great to want to drive sales, and as much as placement strategy is an important element in achieving that goal, care must be taken to make certain displays in the produce department aren’t loaded with too much product. Large displays of ageing product can detract as much, if not more than, a large, fresh, vibrant display can attract. When determining a placement plan all other elements of the merchandising plan should be accounted for. Ads, pricing, quality and seasonality should be considered prior. I’ll leave you with a quick story on why space to sales is so important.   

During a routine store check this year I was surprised to find an end cap of strawberries with approximately 20 cases on display. That in and of itself was not out of the ordinary. The off-season for strawberries is quite short these days, but we were right in the middle of it. Incoming product quality was suspect, and they were selling for $4.99 for a 1 lb. container. You probably know where I am going with this, but there were seven different brands on display and none of them looked worth buying. Don’t get me wrong, there is nothing wrong with off season strawberries at $4.99 if you temper your expectations. But it was clear this store was struggling to maintain quality. The situation was made worse by allowing more space than sales dictated. A situation that could have been corrected by maintaining proper display to sales standards.

PMG: Mike, thanks for your insights. We’ll look forward to our next talk about pricing in the produce department.