Power categories for the front end

Stocking the checkout with magazines, confectionery and beverages may lead to increased profits. 

checkoutThe battle for the front end continues as retailers experiment with a wide range of products to entice consumers into one final purchase before checking out of the store.

Yet, are some retailers mismanaging their checkout lanes by trying to do too much with the area? Some industry observers say that a wide range of products have managed to find their way to the checkout lanes of many supermarkets across the country and, instead of helping retailers gain more sales and profits, they actually end up hurting a supermarket’s financial performance.

A new study, Optimizing Checkstand Merchandising: Maximizing Shopper Interaction in a New Era of Technology, has concluded that retailers need to pay much closer attention to the data that shows which categories can help them develop the right mix of products at the front end. The end result is that just a 1% increase in shopper conversion could add more than $560 million in annual revenue, or more than $15,000 per store.

“The key is to get the consumer to make one more purchase while they wait at the checkout,” says William Romollino, vice president of shopper insight for Parsippany, N.J.-based Time/Warner Retail, which conducted the study along with the Kelly School of Business at Indiana University and by Videomining’s Study on Grocery Shopper Insights. IRI provided some sales estimates on the dollar sales driven by front end checkstands and Dechert-Hampe Consulting provided some of the analysis of the various components of the research.

“Our goal is to make the retailer aware of the importance of managing the checkout and keeping the consumer in a shopping mode throughout the checkout,” Romollino adds. “How do we find the best ways to engage the shopper at this point. The key, of course, is with high-impulse products with strong household penetration.”

So how do retailers go about building the correct front end merchandise mix? The study says that the key is determining what product categories meet four essential shopper demand critieria: Household penetration, frequency of purchase, impulsiveness of purchase and dollar share of front-end sales.

The study found that the confectionery, beverages and magazines categories stood at the top of the list in all four criteria. Those three product categories generate more than 90% of front end sales. The survey also found that 74% of consumers have purchased gum/mints at the front end, 53% have purchased candy and 48% have purchased magazines. Conversely, just 9% have bought tobacco at the front end and only 24% have purchased phone cards there.

The survey stresses that retailers need to take some specific measures to maximize the potential of the front end. For example, it suggests that retailers who see the potential of the big three front end categories merchandise them at every lane in the store. It also says that secondary displays can only distract from the primary end-cap displays.

Screen shot 2014-01-28 at 3.17.05 PM“Retailers need to analyze and determine which categories can help spark new sales and increase conversion rates at the front end,” says Romollino. “We believe to do that they need to manage the checkout as its own individual department, having one person overseeing it so that they can manage and optimize its potential.”

Retailers should consider other factors as well when merchandising the front end, say observers. According to the survey, one of them is that shoppers are looking for distractions while they are in the checkout line. Nearly two-thirds of consumers say they like to read magazines while they are checking out and 84% say that looking at products in the checkout gives them something to do. More importantly, 44% of shoppers will buy products on impulse while inline.

Romollino says that retailers should not give up on the magazine category, particularly with consumer demand for such titles as People, Us Weekly, Vogue and other publications near all-time highs. The survey backs this up, claiming that 70% of magazine category sales in stores are derived from the checkout, making assortment and display quality of paramount importance to maximize performance. “Retailers should realize that there should always be room for key items at the checkout,” he adds. “With magazines, retailers are dealing with a category that offers fully returnable products and has strong consumer demand.”

The front end is extremely important to a supermarket’s bottom line. “Many retailers are leaving money at the checkout and some may even be losing customers there,” says Raymond Jones, managing director of Dechert-Hampe. “The solution is a better understanding of shopper behavior and optimizing the checkout through data-driven approaches.

“About one in six shoppers make an impulse purchase at the checkout and it often represents more than 1% of total store sales,” he adds. “This can have a huge impact on both store profits and the overall shopper experience. When done right, the checkout offers retailers an opportunity to generate incremental sales and add to shopper satisfaction. Done poorly, these sales can be lost and the customer relationship is undermined.”

Seven key insights for checkout optimization

  1. The power categories of beverages, magazines and confectionary generate more than 90% of front end checkout sales. 
  2. Improving checkout Shopper Conversion by 1% nationwide could add more than $560 million in revenue annually ($15,350 per store).
  3. Merchandising the power categories on every lane is critical.
  4. Shoppers spend more time looking at the Customer Left Arm and ROS top tiers when approaching checkout. Power categories must be available in these areas.
  5. Secondary displays detract significantly from primary end-cap displays.
  6. Most checkout categories are not growing in step with historical growth rates; ensure that quality of space is allocated to those categories/items with the highest sales potential.
  7. Focus should be provided on those categories that get a higher percentage of their total store sales from the front end checkout. Those categories are primarily gum and magazines.
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