Consumer satisfaction and proven profits - a winning combination for drugstores

Drug Store News, Oct 10, 1994

Few categories can generate high-ring transactions, impulse sales, and consumer excitement like the beer category. But with limited cooler space and fierce competition from other channels, effective shelf management for beer is vital to success in drugstores. Surprisingly, many drugstores still devote as much as half their space to items that account for less than 10% of category sales, a strategy that can alienate customers with out-of-stocks while reducing turns and sending inventory costs skyrocketing. To capitalize on the power of the beer category, drugstore retailers must be able to tailor their product mix and buying strategies to provide consumers with variety while efficiently managing cash flow and inventory levels. And, since excitement in the beer category is driven by a steady stream of new products, retailers need a scientific way to manage space and inventory that provides flexibility to meet changing consumer demands and competitive pressures.

Miller Brewing Company helps its retailing partners do just that with their comprehensive category management services. More than just a shelf management solution, Miller's approach employs a wide range of analytical techniques to help uncover which products and strategies are actually building profits and generating traffic. Miller's category management experts then work closely with retailers to put together an action plan based on proven, effective methods for enhancing customer satisfaction and maximizing the performance of the entire beer category.

A key element of Miller's category management program is their price-level merchandising system, known as "the Arrangement." With the Arrangement system, the total category is organized by price segment in the direction of traffic flow, so that imports, super-premium, and premium segments are shopped first, followed by the popular and budget brands. Products are arranged vertically by brand and horizontally by package, and imports are grouped by country. Space is then carefully allocated according to each item's contribution to category performance. With this plan, customers can find their preferred brands easily. Out-of-stocks are reduced as is costly inventory on slow movers. Most importantly, arranging products by price segment keeps the higher profit brands together, making them more visible and reducing trade-downs to lower margin brands.

With out-of-stocks minimized and more productive brands in the mix, drugstores are able to get the highest return on every valuable inventory dollar. In a recent study, test stores using the Arrangement philosophy increased 10.8 percentage points in unit sales, 11 percentage points in dollar sales, and 12.8 percentage points in gross profit over control stores that organized products by manufacturer. In fact, the projected annual increase in gross profit dollars was close to $4,500 per store.

Of course, a comprehensive approach to shelf management works even better when retailers carry the right balance of growing brands with consumer appeal in each price category. Miller offers a diverse portfolio designed to build both profits and consumer loyalty with franchises like Miller Lite, Miller Genuine Draft, Miller Reserve, and Miller High Life. They have added strength in the import segment with the Molson family of brands, and have dominated the growing ice beer segment with hot brands like Lite Ice, Icehouse, and Molson Ice. Miller's total category management focus, exciting new products, and powerhouse brands make an impressive total package for drugstores. "We want our retail partners to know that they have the expertise and resources of the Miller Brewing Company behind them," says Kevin Doyle, Miller's vice president of National Accounts and Sales Development. "Their success is our success."