Giant Eagle - Promotional effectiveness
Managing the “Last Mile” with Store-Specific Plans
Is a planogram based on cluster averages good enough to win? Galleria’s analysis of Giant Eagle’s promotional planograms concludes: absolutely not. Consider a relatively simple but common example of a promotion: pasta and sauce, with up to 23 items. In comparing a well-reasoned endcap planogram based on cluster average data to a store-specific planogram, analysis shows that:
- In no case does a cluster average plan match any one store’s requirements
- On average, a store-specific plan allocated facings differently than the cluster plan on 16 of the 23 items
- No two store-specific end-cap plans had the same allocations
The implications are profound: not only will a generic approach lead to stock outs and lost sales, but it will also drive excess inventory in stores. A generic end-cap planogram can therefore short circuit a great deal of the supplier’s and retailer’s costly, time consuming, and resource intensive promotional planning and supply chain efforts.
Does improving success with promotions boil down to better item selection and sharper pricing achieved through an extensive (and costly) supply chain upgrade? Or should you just be providing stores with the planograms they need to make sure they have the right items on the right shelves in the right quantities? Below, we discuss how Giant Eagle and Galleria partnered to radically improve Giant Eagle’s own promotional programs—without all the costly surgery of re-engineering the supply chain.
Promotional customer-centricity at Giant Eagle
We all recognize the massive efforts required to manage and execute promotional programs in retail. Large retailers and their manufacturing partners allocate hundreds of staff and invest significant resources in forecasting systems, inventory and markdowns to drive consumer traffic, sales and the brand—not to mention the transportation, wage costs, and print expenses. Marketing, merchandising, supply chain, store operations and just about every other corner of the organization is involved in some way. It might be an overstatement to say that some retailers revolve around their promotional program, but not by too much.
Shortcomings in promotional effectiveness shortchange the investment. To remedy well acknowledged stock and item selection shortcomings, retailers and suppliers have invested massive amounts in new analytics, forecasting and supply chain systems. These have made an important difference, but are unable to completely solve the problem. With all the sophistication, partnering and experience applied to promotional programs, in practice many still come up short. There is often a mix of having too much inventory and being out of stock; in-store compliance is by no means complete; and customers do not always see the products they want or expect.
Several years ago Giant Eagle commissioned its internal consultancy group, Giant Eagle Business Systems (GEBS) to study the opportunity that could arise out of improving promotional effectiveness. Importantly, the group oriented themselves from the store operations and customer’s point-of-view, specifically the in-store experience. What they found was not uncommon among retailers: often too much of the wrong items, not enough of the right ones, difficulty finding the sale items and inconsistent implementation across stores and through the promotional week. Further, as they dove deeper into the details they discovered that often the “out-of-stocks” were only out of stock on shelf- the inventory was in the store, just not on the retail floor in a logical place, or where it could be readily purchased. They also found that this inventory consumed a great deal of space and investment dollars.
These findings challenged Giant Eagle to rethink the practical side of forecasting and how its merchandise is planned, ordered and allocated through the store during the week of the promotion. The scope and timelines of the effort were not about ripping out their entire supply chain management system—nor did the findings suggest that was necessary. Instead, they focused on the composition of demand and the business processes that support it. It led Giant Eagle to recognize that while forecasting demand for all stores in aggregate may suffice for working with suppliers, in order to satisfy its customers and meet individual store demand, it needed to forecast at the store-specific level for each product, for each promotion.
With typical Giant Eagle innovation, the retailer developed its own system to handle the task. “We were not expecting a Nobel Prize based on the functionality,” said Steve Bakaj, GEBS junior consultant, Giant Eagle “However, we were delightfully surprised with just how well the system worked in practice. It’s not our long-term vision, but it’s an important and effective stepping stone for getting us there. The experience allows us to learn and shape those long-term needs better.”
One thing that became abundantly clear with this level of detail in forecasting was that no two stores behave alike. This finding merged with the realization that despite expending considerable effort executing promotions in store, product often wasn’t where it was supposed to be. “The issue was not with our level of effort, it was with our process and tools,” commented Bakaj. “Providing a generic promotional template for stores to manage their unique inventory requirements is like fitting the proverbial square peg in a round hole. You could only make it fit if you jammed it very hard, and even then there was a lot of waste.”
As a result of the findings, the group formed a simple hypothesis for its promotional needs. “We realized that if we could treat every store uniquely and arm them with a simple process, then we could simultaneously improve our in-stocks, reduce our ending inventories, impact sales and delight our customers,” said Stephanie White, vice president of sales systems and operations, Giant Eagle. “However, we needed a way to achieve it on a store-by-store, item-by-item and week-by-week basis, and we were not looking for a multi-year, $100 million answer.”
Still using a planogram based on the cluster average?
The best ranked item, chicken noodle soup, was ranked 1st, 2nd, or 3rd at any store. However, that is where the consistency ended. An item with a cluster average rank of 6th was ranked as strong as 2nd and as poorly as 32nd. Indeed, the variance of ranking was consistently pronounced across all SKUs. Conclusion: Using the cluster average is average at best.
Intrigued with Giant Eagle’s GEBS team vision, leadership commissioned them to test, refine and validate their ideas using a meaningful, yet manageable number of stores and categories. “This was not about conceiving a process in a boardroom, said Brian Ferrier, director of retail business systems (GEBS), Giant Eagle. “It needed to be real and stand the test of retail, with all its nuisances and pressures.” The team began with just one store. They forecasted each item, created planograms for each end-cap based on the anticipated demand and established a basic in-store ordering and replenishment process. The team then stayed on the ground and carefully watched, listened, and measured to define a process that could be taken to five more stores. They found that differences did not just exist across categories, but over weeks and in each store. To shape the right approach, the team expanded their forecasting and planogramming efforts to six stores and multiple categories, and sustained for several months.
As the approach was refined, results began to pour in. “Retailers will not be surprised that providing the right product, in the right quantity, in the right place will impact sales,” commented Dan Schnorr, director of retail space planning, Giant Eagle. “However, it might surprise some just how big the opportunity is and the return on investment that can be achieved. We saw significant lift for categories on end-caps. What would we have had to spend in, say, deeper discounts or carrying out more promotions to get that kind of sales increase?”
The benefits did not stop there. By employing truly store-specific end-cap planograms, in which their capacities directly reflected the inventory required between replenishment cycles, product flowed with much more ease to the shelf. This drove down both in store labor costs and also inventory levels. “With store-specific plans, we had the capacity on shelf to realize backdoor to retail floor replenishment,” added Ferrier. Store staff now had everything in one place, which reduced double handling and time spent searching for items.
It also enabled more effective use of labor and better in-stock conditions. This visibility helped staff reorder items when required and thus, significantly, draw down stock levels.
The team presented the results to the leadership of Giant Eagle. Happy with the improvements and satisfied that the methods stood the test of retail, leadership gave the team the go-ahead to roll out the approach to more and more stores, for more categories, and more promotion.
The quick math underscores the magnitudes of both the benefits and effort. Sales improvement across 200-plus stores for a dozen or more end cap categories per week added up to a high return on investment, as did the associated improvements in ending inventory and labor effectiveness. While the internal forecasting system could be scaled for more stores and categories, the question still remained: “How was Giant Eagle going to produce so many store specific promotional plans across the chain?”
200 stores x 15 ends x 52 promotional weeks = 156,000 planograms
The large amount of benefits and the availability of a manual approach to planogramming meant that Giant Eagle was willing to fund limited manual production for a period of time, while an automated approach to end-cap planogram optimization and production was found and implemented. The number of stores using the manual solution was increased to 20, but the corresponding increase in headcount was quickly underscoring the urgency for a solution.
Scalable solution through galleria’s automated promotional display optimization
Enter Galleria. After reviewing several request for proposals (RFPs), Giant Eagle adopted Galleria’s Promotional Display Optimization (PDO) software to automate, optimize and streamline its manual promotion planning initiatives. Giant Eagle selected Galleria because the solutions scalability could allow the company to quickly and easily generate high quality merchandise plans to ensure the right products are displayed at the right stores in the right quantities to achieve a rapid return on investment.
“Galleria’s PDO solution was, and remains, the best solution with the scalability and functionality required to execute Giant Eagles promotions right,” commented Kent Smith, director of consulting for Galleria.
An aggressive project plan was developed: a solution was to be operational in just six months. To accomplish this, Galleria was staffed with the right talent and a “can do” attitude, empowered to make decisions, and given access to leadership. The team was reminded daily of the deadlines.
In addition to a six-month deal-to-live timeline, the weekly promotional cycles also presented a challenge. The planograms for multiple categories would have to be created and approved each week, along with the associated 2,000 to 3,000 planograms. The team would have to ensure a simplified, yet effective approach to using the tool. Due to the approval process requirements, this meant Galleria would have two days to complete the plans each week.
With 48 hours to produce 2,000 to 3,000 ready for- retail plans, this meant Galleria must generate over 50 plans per hour, assuming no rework. While Galleria’s Promotional Display Optimization can process a large cue of requests overnight, the practical reality considering planning and approval, was that Galleria’s PDO needed to be used to create almost 200 plans per hour, soup-to-nuts.
During this time, Giant Eagle was manually supporting 20 stores and had to increase its promotional planning team to five people to support efforts. However, all members were extremely hard pressed to get their work done each week. This reaffirmed that using a manual approach for 200-plus stores was not feasible.
“Clearly defining what a successful planogram was, empowering it with the right data, refining the tool use process, and training the end users were all key to hitting the necessary cycle times,” reflected Smith. Add to that a multi-threaded system capable of accommodating multiple users and processing quickly and autonomously. Indeed, end-cap planogram production rates were under 10 seconds per plan. “Nothing in the industry can touch that—nothing—except our Version 7 which, when implemented at Giant Eagle will significantly reduce end cap planogram production time”
Giant Eagle signed the contract with Galleria in January, 2008 and went live the first week of July, 2008. During the first week of production, 350 store-specific plans were produced. From there, the amount of plans being generated ramped up quickly. Within a few months the majority of the manual team’s production was replaced with Galleria’s PDO automation. Tasks that once required five people now only required two.
Over the next year, Galleria’s PDO assumed many of the manual planning efforts and was rolled out to almost all of Giant Eagle’s stores. Today, in just two days a week, a small but talented Giant Eagle team can quickly and easily produce up to 2800- plus high-quality merchandise plans each week using Galleria’s PDO. The information from the planograms, the sales results and knowledge of a high level of compliance has also begun to circle back to the promotional planning process. “We’re better informed as to promotional effectiveness and the value of an end cap,” explained Schnorr.
In addition, Giant Eagle will be rolling out Galleria’s Customer-Centric Merchandising solution for their “in-aisle” planograms. The dynamics are different, but each store will be empowered with planograms that ensure continuity of strategy across the company while tailoring the space, facings and assortments for each store.
“The benefits of our promotional approach are now being realized across the enterprise,” concluded White. “In fact, the project team was awarded the Giant Eagle President’s Award for Excellence. Suffice to say we call the project an impressive success for which we and our customers are now reaping the benefits.”
- Increased customer satisfaction through customer-centric assortments
- Sales increases of up to 18 percent
- Margin improvements of up to 5 percent
- Product availability increases of up to 8 percent
- Reduced inventory value of up to 15 percent
- Reduction in wastage of up to 20 percent
- Reduction of inefficient inventory by 5 to 10 percent
- Reduced in-store labor and replenishment costs by up to 10 percent
Improved in-store execution
- Improved planogram compliance by more than 95 percent
- Reduced operational costs up to 10 percent
- Reduced category space up to 10 percent