Retail 101: Part Three with Mike Mauti
With more than 20 years of experience in the North American supermarket industry, Mike Mauti has learned “Retail 101” firsthand.
Now he is sharing his insights with the audience of The Produce Market Guide and The Packer.
Mauti, the managing partner of Toronto-based Execulytics Consulting, teaches on sales, tonnage, gross profit, total contribution, market share, customer satisfaction, negotiation and more.
This is part three of a conversation between The Packer’s Tom Karst and Mike Mauti about Retail 101 principles.
THE PACKER/PMG: We’ve been talking to Mike about retail 101. We’re all in a competitive business environment, and you mentioned the importance of market share and market share data. How do retailers see themselves in the context of the market? How does information get to them? And what does it look like when they get it?
MAUTI: Market share data comes from third-party analytics companies. These companies purchase sales data from all the large grocery companies and compile it into one large data set. They then cycle it back to the retailers giving them an idea of their portion of the market. This portion of the market, or market share can be represented at the total store level or it can be broken out by department, by category or even as far down as the item level. It is really important information for a retailer, it is the only metric that allows them to gauge performance against their competitors.
THE PACKER/PMG: These third-party firms, do they give the retailer’s this information for free?
MAUTI: There are many ways that an analytics company will monetize this data including offering advanced services to retailers, but generally speaking, the basic market share reports are included in the purchase price of the data. The big commercial value of the data is realized through the supplier community. Market share data is extremely valuable to suppliers as it provides them a window into their competitive strengths and weaknesses, not only of their brands, but also with the individual retail companies. So, suppliers are the primary target to sell this data.
THE PACKER/PMG: Is there ever any data that is not available?
MAUTI: There is a handful of missing or hidden elements in the market share data. The first element is private label sales data. Typically, you’ll be able to see your own sales or tonnage versus the balance of the market, but you won’t be able to see the same data for individual companies. For that reason, private label data is hidden since it would be very easy to determine which company each label is associated with. However, those sales and tonnage values do roll up to the consolidated totals. Also, with produce, you don’t always get good branding information, since a lot of times, companies are using universal UPC codes for packaged items or PLU codes for bulk produce you can’t distinguish between brands. Incidentally, most of the other departments in the store sell products that use brand specific UPC codes, therefore they get even richer data than the produce department. For them, they can see different brands and how they perform in their store versus how they perform in the market. But that’s not to say that the produce market share data isn’t rich with a lot of great information. Usually in the produce world, we deal with commodities rather than brands. Just knowing how you’re doing on a category like apples versus the market is a very important piece of information without having to know whether you excel on a specific brand. The other piece of missing information occurs when companies choose not to sell their data to the analytics company. In this case, the representation of the total market would exclude all companies that have chosen against selling their data.
THE PACKER/PMG: I don’t want to take us down too much of a rabbit hole, but for a category like apples, which now has a lot of proprietary varieties, how does the shipper use market share data to plead their case for including those varieties in retail sets and how does a retailer sort through all the different marketing approaches?
MAUTI: For a supplier in particular, they’ll use the data to understand what trends are taking hold in different regions of the country, even narrowing it down to specific cities. By knowing what works in one region can help them spread around best practices, or in this case best assortments, to different regions with similar demographics. For example, if they understand which proprietary varieties are working in the northeast, then perhaps they would also work in the northwest or in any region for that matter. It also gives a supplier good information on where they need to place their resources. If you go back to that same situation and imagine a supplier enjoying strong support in the northeast, but struggling in the northwest, they can start to place more of their selling resources or advertising resources into that marketplace. And really, it’s the same thing for a retailer, particularly if they’re national in scope, or have a large geographic area they trade in. A retailer can deep dive into where they have strengths and weaknesses. If they see that they’re lagging in one or more regions, they can start to use some of the tools in their merchandising tool chest to give a boost to those areas. Market share data is also useful for understanding category strengths and weaknesses. For example, if a retailer overall has flat market share, but they have several categories where they’re declining at an unacceptable rate, they can start to look at why they’re lagging the market. For those declining categories they might look at assortment, pricing or promotional frequency and depth, they could even take a hard look of where the category is situated within their stores. Sometimes even a down and dirty category review can drive benefits and turn around a declining category.
THE PACKER/PMG: Who gets to sort out the data? Is it mostly at the head office?
MAUTI: Certainly, this data goes pretty much exclusively to the head office and to the category teams. Everyone would get a copy of the entire data set and have an ability to drill down to their area of responsibility, be it a region or a category. They’ll be able to see how they’re doing relative to their counterparts beside them. Where I come from there was always a bit of competition over who could get the best market share. Many times, for those at the back end of the competition, we would get hauled into uncomfortable meetings to try and explain our market share and more importantly detail our action plans to turn around the results. Normally, a produce office will have many categories and few merchants or buyers. With so many categories to manage, it was very rare for somebody to be ‘firing on all cylinders’, usually ensuring frequent attendance at the market share meeting for everyone in the office.
THE PACKER/PMG: The market share basically tells a retailer in the broadest terms how they are doing compared to other retailers in the same market.
MAUTI: Yes, and that’s what sets market share apart from all the other metrics discussed in the Retail 101 seminar. Market share is the only metric that gives you results relative to your competitors. I’m sure it’s no surprise that in this age of big data there are plenty of metrics that can capture someone’s attention. If you were to look at these metrics in the bubble of just your own organization, you can be lulled into a false sense of security. As an example, avocados have been growing in demand over the last decade or so. If your company has experienced steady but unspectacular growth on avocados, you might look at those results and say, “we’re doing pretty good”. Given annual growth, driving increased sales, plus added tonnage and profit into your coffers is a situation you can be very happy about. But if you look at the same avocado situation with a view into the rest of the market, you would probably see that collectively your competitors are achieving a much higher level of growth. This would tell you your competitors are doing a better job at capturing the incremental demand in a category experiencing meteoric growth. It would likely cause you to change your outlook once you realized that you are losing share of the avocado category in your marketplace. Again, it might force you to take a closer look at your merchandising plan.
THE PACKER/PMG: With the market share discussion, is there a way to determine how other retailers are performing on profit?
MAUTI: No, the data is only front-end sales data with no cost or profit data included. It can only drive insights into sales and tonnage in the market.
THE PACKER/PMG: In terms of the response to these market share meetings, where does the response plan come from? And, if a chain is in market share trouble, what would be a go-to strategy to address the situation, what would be something they could try?
MAUTI: For me, to solve any strategy related problem, no matter the metric, my go-to spot is a review of the 4-Ps, but I would also throw in a 5th P and call it procurement. Sometimes the solution may require a look at your vendor base. Maybe the buyer needs to negotiate a little harder, or review the types of negotiations they’re engaging in. It’s possible that the answer is as simple as more contract business to create stability or less contract business to play the market more. And then there’s the 4-Ps; are you priced right? If not, fix your pricing. Do you have the right product assortment? If you look at a category like potatoes, there is an enormous amount of variety proliferation, sometimes you could be over assorted, or under assorted. In my experience, an assortment review was one of the best go-to fixes for long term success. But you also need to review how you place product in your store for the declining category. Do your competitors have the product front and center and you’ve got it buried in the back of the store? Are you using off shelf displays in order to get more customers around that product? Or are you simply selling in-line? And then of course, there’s promotions. Advertising is the quickest tool in the merchandising tool chest to fix sales or tonnage problems. A skilled merchant will look at all the 4-Ps and put together a comprehensive plan that will solve the problem in the short term plus have lasting value for the long term.
THE PACKER/PMG: Talking about procurement and negotiating, that’s a pretty interesting area. As you look back over the last couple decades do you think procurement has changed?
MAUTI: That’s a good question. In the last number of years, probably the last couple decades, I’ve seen that contracting volume is becoming more important in the marketplace. One topic I talk about in the Retail 101 seminar is how cost certainty can sometimes be more important than low costs. This is because of the profitability that can be lost if you are playing the market without a guaranteed cost. For example, if you set a retail price based on a cost that is more temporary than you realize, you may be forced to decide between an unplanned price increase or sucking up the lost profitability once the market turns. On the one hand you disappoint your customers, on the other you risk missing your profit expectations. Not a good spot to be in. That’s compared to contracting volume at a known cost and setting your retail prices accordingly. In the latter scenario there is no lost profit and no disappointed customers. That’s not to say that low costs are not important, minimizing cost is obviously one of the most important jobs of a buyer. But costs need to be looked at in totality, including the costs associated with lost profitability. I’ve lived in situations where I’ve done wrong by not having cost certainty, even though my current cost was very low. Having cost certainty such as in a contract would have been beneficial for me in those situations. As a supplier, it can be advantageous to provide contract volumes for customers. Not only can it contribute to a win/win scenario, it can also help to strengthen partnerships between buyers and sellers.
THE PACKER/PMG: What would you consider to be a retailer’s best vendor strategy in your experience? Do you want one supplier at a time working with you, or do you put the line out to three or four and say what can you do for me?
MAUTI: Depending on the size of your operation and/or the category in question you may need more than one player, just out of necessity. It makes sense to look at it on a category by category basis. If the volume is large enough though, I favor splitting the business to a few strong suppliers. At the same time, I’d want to offer enough volume to make my business important to all partners. I also felt that going to market with my full volume gave me the best negotiating leg to stand on. That meant looking to secure thousands of cases for the season rather than hundreds of cases on a week to week basis. My negotiating power was at a peak when I was negotiating maximum volumes. That was another reason why I preferred contracts. Not only did I have my full volume to negotiate with, I also had the benefit of cost and volume certainty.
There’s nothing more painful as a produce buyer than having to live through a week where you’re on ad and you can’t get the volume. You’re nobody’s friend in that case. One of my very first mentors in the produce business gave me this advice as I began my career; “you’ll get in trouble (with the bosses) if you are always long, but you’ll get fired if you are always short.” Perhaps this advice is a little crude by today’s standards, but the message rings true. Get long on product and you’ll lose money reducing your prices, be short on product and you’ll lose customers as they satisfy their needs elsewhere. You can replace money, but you can’t replace customers. Having firm agreements with suppliers to get needed volumes is very important. Strong, reliable partnerships with suppliers who value your business is the best vendor strategy to accomplish that goal.
Read more of Mike Mauti's "Retail 101" interview here.
