Why CPG leaders build Perfect Stores

This article originally appeared on the blog site of Planorama, a Trax company, and is written by Paul Fitzgerald, a highly experienced senior executive with over two decades working in the Consumer Goods sector; and a history of revitalizing established businesses and establishing new ones.

I spent 14 years embedding a Perfect Store culture for Coca-Cola, with outstanding results. In the early days, we used manual checking and spreadsheets. Since then, new technologies such as image recognition have revolutionized how Perfect Store strategies are executed and increased their value to CPG leaders. In this blog, I explain why Perfect Stores are more relevant than ever and how to optimize their impact.

In a previous blog post, I touched on how a Perfect Store strategy can increase sales revenues for consumer packaged goods (CPG) companies. For Coca-Cola brands, a 20% uplift is common post-execution, and in some countries, it reaches 30%. Global research by Bain & Company backs up these figures.

No wonder CPG Sales Directors dream of routes made up of Perfect Stores.

So how do you create in-store perfection? By pulling core retail execution levers to optimize sales. When every in-store sales driver aligns with your target market, the potential presented by your product’s extrinsic strengths is maximized, so more shoppers are attracted to it, select it, and buy it.

While each organization has its own definition of a Perfect Store, and adapts it to different markets and channels, their strategies share standard elements that define what success looks like:

• Positioning
• Pricing
• Planogram
• Point of sale materials
• Shopper communications

How they are used depends on the category. For example, a merchandising strategy and major sales driver for soft drinks is to place drinks coolers next to hot food items so people add a drink to their lunch. Another approach to the same sales tactic is to build snack-and-drink bundled promotions (as part of the shopper communications strategy) at the cashier to capture impulse purchases.

The benefits are there whether the site is a traditional Malaysian corner store or an American hypermarket. That’s why, as well as the Coca-Cola system, other multinational CPG companies such as Nestlé, Unilever and Procter & Gamble apply their versions of the Perfect Store in both developed and developing markets. They know the impact can be profound. For Nestlé, turning all its travel retail sites into Perfect Stores has increased penetration, conversion, basket size and value. Airport passengers have become shoppers then purchasers, with 34% adding a Nestlé product to their basket at the till compared to 15% before the transformation. Even better, they no longer favor heavily-discounted products — these are full-value sales.

Evidently, the Perfect Store concept delivers results. That’s why it has longevity. It survives because it works, and because it is constantly evolving in response to changes in shopper behavior, the retail sector and technology.

Right now, we are seeing a major revolution in Perfect Store programs as CPG companies transition from manual to digital retail execution. The new generation of image recognition (IR)-based, mobilized retail execution solutions is introducing new levels of accuracy, speed, and capability that I could only dream of when I was leading a Perfect Store strategy.

Retail execution excellence drives business transformation

As a Coca-Cola Sales Director, I introduced a Perfect Store strategy in 2001 that helped get my business back into growth. The story is a microcosm of the concept’s value.

At the time, we understood the in-store sales drivers but weren’t executing them consistently because reps’ incentives were focused on increasing volume rather than on adding customer value. This led to over-use of discounts to drive increased inventory in store rooms. Because there was little focus on sales drivers, stock took longer to sell, increasing working capital pressure on customers and leading to a boom/bust sales cycle driven by quarter-end targets. Our customers were failing to realize their full sales potential and we were failing to drive sustainable growth. We had to do something drastic.

Coca-Cola’s Perfect Store program was driving improved sales figures in other regions, so we introduced it into our market, adapting the sales drivers for different channels. Then, we focused our field team on these drivers and away from selling-in stock. We knew that if everybody executed against the drivers, the sales would come.

It was a game-changer. Over the next five years, our sales volume increased by over 7% a year and we achieved double-digit revenue growth over the same period. Transitioning to a Perfect Store strategy also re-energized our field sales team. From being volume-sellers, they became strategic partners who built strong customer relationships and knew how to optimize every site.

Training became focused on executing clearly-defined, standardized sales drivers rather than leaving reps to interpret standards themselves. Also, measuring the drivers meant we could identify opportunity gaps — such as outlets where fridges were in the wrong spot — and prioritize them. Even though we were collecting and measuring information manually, there were huge gains. We moved from not knowing where the gaps were against a store’s potential to identifying potential based on what really drove sales.

Today, my old business unit is a top-performer in the Coca-Cola system and a global model for in-store retail execution excellence. The Perfect Store program remains a major reason for its industry leadership.

Digitalization drives improved results

My sales team hit new performance levels using the Perfect Store strategy but could have achieved even more with today’s new-generation retail execution technologies, which are adding another level of sophistication and benefits.

IR is one example. Rather than relying on subjective human analysis of whether sales drivers such as share of shelf, out-of-stocks and product positioning comply with Perfect Store standards, IR automates the process. Using mobile phones loaded with the IR app and wireless, 3G or 4G connectivity, field sales teams can upload images securely to the cloud for automatic real-time analysis. They can photograph shelves, receive KPIs and store check results in minutes, and quickly fix compliance gaps.

Compare that to 2001, when I had 200 reps on the road manually filling in weekly spreadsheets. Checks could take up to half an hour per store and field audits were essential. With a 15% to 40% error rate for the reported data, the process was inaccurate and time-consuming, reports were immediately out-of-date, and resource costs were high.

How things have changed. I saw recently that Unilever Portugal has replaced manual checks with a mobile IR solution. It now takes an average of a few minutes to perform a full category check and receive results for more than 16 Perfect Store KPIs. Unilever’s audit costs have come down by 80% and audited store coverage has increased by 60%. The data is shared with category managers and sales people, and senior managers can track Perfect Store performance against strategy.

In my opinion, being able to analyze up-to-the-minute in-store data and use the outcomes for retail excellence planning is a major strategic advantage if you are a CPG Sales Director. It means you can focus valuable field resources on the key measurement gaps that will increase sales the most.

For example, if the data collected in-store shows that, on average, just 70% of your outlets are relayed correctly, that would mean that in the other 30%, basket penetration is sub-optimal and people are leaving stores without purchasing. You could tell sales reps on routes where relay compliance was 65% to bring them up to at least 75% over the next quarter and incentivize them against that KPI. They would then target low-performance outlets for increased sales activity, both directly and in partnership with store managers.

This kind of strategic capability is worth millions of dollars to a CPG company and is only possible with digitalized retail execution. So why are 64% of store checks still carried out manually? I think you need every competitive advantage you can get in today’s marketplace.

How to optimize your Perfect Store program

Close the gap between strategy and execution

A recent CPG industry survey showed that 90% of CPG executives view sales execution as their top priority. To get the most out of every site, each rep must know what a Perfect Store looks like, be able to create it, and be accountable for the outcomes. Training, incentives, and culture change are all ways to focus your team, along with tools that enable ongoing measurement and continuous improvement.

Listen to shoppers

The most successful Perfect Store programs are based on shopper insights and are continually refined as shopping patterns change, so understanding how shoppers make decisions in-store is critical.

In CPG, shoppers make upwards of 90% of their decisions in auto-pilot mode and rely on mental shortcuts (heuristics) to speed up the decision-making process. I have helped to develop a virtual reality platform, SHOPPER360, which assists CPG marketers with understanding how the retail context influences these heuristics. It highlights the ones that are the most important for increasing shopper engagement, which is what drives increased transactions. With this knowledge, they can optimize the critical elements in building the picture of success against which to execute their Perfect Store strategy. This includes factors such as product placement, pricing strategy, shelf appeal and targeted shopper communications.

Embed a Perfect Store mindset

The biggest challenge is changing sales force culture. Reps must become professional sales people who understand business concepts and how to run a successful store. This requires a major culture change program to improve their Perfect Store execution capabilities and encourage them through remuneration and incentives. Most importantly, there must be a belief among reps, managers and leaders that this is the pathway to success. The key to this is field data showing improvement. Once people see how Perfect Store results translate into their bonuses, they will be supporters.

Become strategic partners

According to one study, less than 20% of CPG manufacturers are happy with their potential to influence store managers and it’s reasonable to assume the same is true in other regions. A good Perfect Store strategy turns this around because it is customer-centric. There is less focus on filling up store rooms and more focus on working together to improve sell-through. To increase their influence, reps should share with customers the detailed insights their IR solution provides and recommend data-based strategies to grow the store’s results.

Take a long-term view

It can take years to embed a Perfect Store culture; the gains are incremental and they are delivered one store at a time. It can be tempting to look for a quicker, volume-focused fix solution, especially when there is pressure to deliver results rapidly. However, this kind of thinking leads to temporary gains and can damage customer relationships. Building a network of Perfect Stores by achieving the right execution, every day, will ensure sustainable growth and build solid customer relationships.

Share successes

Measuring the elements of execution is vital as it will help build support among customers, reps and CPG leaders. This means recording baseline data, then providing analysts with regular, standardized data so they can show improvements for a growing number of stores and prove the Perfect Store Strategy is working. This is particularly important in the early stages of implementation. Celebrating and communicating the success of activated outlets builds belief, which accelerates momentum until the number of activated stores reaches the tipping point and the results are reflected in top-line numbers.

Continuously improve

To keep growing revenues and profit, the key elements must always be under control, so the products consumers want are in-store, in stock, correctly priced and well-placed in an increasing number of stores. To close the loop, data reporting and analytics that link retail execution with sales performance are critical, so upper management and the field sales team can benchmark performance and look for improvement opportunities.

Invest in new technologies

Technological advancements provide massive potential for systemic change in retail execution. The more their advantages are realized, the closer we will get to achieving the Perfect Store every time.

That day is not far away – execution is becoming a science and results are improving all the time. Accuracy rates for some IR solutions are as high as 95%, checks can take up to 80% less time, the reported information is consistent, and the data is deep and rich. Smart shelves, 5G coverage, artificial intelligence and other emerging technologies all have the potential to raise the retail execution bar even higher. As CPG professionals, we need to keep abreast of them.