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A Supplier’s Guide To Shelf Space Optimization

A Supplier’s Guide To Shelf Space Optimization

If you are a supplier worth their salt, you'll more than likely want to know how to optimize the shelf space given to you. That makes you the type of supplier that a retailer wants to work with regularly. And who can blame them? By optimizing your space, you're ensuring that you both benefit. But how can you ensure effective shelf space optimization?

That's where planograms play a vital role.

About the contributors

Isabell van Dyk joined DotActiv in early 2020 as a space planner in Johannesburg. Since joining, she has worked on various accounts, including Pick n Pay. Currently, she works on the Loreal account. She has a BConsumer Science Honours degree in Clothing Retail Management.

Leané Mulder joined DotActiv in 2019 as a space planner, working on various ad-hoc accounts. Since then, she has been promoted to account manager. Today, she oversees work on our Motus account. She has a BSc in Consumer Science from North-West University.

Louis Schoeman joined DotActiv in early 2019 as a space planner. He has since worked on various pharmaceutical accounts, including United Pharmaceutical Distributors and Adcock Ingram.

Suppliers should build planograms

Why should suppliers be creating planograms?

When talk turns to suppliers and planograms, it's critical to spend time explaining why you should be creating them in the first place. 

There are a few good reasons why.

For one, planograms are an excellent way for you to visualize how you plan to merchandise your products in the space given to you by your retail client. You'll also know how your products look together with every other product in the category.

Of course, there is so much more to this than just visuals. You also need data to build any planogram. We unpack the most suitable data types in the next section. With this data, you can have a planogram that shows the correct space allocation of every SKU and its placement on the shelf. 

That means that you can ensure that your brands receive the shelf space they deserve.

Building data-driven planograms are also a great way to build or develop a mutually beneficial relationship with your retail clients. Not all retailers have access to space planning software, and you can offer guidance in new store openings, revamps or during category refresh periods. More importantly, with data, you can motivate retailers to allocate more space to your brands.

That could lead to increased retailer sales, which ultimately increases your sales too. It will also aid in understanding the financial implications of having too little or too much stock on hand and helps to see what the future sales rates might be. It allows you to send the correct amount of stock to the retailers at the right time which will, in turn, strengthen your relationship with the retailer.

What is Shelf Space Optimization

What is shelf space optimization?

Shelf space optimization refers to the actions you can take to ensure that every SKU in your range has the correct position on the shelf and that you are making the most of the shelf space that is available to you. It's usually completed with all of the necessary data. 

Using the relevant retail data helps you determine the correct basic range that should go into all stores and ensures the correct number of facings so that you don't struggle with stock returns or shortages when stock is delivered to stores. Doing so creates even stock replenishment opportunities.

As for why you should pay special attention to shelf space optimization, that’s simple.

You can link shelf optimization to your sales, revenue and profit. If you do not optimize your space - thereby not positioning your SKUs correctly or giving them the correct space - it can lead to the issue of under-facing on your products. That, in turn, can give shoppers the impression that your retail client cannot provide them with the products they need. 

On the other hand, you could also over-face products, which means there are too many products on the shelf. Consequences in this instance are just as severe. They include suffering from excess inventory; having items not selling, which would need to go on sale; items reaching expiration dates before selling out and more.

In both instances, you create an unpleasant shopping experience for shoppers.

By effectively optimizing your shelf space, you will always have the right amount of stock on hand. That includes in your store, stockroom and at your warehouse. It also leads to even days of supply (DOS) for all of your products.

Data To Optimise Shelf Space

What data do suppliers need to optimize their shelf space?

Before you can begin optimizing your shelf space, you need access to data. What type of data? We unpack those most relevant to this.

          1. Sales data

The first, and most obvious, data is your sales data. There are a few here. 

First would be your point of sale (POS) data. This is the raw sales data from your retail client. The POS data would need to include your products’ sales data as well as that of your competitor’s in the category over a specific period. That is so that you can analyse it and then use the output to create an accurate data-driven planogram for the category. You can also learn if there has been growth or decline and where.

It will also allow you to see the DOS and weekly movement of each SKU, which can aid any replenishment efforts in future. If you are looking for ways to get access to the sales data of your retailers, there are a few actions you can take to convince your retail clients.

          2. Market data

Besides sales data, you also need market data. The fact that you likely have multiple retail clients means it’s easier for you to get such data than it is for your retail clients.

It includes information such as target market, geographic location and how this influences target market demographics. 

Depending on which areas you focus on, be it either nationwide or certain regions, you can then determine which gondola information will be needed. This is important to accurately create a range catering to the specific market. 

You can get access to market data through third parties who specialise in collating and distributing such retail data. Who you choose can depend on your budget.

          3. Shelf space data

Without having accurate data on the available shelf space, you’ll struggle to build an effective planogram. This data type would include drop counts per cluster, the size of the gondolas (height, width and depth) as well as the base heights of each gondola in store. 

Once you have this information, you can be confident that you’ll build an accurate planogram.

          4. A range

You also need a basic but complete range per cluster with a range cap. It is essentially needed if you have limited space on certain gondolas.

In having a set core range, you can know the source of your largest revenue. It also allows you to cater for different clusters and demographics by adding certain products to specific retailers. You can also use it to test new products to learn if they sell. If they do, you can add them to your core range.

          5. Product data

After receiving the set range, you will need to source the information of each of your SKUs. 

For every single SKU, you should also include the correct product code, barcode and description in the range list. Then, you need a front-facing HD image with a white background, which includes the dimension of each product (height, width and depth). 

If you do not have this or the correct gondola dimensions, you cannot expect to build an accurate planogram. If you do attempt to create the planogram, it may look good visually. However, when it comes to in-store implementation, you could run into serious problems.   

A few issues could include having gaps on the shelf or products not filling into their allocated space.

          6. Merchandising principles

After receiving the ranges, sales, market and product data, it’s time to discuss your merchandising principles. Your space planner (or one from a third-party service provider) must understand your goals and objectives.

For example, they must know what to do with any new or innovative lines when they appear. With the above-mentioned data and context around everything else, they can build data-driven planograms that consider your shelf space.

The shelf space and location on the gondola must also be kept in mind when you apply your merchandising principles.

Suppliers and Planograms

How can suppliers use planograms to optimize shelf space?

By optimizing your shelf space, you have an opportunity to look at any previous merchandising principles used and learn whether or not you have allocated enough space to your brand. Then using all collected data, updated merchandising principles and your goals and objectives, you can look to rebuild the planogram.

That means optimising your shelf space. If your products deserve more space, you can allocate it to them. If your retail client questions you, you can show them the data. You're clearly optimizing the space on their shelf. The fact that it's benefiting your sales helps. At the same time, if your retail client has entrusted you to act as the category captain, you are looking after the entire product grouping. That means the retailer benefits from an increase in sales too.

More than that, you can also use planograms to optimise the flow on each gondola. Doing this allows you to ensure that you follow the recommended flow and merchandising principles and implement them correctly in each cluster or store. You can also use it to allocate enough facings to each of your SKUs.

If an SKU doesn’t deserve the space (based on your sales data), you can remove it and replace it with a product that does deserve the space.

Conclusion

Shelf space optimization has so much to offer you. You can use it as an opportunity to increase awareness of your brand or products, increase your sales, while also building relationships with your retail clients.

Would you like to know more? You can book a complimentary custom exploratory consultation with us here or visit our online store.

Marizelle Oosthuizen

Marizelle Oosthuizen joined DotActiv in 2018, where she worked on the Food Lover's Market account as a space planner. She has since moved on to work on a few of our supplier accounts. She has a BConsumer Science in Retail Management from the University of Pretoria.

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