The Key Sign of a Premium-Friendly Supermarket Chain

The Key Sign of a Premium-Friendly Supermarket Chain

Before the pandemic, I routinely did store visits by key banner and channel to keep up to date one highly revealing variable: % of perimeter end caps with premium brands (early-stage or middle-market).

It seems too simple at first until you step back and think about your local supermarket’s business model.

Most supermarkets have a 1-2% net operating margin at most. It’s scary. Therefore, they spend extra time ensuring two things:

a) they try to extract fees from suppliers for advantaged, high visibility placements like perimeter endcaps, and

b) they move as much volume as possible through their most popular processed, packaged food supplier brands.

Although a bag of Lay’s off-promo does not earn the retailer as much as a bag of Kettle chips off-promo, the 10x level of volume it moves through a store system more than makes up for the lower penny profit. If you don’t offer much volume, your high penny profit per unit alone will not necessarily impress a typical supermarket chain (unless your velocity growth rate is phenomenal).

Therefore, it’s pretty darn difficult to obtain a perimeter endcap at a major supermarket chain. Market-leading, high-volume CPG brands and very high margin private labels tend to hog most or all the spots. Even when you offer hefty fees per store, you may struggle.

But some supermarket chains see it differently. They want premium brands to be highly visible to retain high income or otherwise profitable shoppers returning for more. They make more of their overall profit in specialty goods in general. Their shoppers demand these items. These chains tend to allocate 30% or more of their perimeter end cap displays to premium CPG brands. Walk around your local Kroger store and then skip over to a Walmart Supercenter. You’ll see the difference immediately. If premium brands mattered to Walmart, they’d have a lot more end caps devoted to them. But since they don’t take slotting and make money entirely based on unit volumes, premium brands don’t stand a chance of getting end cap space (or getting it for more than a few weeks at a time, if they manage to get it at all).

Remember this the next time you step back with your sales team to rethink supermarket banner sequencing.

Dr. James Richardson

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