Tissue World, a conference known worldwide among the tissue industry, for the first time landed on American territory this past May in São Paulo. Brazil is an important market in the industry and also the largest T&T producing country in Latin America. The conference opened the doors for networking and to promote the exchange of best practices among the continents. Asian companies, especially from China, are really investing time and efforts to bring alternative to Latin America.
From 2002 until now, we know the tissue market (& production) almost doubled its size in LATAM and the forecast is positive until 2020 – emerging countries are changing their habits and starting to purchase more premium products (1 ply is still the market standard, but 2 ply segment is growing). The market is becoming more mature (especially for some categories) and it is time to review our offers and make them more attractive for the retailers and shoppers – how can we make what we have better? For me, personally, now is the moment we stop and think: Quantity or Quality.
Therefore, the retail track suggested a discussion focused on a particular group of retailers “mom & pop stores”, that are physically smaller but not less important. In fact, just through them we can explore better the market to get where we still are not present.
Neighborhood Stores: Issues and Advantages
Space. That is always a big issue, but when we are talking about the small retailers, it is even more delicate. Some of us (with our products & brands) are suffering & struggling with the reduction of the POS SPACE (Share of Shelf). We know the tissue sector is not the one that gives the higher profits to these retailers, so is quite common to see these categories (toilet paper, facial tissue, paper towel and napkins) “squeezed” in tiny areas.
But “Why the neighborhood stores?” And why this particular channel?
First, they represent 50-60% of the market in Brazil (considering the 2 main categories – Toilet Paper / Kitchen Towel). For Facial Tissue, the percentage is very high as well if we consider that many “Pharmacies” in Brazil have the same concept of the “Alimentary Retail” and are “mom & pop stores”.
Second, they are a good opportunity to increase the market penetration for some categories that can still be developed – Facial Tissue, Wipers, Napkins. This is the channel that gives us the ‘numeric distribution’, allowing us to go further and to be all over.
Third, they are a good opportunity to increase the offer and to generate the demand for premium versions – for the categories that are already well established (well penetrated in the market), there is a possibility to add SKUs with higher value to achieve better profit margin.
What has changed in the consumption patterns?
This channel became extremely relevant due the changes on the shopper’s behavior and culture. Let’s take a quick look at the new CONSUMPTION PATTERNS that promoted these changes:
Location: The shoppers started to dedicate less time for their purchase experience. They want to do it faster, easier, without havening to spend hours inside a huge store, in long lines. Many shoppers are already addicted to the e-commerce option. They want it (we want it) FAST, SIMPLE and ENJOYABLE. We want to spend our time doing other things, not waiting to park the car – if we have the option to not do it.
Convenience: is not about SIZE anymore. Is about NEED. In general, we should not link anymore the SMALL STORE with SMALL PACKS & FORMATS. Companies now need to be careful about their portfolio decisions. If I dedicate the wrong item for a client,the competition will gain the advantage – a bigger piece of the pie.
Technology: Most of the small stores are now able to control their stocks (both store and deposits) and also developed simple software programs to keep information of the shoppers and their purchases.
Attention: 52% of the shoppers complain about the lack of SERVICE they usually receive inside stores, but because of the size and the concept of being part of the neighborhood, the small retailers have an advantage in this factor.
Dynamic: companies are launching new products and versions and the excess of SKUs are obligating us to have the MSP (Minimum Space Possible) for each version. If we have a brand with 10 different SKUs (not with 3 like before), we won’t be able to expose 3 of a kind on the same shelf anymore.
The main purpose of our visit to one of these small stores is not ‘replacement’ anymore, but a real destiny for many people. The key accounts, known by their “HIPER FORMATS”, started to review their strategies and are now concentrating their efforts on the “little brother” – specially because they are already a step forward when talking about technology and investments. All the BIG groups already have small formats: Carrefour Express, Dia %, Extra Perto, Pão de Açúcar, Todo Dia. These are some examples of the Brazilian flags.
Reducing the portfolio to gain space in the market. Does that make sense?
he POS today is a reflection of the random decisions each company take about formats, sizes, claims, colors, appeal and positioning – with no agreement between the players. As shoppers we all have our consumption expectations when it is our turn to purchase and of course we get confused with so many SKUs being displayed at once. The lack of clear information or even the lack of real benefits between different versions makes it more and more difficult to decipher.
We must work with our portfolio, sooner than later. We must offer better solutions for each channel, but without complicating it. LESS, the BETTER! We usually have so many SKUs (some companies have more than 21 different SKUs for Toilet paper, for example). When we think about the production costs, we realize that our ‘break-even point’ (that also determines our price strategy) get better when we stop the machine less times to set it up for a new SKU – the famous “Scale Production”.
If you think about the convenience, we will realize that many small stores want to have the same mix that the big stores have – which means that they don’t want to offer to their shoppers just the reduced versions or lines. If this phenomenon is happening, it is definitely time to review what we have.
We want our shopper to be happy with the product we are offering and we want this shopper to have an amazing “purchase experience”, otherwise the ‘pricing’ will be the only deciding factor in bying a brand. Reducing choices can be a good strategy to help the shopper easily find what he/she is looking for; without suffering with the “out of stock” for the most popular products.
Tesco (the British group) is an example of retail chain that started reducing their industry portfolio. They simply removed from their list thousands of SKUsso they would be able to offer to their clients just the best products and. With the reduction, they can offer better service and concentrate on keeping their shelves stocked with a more focused control of the supply chain. We should focus on our best business and offer what is really relevant to our shoppers. Small stores already have a very limited space for our categories. Let’s MAKE IT SIMPLE TO MAKE IT BETTER.
We should think about developing the market starting by offering more profitable and more sustainable SKUs. Less can, definitely, be better. Has your company already started to re-think the small retail strategy and how to achieve this channel more efficiently?
Written by Fernanda Accorsi