Industry
Retail
Omnichannel CX and Intelligent Innovation – The Future of Retail
HIGHLIGHTS
- Branding in stores, particularly branded bays, are a lucrative form of supplier funding, but this gives rise to concerns that it could impact customer journeys and result in hidden costs for retailers.
- Retailers also have to ensure consistent execution and sustained presence of branded bays after taking supplier. This requires significant infrastructure.
- They, therefore, have to strike a fine balance between profitable supplier funding, evolving customer expectations, and operational efficiency. A data-driven approach that leverages advanced analytics, and AI-ML technologies can help retailers overcome this challenge.
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A chequered history
For retailers, commercial income is an additional—and a vital—source of revenue.
Commercial income is the revenue retailers receive for helping suppliers move their products. This could, for example, involve achieving particular sales volume targets or running promotions.
Historically, suppliers have effectively owned promotional space in stores by paying retailers. Listing fees for shelf space meant the largest brands could dominate, often taking prime locations, such as eye-level shelves and aisle ends. This restricted retailers’ ability to be nimble and flex to meet changing customer needs. This also simultaneously increased their reliance on this income, hindering customer-focused decisions.
The GSCOP (Grocery Supplier Code of Practice) legislation, introduced in the UK in 2010, protected suppliers from, among other things, retrospective demands for funding or additional payments without consent. Suppliers could no longer pay for shelf space, and they had transparent agreements in place with retailers. While there have been well documented issues, such as promotional income being pulled forward or poor management of de-lists resulting in fines, the GSCOP can be credited with helping significantly improve supplier-retailer relationships.
Recent years have seen the growth of supplier branding in stores, particularly branded bays. There are concerns that this trend could impact customer journeys, and result in hidden costs for retailers.
A new tune or a remix?
Supplier livery on fixtures, including branded bays, is appearing rapidly across UK grocery stores.
The branded space covers several shelves, or more commonly an entire bay, dedicated to a supplier brand or for a collaboration of two brands. The primary aim is to stand out in the aisle, driving increased sales and brand awareness.
Retailers can no longer charge for product shelf positioning, but an investment to support marketing is still allowed.
Whilst there is no indication of retailers pulling forward income or suppliers being pressured, the result is the same–there is a stronger branded presence across all areas of the store, from health and beauty to dairy and impulse categories.
The bays are often supported by fixed equipment, such as colored metal frames, screens, and marketing materials to create a great visual impact. When suppliers use brands to take ownership of space, it does start to resemble past practices.
This growth in branded space may have been accelerated by the ‘high fat, salt, and sugar’ (HFSS) legislation in the UK, which restricted the presence of unhealthy products in prime locations such as aisle ends. This highlighted presence in the aisle can be seen as offsetting the impact of losing that prime space and protecting commercial income.
A simple customer journey
Supplier branding often complicates the customer journey, directly impacting their navigation and price perception.
Customers look for familiar packaging and brands to help them with their navigation. Branded bays support new product launches, disrupt the customer shopping journey, and provide navigation for hero brands. However, excessive use of branded bays creates visual clutter while also obscuring core products and directional point of sale (POS), making it harder for customers to shop.
Customers follow a ‘decision tree’ when selecting products--this is simply the hierarchy of decisions they make when choosing an item. For example, when choosing soup, a customer may prioritise the flavor first, then the price, and then the brand. However, when choosing crisps, the brand may be of more importance than the flavor. If a branded bay means customers can’t follow their decision tree as the products aren’t merchandised together, then it affects their navigation, or they may be led to believe the required product isn’t available.
Equally with dual-located products, which appear both in the branded bay and the core range, it can be difficult to use data to quickly track the location customers are actually shopping in. As technology continues to develop and camera technology rolls out, this will provide retailers with far more shelf edge insight.
In the current climate when inflation is a challenge, customers are far more price conscious. Generally, the big suppliers are the ones who can afford to invest in this branded space, but they aren’t offering entry-level or cheaper products. So, a highly visible brand presence can have a negative impact on price perception.
Perhaps, it does encourage more customers to trade up and, therefore, drive both sales and margin. However, if a customer feels they can’t easily compare prices, or thinks cheaper variants aren’t available due to the visible presence of many expensive branded variants, it can also mean they defect to discounters for a simpler shopping experience with lower, and more easily visible, price points.
Retail economics: Hidden costs and lucrative deals
Branded bays help suppliers increase brand awareness and perhaps even sales and margins.
They, however, cannot do it on their own. They will need the help of retailers for success.
After taking funding for branded bays, retailers, on their part, must ensure consistent execution and sustained presence. The infrastructure required to manage this is significant.
A live and maintained view of what equipment is in each store, including exact location and dimensions, is essential. Without this level of detail, retailers risk expensive and repeated store surveys to gather basic data and ensure the branded point of sale is in the right location and fits the bay. Even with strong store compliance, it isn’t always simple to confirm the number of branded bays and precise location.
Organisations have helped retailers in establishing systemic solutions, supported by governed processes, to maintain accurate equipment records and protect the commercial income.
Historically, large suppliers faced the challenge of dominating space, driving up costs, and pricing out smaller suppliers, while limiting competition.
The commercial income from branded bays is lucrative, but this use of space could also be seen as stifling competition. This funding has been crucial for retailers to offset the increase in operational costs and to help keep prices low during a period of inflation. Without this, customers would feel a sharp and immediate impact.
Retail success hinges on adaptability. Customer behaviour, product trends, and store performance are always changing. The only constant is change.
As space flexes to reflect seasons or customers’ shopping habits, the supplier-funded branded bays limit a retailer’s ability to adapt and change quickly. Overnight re-merchandising, once simple, now requires additional work to remove and re-situate frames, driving up the operational cost further. Moreover, if suppliers need to invest their money in a different way, it can be costly for them to exit this dedicated space once committed.
Closing thoughts
As the number of branded bays increases, particularly in smaller stores, retailers need to be confident the space is still reflecting what customers want.
The UK government is asking retailers and suppliers to make it easier for customers to buy healthy food. It will be interesting to see what impact this has as the policy takes shape having seen the relatively recent significant changes required to support the HFSS legislation.
Navigating the balance between profitable supplier funding, evolving customer expectations, and operational efficiency requires a proactive and data-driven approach. Partnering with organisations that have deep domain experience and leveraging advanced analytics, AI, and ML technologies become critical for retailers walking this tightrope to gain insights into space and assortment optimisation and execute branded bays along with retail media packages. This collaboration can help bridge organisational silos and deliver end-to-end change, ensuring today’s commercial gains are maximised and don’t become tomorrow’s operational burden or customer dissatisfaction.