The need for retail audits

FMCG brands spend significant time and money planning, executing and evaluating in-store activity. But actual execution is not always visible from head office. Whether it is compliance, ongoing shelf performance, pricing levels or competitor analysis, head offices need insight into the realities of how instore campaigns are actually being executed. What actually happens in the store aisle and on the shelf itself has a big impact on product availability and display compliance. Retail audits provide the vital insight to drive performance improvements.

On-shelf availability and merchandising display compliance has been a hot topic across the FMCG sector for a number of years. Retail marketing trade association POPAI UK & Ireland (Point of Purchase Advertising International) estimates that £1.3bn is spent annually on point-of-purchase (P-O-P) advertising, much of it across FMCG brands. Yet according to their most recent industry research, compliance is believed to be running at around 50%, meaning that only half of the promotional material that is delivered into store actually finds its way into the sales area – a pitifully low percentage which led to a major crossindustry compliance-checking programme orchestrated by the IGD (Institute of Grocery Distribution).

Failure to successfully manage product availability, promotional activity and display compliance can present FMCG brands with the reality of postponed purchases, at best, and the risk of substitution by shoppers for competitor brands, at worst. But almost certainly, reduced shopper loyalty. Research by Symphony IRI warns that repeated out of stocks at the same store could also force some shoppers to migrate permanently from that store. Their figures show that in some categories substitution between brands can be as high as 75% when the first choice brand is not available on the shelf. But ensuring that best practice is followed and adhered to in-store around on-shelf availability and display compliance, especially during promotional events, is a tough issue to crack.

Key Questions You May Already Be Asking

• Are our products properly priced and positioned on shelf?
• Are we out of stock?
• How do we know if agreed trade promotions are being honoured at the point-of-purchase?
• What percentage of stores has the P-O-P correctly installed for the summer promotion?
• How many stores in the north are selling the competitor’s new product?

Several leading grocery retailers have been criticised for poor availability, particularly amongst shoppers searching for promotions in-store, with both Tesco and Asda scoring poorly (Institute of Promotional Marketing, 2010). Of the big chains, Waitrose disappointed the least. Audits can challenge how the brand is performing within the retail space, while posing searching questions or even prompting you to reconsider tactical objectives. It can also help marketers gain visibility into the execution of in-store campaigns and close the gap between what was planned and what is really happening in-store.

With FMCG in-store activity often spread over retailer estates across a wide geographical area, retail audits are able to target specific stores or return data on activity from a large number of stores in a very short timeframe and allow for the cascading of information quickly throughout the various layers of management within a brand organisation. Providing management with insight into key in-store performance metrics and compliance trends in real-time, intelligence can help to identify operational issues and support the use of swift, corrective action. In this White Paper we explain why it is important to develop a robust and fully considered retail audit.

What does a retail audit involve?

Retail audits provide critical business intelligence to eliminate inconsistency of information and empower FMCG brands to make positive decisions. Implementing a retail audit can be a daunting process. The starting point for all business is to understand that effective auditing involves more than the deployment of a simple mystery shopping activity.

Example audit objectives:

• Improve on-shelf product availability, reducing ‘out of stocks’
• Drive retail channel management improvements
• Identify lost sales opportunities
• Understand issues preventing promotional compliance
• Analyse and benchmark activity against your competitors
• Monitor ongoing shelf activity and prices
• Ensure correct merchandising and P-O-P placement

To give your business the best possible chance to gain access to the right data you will need access to specialists with robust analytical tools if you are to gather data that will provide you with meaningful insight. Such specialists will help you to uncover the critical issues hidden within your current in-store practices, which will allow you to understand and adapt future policies and behaviour.

You should consider the following questions:

• Who will own the audit process internally?
• What issues are you looking to identify or solve?
• What will be the scope of the audit?
• Who will be responsible for remediation efforts?
• Is management willing to challenge current practices in order to drive through improvements at store level?

How retail audits can improve in-store performance

Compliance

The issue of compliance is a complex one, and the reason why more and more brands are turning to retail audit specialists to identify failings in on-shelf activation and ensure that return on investment is being maximised. Whilst in the past, many on-shelf promotional duties would have been carried out by retail teams; the pace of development and growing demands by retailers and shoppers on promotional cycles now makes this an increasingly impossible task.

Some of the more basic compliance issues are, seemingly, common sense, but they are all too often things that the untrained eye fails to see. And this is often why return on investment can suffer the most. No matter how much time and effort FMCG marketers continue to put into creating policy and standards, the reality is that the focus of retail teams’ often has to be prioritised on customer service and sales. Audits can identify compliance issues, helping marketers to get the basics right.

• Controlling stock availability and product visibility on-shelf
• Ensuring Clear display of pricing
• Making sure in-store displays are correctly and appropriately placed
• Refining existing merchandising and P-O-P display solutions to better meet individual store requirements across the retailer estate

NPD Launches

Over 20,000 new products are launched each month. Despite this, the average success rate is only 10%, with products often failing to achieve sell-through until day five after launch. The resulting poor sales can lead to early de-listings. Much of the problems can be traced to poor in-store execution, due to stock availability issues, a lack of POS, incorrect in-store siting and listings. Auditing NPD launch activity can allow both retailers and marketers to highlight issues early, providing the opportunity for remedial action to taken to rectify problems.

Channel and Category Management

In addition to monitoring trade promotion compliance, a key value for FMCG brands of retail audits is the ability it gives them to respond to what is happening in the channel. Resulting insight can often reduce outof-stocks and identify new shelf fixture and SKU opportunities in-store.

Trends Analysis

Gaining a competitive edge by identifying emerging trends in real-time can lead to better accountability measurements and improved tactical promotions.

Competitor Review and Benchmarking

Finding out exactly what is happening within your sector and individual category has never been more important, not only for your own in-store activation and promotional compliance but also benchmarking how your brand performs against that of your closest competitors. Covert auditing and benchmarking can enhance knowledge of competitor activity in the following areas:

• Competitor Activity and Pricing
• Store layout
• On-shelf availability and promotional activity

How technology can aid the process

In order to successfully manage the vast quantities of data gathered during the retail audit process, embracing technology is becoming increasingly an integral part of conducting rigorous store-level audits, as well as being able to provide management with the real-time information they need to quickly identify and resolve issues.

Key benefits of technology-based retail audits

• 24/7 web-based reporting
• Digital photographic evidence recorded
• Dedicated online reporting portal
• Total operational visibility of your business within minutes
• Reports on key challenges facing your business/brand
• Ability to drill down reporting
• Bespoke reporting (through some specialist providers)
• Colour coded reporting (RAG) can help you focus on key items needing attention and improvement
• Some systems incorporate capability to generate automatic SKU pick lists and P-O-P display ordering

What insight can I get from retail audits?

Importantly, retail audits can help you to understand key operational constraints that might be hampering even your best-laid plans. Such issues can cause your brand to fall at the final hurdle during interaction with shoppers. Being able to identify them is vital. In reality, it is much more complex to maintain control of promotional on-shelf availability and display compliance at a micro level, within smaller store formats. A targeted retail audit programme is able to provide insight into the unique issues and challenges that exist, not just within large format stores but also within retailers’ smaller format sites, and often forgotten independent convenience retailers.

Key reasons for poor stock availability and promotional compliance

• Limited shelf space requiring high replenishment frequency
• Demands on resources at individual store level
• Back room operations adversely affecting product visibility in the warehouse i.e. book stock errors
• Poor communication of planned activity to individual stores
• ‘Cherry picking’ by individual store management
• Lost planograms
• Resource and time constraints on store teams
• Missing SELs
• Incorrect order levels
• No POS

Promotional activity, particularly during key seasonal periods and within dedicated aisles, means the shelves are shopped harder. As a result, it is important to measure the demands being placed on promotions by shoppers as well as the level of resources being applied to the replenishment of fixtures on promotion, compared to those that are not. IGD Consumer Research (2009) identified another key reason for conducting regular store audits, citing that many stores receive only one or maximum two planograms. If lost, a store’s own retail team is often left with no indication of physical set up and requirements relating to agreed in-store brand activity.

Gaining insight into reasons why promotional stock is left languishing out the back of store is also vital. Retail audits enable marketers to identify instances of ‘cherry picking’, where store management are taking decisions at individual store level on which promotions to run, independently of any brand manufacturer agreements with head office. For example, decisions may be taken to remove slow selling promoted lines from gondola ends, in favour of faster-selling lines. Protecting against such interventions is critical for FMCG marketers, and the shopper. From a brand perspective, promotions can involve significant financial commitment – making compliance and out-ofstocks not only frustrating but also financially costly. Similarly, from the shopper perspective, if the promotion is not in store it will impact on shopper loyalty, particularly if the promotion has been advertised through other media.

Conclusion

Just as you challenge whether your advertising is delivering the right message, it is essential that your instore activation is delivering on its objectives too. Well-executed retail audits should not be a one-size-fits-all approach. Every brand, its in-store promotional plan and objectives, the retailer estate, and its shoppers are different. Professional retail audit teams use a wide range of information gathering techniques to provide qualitative and quantitative measurement data including photographic reporting, statistics recording and comment-based findings.

Without tailoring the audits to the specific needs of your brand, a true understanding of how it is performing in-store will be largely lost, making it impossible to drive lasting change. Ultimately, having good insight puts FMCG marketers back in control of how their brand campaigns are delivered in-store, allowing you to share key data between individuals in your business that have responsibility for brand delivery and giving you the power to develop more effective long-term retail marketing strategies.