Convenience Store News faTobacco Roundtable
what Have We Learned?lessons learned from the Balvor/CSNews 2010 Tobacco Retai...
way to skin a cat.
This proverb teaches us that
a problem typically has more
than one potential solution.
In tobacco's cas...
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What have we learned lessons learned from balvor-cs news 2010 tobacco retailing survey

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Lessons learned from the Balvor/CSNews 2010 Tobacco Retailing Survey.

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What have we learned lessons learned from balvor-cs news 2010 tobacco retailing survey

  1. 1. Convenience Store News faTobacco Roundtable what Have We Learned?lessons learned from the Balvor/CSNews 2010 Tobacco Retailing Survey 40 CONVENIENCE STORE NEWS APRIL 12,2010 By David Bishop. Balvor LLC dramatic if you realize that the average is 25 percent lower than just two years ago when it was approximately 19 days. The point is that lower in- ventory levels are good if the benefits (e.g., less product shrink, lower working capital requirements) are greater than the costs (e.g., lost sales, un- happy customers). 2010 Unit Volume Forecast (Annual Average Growth Rate vs. Previous Year) SOurce: 8aIvorlCOnvenience Store Ne'Ns Tobacco Retaillng~, February 2010 • Increased • Decreased hese are truly interesting times for conven- ience retailers. Not only are convenience re- tailers feeling the economic downturn like everyone else, but they're challenged with decreasing fuel margins that for some are below what they need to run the business profitability, and increasing uncertainty about what tomorrow will bring for tobacco retailing. From the perspective of the last point, the BalvorlCSNews 2010 Tobacco Retailing Survey is in- tended to help inform retailers about changing retail practices and perspectives about the business. The fol- lowing Ie ons learned are based on digging further into survey findings and reinforce very fundamental principles that retailers need to remember. LESSON #1 You can't sell what you don't have. While having a good price is important, we've heard over the year about the cost related to out of stocks, both in terms of lost sales and customer de- fections. Unfortunately, as in- ventory costs increase, more and more retailers are poten- tially exposing their stores to higher out-of-stock rates. In fact, the survey highlighted that nearly one-third of the retailers perceive that they ha ve h ig h ervwo rse out of stocks in cigarettes today than a year ago. Why is that happening? Ac- cording to the survey, retailers are now averaging around 14 days-of-supply for cigarettes with many indicating they're LESSON #2 even lower. This finding is There's more than one Shelf Space Allocations Trends (Percent of Companies Responding) Cigarettes Other Tobacco Products Note: Percentages don't equal 100% as difference relates to those responding that space "remained the same" in 2010 SOurce: BaMJr!Convenience Store NeWsTobaCCO Retailing survey, FebruaIy 2010 Shelf Space Allocations Trends OTP* (Percent of Companies Responding) • Increased • Decreased Smokeless Cigars Papers Pipe/Cigarette Tobacco All OTP Note: PercentageS don't equal 100% asdifference relates to those responding that space "retnafned the same" in 2010 •Ranking in C1escendingorder based on Shareof dollar shares Source: Ba/vor/COn.e1ienceStore NevIS TObaCco RetafllngSUf'E'y, February 2010 WWW.CSNEWS.
  2. 2. way to skin a cat. This proverb teaches us that a problem typically has more than one potential solution. In tobacco's case, the prob- lem is the increasing costs associated with carrying to- bacco inventory and the sim- ple solution is inventory reduction, which we learned under lesson No.1, can cre- ate other problems if done incorrectly. What are some other, more effective solutions? Digging into the survey results re- vealed that retailers who fo- cused mainly on reducing SKU counts were the least likely to report that out of stocks are worse"than last year. On the other hand, those who focused primarily on lowering product supply across the board were 29 per- cent more likely to indicate that out-of-stocks are higher today vs. last year. The point is that an effec- tive approach to lowering in- ventory should always ensure that a stable supply is available in the store. There- fore, be careful about how the stra tegy is executed with top-selling SKUs, while also using the op- portunity to identify low- value SKUs. L1:SS0N #3 Inventory reduction opens up other possibilities. Retailers understand they need to find space in order to add a new SKU. Con- versely, when a retailer re- moves an existing SKU Convenience Store News fitTobacco Roundtable The Balvor/Convenience Store News 2010 Tobacco Retailing survey found convenience store retailers are currently averaging around 14 days of supply for cigarettes, with many indicating they're even lower. Percentage Change in Inventory Levels - by Tobacco Segment (Average Percent Change vs. Last Year) -1.7% .{).8% Smokeless Pipe/Cig All OTP papers Smokeless Cigars Tobacco source. aafvorlCOnvenience Store NeWSTObacco Retailing Survey, February 2010 In-Store Cigarette Inventory On-Hand (Percent Responding) 14 to 16 Days 20 to 22 Days 17 to 19 Days wtd average based on store count 14.1 days < 14 Days SOurce: Ba/vor/COOvenience Store Neo.vs TobaCco Retailing su~, FebtueIY 2010 42 CONVENIENCE STORE NEWS APRIL 12. 2010 he/she needs to determine what to do with the free space. For instance, more than 70 percent of retailer are rationalizing cigarette SKUs to some degree, but it doesn't mean that their carry- ing few SKUs. What should you do? In some cases retailers are shift- ing some free space to im- prove the in-stock position of top-selling cigarette SKUs. In other cases, many retailer are expanding the assortment in segments like subgenerid- private label and fourth tier to ensure stores are competi- tively positioned for the ex- tremely price-sensitive shopper.. The point is that inventory reduction can help you broad- en assortment where it make sense while culling it back where it doesn't. And, at the same time, it can help you strengthen the everyday avail- ability of the core SKUs that make up the base business. Ultimately the process of reducing inventory on-han creates both opportunitie and challenges that retailer need to be aware of in order to build their tobacco business for tomorrow and beyond regardless of the economic or political environment. David Bishop spe- cializes in conven- ience retail and is t the managing part- ner at Baluoi: LLC, a sales and marketing firm locat- ed in Barrington, Ill., and can be reached at david bishop@balvor.com. - WWW.CSNEWS.CO

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