What determines the format

July 28, 2023
/ SKUBlog
/ By Susan Sipos

Our industry has its own language and we are working to help people understand many of the terms we use. We do believe if we are talking the same language, we have a better chance of building prosperous relationships between suppliers and retailers.

The term we will define this week is one that you really should use when talking to your customers. It will illustrate you do know something about their business.

Format is the word retailers use to define the type of store. There are many different store formats and as the market evolves, we have even more different formats to consider. Examples of different store formats would be:

Conventional
Discount
Warehouse club
Mass merchant
Specialty
Dollar store
Convenience
Drug

We see others coming into the market which is always interesting. We decided to talk about formats after receiving an email from Field Agent about some new stores called Aisle 24. These are small footprint stores located in very dense urban populations. They have some characteristics of convenience, but they are more than that. An interesting concept we will have to watch. If you have been in one in Ontario or Quebec let us know what you think.

When retailers talk format, it helps them understand a number of attributes in the store. Usually, the format will tell them the size of the store, the assortment it will have, different departments, labour requirements and the pricing strategy. Believe it or not, it will be different for each of the formats listed above.

What determines the format

The three large Canadian retailers have several formats to choose from when they open a store or renovate an existing location. There are a few considerations for them when they make the decision as to what to build.

The first consideration is the type of consumers are in the trade area. If the market is larger single family homes where people will probably drive to the store you are more likely to find conventional stores. These are the stores with more assortment, more service departments and slightly higher prices. If the market is a dense urban area with more people living in apartments you might find a smaller discount store or specialty store.

Location and site will also have an impact on the format. Location is the geographic place where the store is located. An upscale mall will be more likely to have a conventional or specialty store where as a big power centre is better suited to a mass merchant or warehouse club. These stores are destinations and draw consumers from a wider trade area. The site is the space and configuration of the location. Smaller square footage with limited parking is more likely to be a specialty store or discount store.

There are different labour models in food retail. Some stores are unionized and others are not. This can have an impact on the format choice of the retailer. A location with no union can lead the retailer to a conventional or specialty store format. The labour requirements are higher and more specialized which works better in non-union environments. Where the retail jobs are well defined and fewer hours are required discount formats are preferred.

The economy will also have an impact on store formats. In our current period of food inflation and focus on prices you know more discount and dollar stores are being opened.

There is no one factor that will determine the store format. Within retailers the formats are operated by different teams and they will often ‘fight’ for new stores. The bigger their little empire gets the more power they have.

Examples of different formats

There are many different formats out there. The following table gives you a snapshot of some of the formats in our Canadian retail landscape:

If we missed any let us know! It does keep changing.

What difference the format makes for suppliers

The store format makes a huge difference for suppliers! Retailers do not expect you to have a separate product for each format, well some do but not all! Even if you are selling the same product into different formats you need to think about it differently.

The first difference is many retailers have different merchandising teams for different formats. Yes, they are trying to drive sales but they have their own way of doing it. If you are trying to sell your product to the discount merchants and conventional store merchants, you need a different approach. Discount will be much more focused on price and efficiencies. Conventional stores will be more aware of quality, differentiation and perhaps margin.

Your category looks very different in different formats. In some limited assortment stores you might be the only brand whereas in a large mass merchant you have to win against several competitors and private label. How you compete is very different.

Promotion planning in formats is definitely specific to the format. Discount stores are usually more focused on lower every day prices and deep specials whereas conventional stores have higher regular prices and more advertised items and in store specials to convey some message of value. The timing of promotions might also be different. A lower price might get you more exposure in mass merchants and discount whereas over and above spending will get you more in conventional and specialty stores.

Volume expectations will change from one format to another. High volume, lower margin stores will want to turn inventory faster. Make sure you understand their expectations. 6 units per store per week might be considered good in specialty stores but larger mass merchants or warehouse clubs have much higher volume targets.

Some formats will expect different sizes to allow them to be different and communicate value. Costco are the best example of this because they will require a different size or branded pack to differentiate the offering and deliver better value.

Other differences suppliers should consider are the labour at store level to work with your products, overall positioning of the format (local vs low price vs convenience etc), distribution options to get products to the store and the margins they require.

There are many considerations for suppliers to ensure you are supporting the format your customer has chosen to use. Visit the stores as often as you can to ensure you know what message your customer is sending to their customers. When you do get in the store pause at the entrance and figure out what how they are trying to compete. Part of your job is to support this positioning.

If you have any questions about formats, you can always send me an email peter@skufood.com or call me at (902) 489-2900.

Peter

Heat waves are not driving ice cream sales

Last week we talked about a regional ice cream flavor. This week week we will talk about the world leader in ice cream sales. Unilever is reporting ice cream sales are sluggish, even though we keep reading about record temperatures. Apparently it is too hot for ice cream. Consumers are opting for cold drinks as opposed to ice cream.

It is interesting to note Unilever is up 9% in sales but flat or down slightly in tonnage. This translates into 9-10% inflation or product mix changes. They do indicate the inflation pressures on inputs have started to ease. These are important points for all suppliers to follow. Every company is unique but it is always good to know what the big players are talking about.