Understanding merchandising in the retail sector

The complete guide to retail merchandising

Alexis Lecomte
October 2, 2023 - 15 min reading

How do supermarkets promote their products? What are the key factors in securing a prime position on supermarket shelves? How can we increase in-store visibility? These are just some of the questions merchandising can answer.

Discover the secrets of in-store shelf layout and learn how to position products strategically to maximize their visibility. From the penetrating aisle to the checkout aisle, via the rule of thirds, we explore the different techniques used by retailers to attract customers' attention and boost sales.

What is merchandising?

Defining merchandising

Merchandising is an essential strategy for optimizing the presentation, layout and promotion of products in-store or online to boost sales and enhance the in-store customer experience.

In the specific context of supermarkets, it can be defined as a set of studies and application techniques implemented separately or jointly by distributors or producers with a view to increasing point-of-sale profitability and product sales, by constantly adapting the assortment to market needs and by representing merchandise appropriately.

In other words: it's the way for brands and distributors to increase the profitability of their brand or point of sale, thanks to a better assortment and the perfect presentation of products on the shelves.

The four objectives of merchandising

The main aim of merchandising is to arouse consumers' interest, guide them to the right products, and create a visually appealing environment that encourages purchase. It can be divided into four sub-objectives, which are not interpreted in the same way by retailers and producers. Producers seek to achieve their objectives for their brands, while retailers work for their departments or stores.

  1. Attract customers' attention and encourage them to consume : To attract customers' attention, it's important to optimize shelf assortment. This involves carefully selecting the products to be offered according to market needs, trends and customer preferences. Merchandising aims to avoid product overload and ensure that each product contributes to the overall profitability of the outlet. The ultimate aim is to arouse consumers' interest and encourage them to make impulse purchases while browsing the sales space.
  2. Stand out from the competition: Merchandising also aims to reinforce brand differentiation and promote brand image. It creates a unique, recognizable identity that sets your brand or outlet apart from the competition, and builds loyalty.
  3. Increase the attractiveness of the sales area (store, department, etc.): Improving the customer experience is a key merchandising objective. It's about creating a welcoming, pleasant and friendly environment for customers. This includes organizing products in a logical way, facilitating product search, using signage and creating an atmosphere that encourages purchase.
  4. Boosting product sales and profitability: The nerd of the war: stimulating sales and increasing the profitability of a point of sale or brand. To achieve this, retailers identify products with high sales potential, presenting them attractively and maximizing their visibility. The producer, on the other hand, will select his assortment according to the points of sale, and will seek to boost his presence and sales, notably through animation or promotions. The ultimate aim is to maximize sales while optimizing profit margins.

How to succeed in retail merchandising?

Merchandising is based on a mantra that aims to ensure a company's growth and profitability. To achieve this, it's essential to offer the right product, in the right place, at the right time, in the right quantity, at the right price, and with the right information. By following the 4Ps of Marketing(Price, Shelf Positioning, Productand Promotion), brands and stores can understand their customers' needs, thus maximizing sales and strengthening their market position.

Assortments: choosing the right product

What is a store's assortment?

The assortment is theset of products and services offered by the store (the retailer).

A range is determined by its width, depth and height.

  • The width of the assortment is defined by the number of needs covered in a category: for example, for beverages, we'll have wine, soda, beer, water, ...
  • Depth of assortment is defined by the number of possible choices for each requirement. For example, in the case of soft drinks, we'll have cola drinks, fruit drinks, tea drinks. In waters, we'll have mineral, sparkling, flavored, etc...
  • The height of the assortment is defined by the level of quality of the products on offer.For example, first prices, private labels, national brands...
Narrow assortment Wide assortment
Superficial 300 to 400 items: convenience stores, petrol stations, etc... 7,000 to 10,000 items: Convenience store, Supermarket
Deep 1000 to 5000 SKUs: specialist stores 10,000 to 30,000 items: hypermarkets

The assortment can vary over time, as certain families or products are seasonal. This is why it is important for a brand to follow the assortment plan, which will be dynamic throughout the year. For example, at Christmas, the poultry assortment is wider and deeper. At Easter, the chocolate assortment is also wider and deeper.

Assortment constraints

The assortment responds to different constraints and requirements, which may be both internal (linked to the distributor) or external (linked to customers or competitors).

The range is linked to the network:

  • At national level, the chains draw up an assortment plan that corresponds to national rather than local objectives. This is known as the common core. In this respect, independents have more leeway to adapt their offers than the integrated chains: independents must comply with 80% of the common core, compared with 95% for the integrated chains.
  • Brands must respect their image and positioning. It's normal not to find the same products between a Biocoop and a Carrefour, as between a Carrefour and a Biocoop.

The assortment is linked to the sales unit (store, department, etc.):

As a reminder, thecommercial unit, which can be physical or digital, is the place where customers can access all the products and/or services sold by a retailer. The commercial unit (CU) must respect several constraints:

  • The CU must take into account the available surface area (and therefore the store's strategy);
  • The CU must take into account logistical constraints (available storage, available handlers, etc.);
  • The CU must respect the positioning of the sign;
  • The CU must develop sales and margins;

The range is linked to the offer:

It's all very well to want to sell a product, but it has to be available. To build up their assortments, chains take into account the products offered by their national and local suppliers.

They also pay close attention to the offerings of their direct competitors.

The range is linked to demand:

This is perhaps the most complex point, as it is based on behavioral and societal analyses:

  • We have to keep up with macro-demographic changes: an aging population in certain areas of France, or the exponential growth of the halal section. From a mere 80 million euros in 2009, the market for halal products in supermarkets has risen to 282 million euros in 10 years, an increase of 247%.
  • You need to know your customers and their consumption habits by geographic zone: age, religion, social class, income... You'll never sell the same products in Lille as in Marseille. In France, regional cultures are important: for example, Breizh Cola leads Pepsi-Cola in market share in the Great West.
  • You need to be aware of societal trends: the advent of organic and gluten-free food, the desire to eat more locally, the reduction in meat consumption...
  • We need to respond to consumers' needs according to their logic, notably by dramatizing the offer.

Building the assortment

What are the objectives of the assortment?

Assortment objectives differ depending on whether you're a distributor or a producer. The producer seeks to meet the objectives of his brands, while the distributor works for his department or store.

That said, what are they?

  • Satisfying consumer demand
  • Offering the best possible return on investment

Building the assortment

Satisfying customer demand is very complicated, because two expectations are mechanically opposed. The first is to be able to find everything the customer wants, while the second is to be able to find it quickly, so as to reduce shopping time.

As you can see, if we increase the number of references to satisfy the first expectation, it will take longer to find the reference in question.

On the other hand, if we reduce the number of references, consumers will shop faster, but will be disappointed not to find the reference they want.

Who builds the range?

It all depends on where the product is sold. It could be a central retailer, a store, or a department manager.

On what basis do retailers base their analysis of which products to stock?

To build their assortments, central purchasing agencies, stores and department managers rely on analyses from a variety of sources:

  1. Panelist data (Nielsen, Kantar....)
  2. Professional studies
  3. The trade press(LSA, Je vends en grande distri, Point de vente etc.)
  4. Central purchasing data
  5. Store data, for information on consumer buying habits.

All these sources of information are essential for building an adapted assortment and meeting customers' needs.

How many products do I need?

Quantity depends on Market Share. If tomato sauce has a market share of 10% in the grocery aisle, it will represent 10% of the assortment.

Please note that sales figures vary from national to local! Galettes and crêpes have a much higher market share in Brittany than in Auvergne...!

Understanding consumer buying patterns

It is important to determine the consumer's purchasing criteria and to prioritize them:- 1. pasta 2. organic 3. wholewheat- 1. wine 2. red 3. with medal

The assortment will then be divided as follows:

Assortment adapted to consumer buying patterns

The fundamentals of store layout

Overall store layout

The overall floor plan is the general layout of the store. There are three main types of layout:

  1. Managed layout, like Ikea stores
  2. Grid layout, like hypermarkets
  3. Open-plan layout, like department stores

We're seeing an evolution in supermarket layouts. Plans are increasingly hybrid, mixing grid and free-standing layouts.

Economic profitability and customer satisfaction are still the main objectives when it comes to implementation. Nevertheless, certain constraints must not be overlooked:

  • Keeping the brand signature. When a customer enters a Système U or a Lidl, he recognizes the store by its layout, colors, etc...
  • Surface shape
  • Location of technical areas (storeroom, staff room, etc.)
  • Grouping refrigerated areas

These constraints are less important in rural stores, where space is at a premium. On the other hand, they can become crucial in urban environments.

🔍 Did you know?

Did you know that in our society, we tend to turn right? That's why labyrinth architects created dead ends if you turned right. If you want to win, turn left! In supermarkets, we use the same principle. At the entrance, on the right you'll find products you don't really need, known as "pleasure buys", and on the left, very attractive products, known as "reminders". In this way, the consumer is invited to navigate in a zigzag pattern. The aim is to make them stay as long as possible!

Supermarket universes

Superstore universes refer to specific areas or sections dedicated to similar products or product categories. Each universe usually has a particular theme or purpose, to meet consumers' needs or to highlight specific products. They comprise several categories with complementary and substitute products.

Here is an example of a universe breakdown:

Supermarket universes

What are the best aisles in the store?

There are different types of aisle, each with its own specific characteristics, which have a direct impact on customer behavior:

The best aisles in store

In green, the penetrating alley. This is the busiest aisle. It's where all the customers come in. It features seasonal products and big promotions.

In yellow, the central aisle. This is the most important aisle in the store. It's the one that crosses the store. It's perfect for 'Gondola Head' promotions.

In orange, the checkout lane. This is the slowest aisle. It's where everyone exits. It's ideal for impulse purchases.

In red, the perimeter aisle. Its importance depends on the retailer's policy.

In purple, the secondary aisle. It gives access to product families. It's the back of the aisle.

Where to stand in the aisles?

Hot and cold zones in the store

Hot zones are the areas with the most traffic and where customers spend the most time. Cold zones are the opposite: the areas with the least footfall and where customers spend the least time. The challenge for stores is to get customers to pass through these cold zones. For example, in a supermarket, the peach section will be colder than the savoury section.

A store's hot and cold zones

This logic is not limited to the store. In the same department, there are hot and cold zones. This is known as the rule of thirds.

The main idea behind the rule of thirds in supermarkets is to divide shelf or display space into three equal parts, in terms of height or width, using two lines or levels. Each third has a specific purpose for product presentation.

  1. The first Tier (Top Tier): The first tier, generally positioned to the left, is reserved for popular, high-quality or high-margin products. This area is the most visible and accessible, ideal for highlighting key products.
  2. The Second Tier (Middle Tier): The second tier, in the middle of the display, is for mid-range or moderately-sized products. This is where complementary or similar products are arranged to encourage cross-selling. Although visible, they are not as prominent as those in the first tier.
  3. The Third Tier (Lower Tier): The third tier, to the right of the display, is often dedicated to basic products, promotional items or lower-margin items. They can also be used for overstock or seasonal products.
In-store third parties

The aim of this strategy is to optimize the use of sales space by highlighting the most important products and making it easier for customers to navigate. This approach can help boost sales by strategically positioning attractive products.

The distributor will give priority to high-margin products, i.e. private labels and new products. He will leave on the lesser-selling thirds, the appeal products and national brands to try to "warm up" the area.

💡 For the area manager

As an Area Manager, it's vital to fight to get these products into the second third of the aisle, as this will mechanically generate turnover and therefore sales. Ideally, you should also succeed in getting your competitors into the 1st and 3rd thirds.

The positive and negative sides of the rays

Gondola heads and gondolas also present a less visible facet. In fact, depending on the customer's path, some faces are only partially visible or even invisible, as we don't have 360-degree vision.

On the less visible side, we find complementary products to those featured on the main face.

The positive and negative sides of the rays

💡 For the area manager

Always try to make sure when you're negotiating a gondola head that it's on the right side of the road, so that your products are much more visible and you're sure to get a good promotion.

Shelf layout

Different implant techniques

There are two main techniques: vertical and horizontal installation. This can be done according to different criteria. Generally, by brand, segment, price or product. It's also possible to mix them for a pavé layout.

Horizontal presentation

Sort products in ascending order of selling price, according to the direction of customer traffic.

Horizontal in-store presentation

Vertical presentation

Verticality is considered more efficient because :

  1. Better understanding and visibility due to natural horizontal head movement
  2. This makes it easier to compare prices
  3. This slows down customers' movements without making them turn back.
In-store vertical display

The reality

So do we position by brand or by product?

This question can be answered very rationally using the brand sensitivity index. The brand sensitivity index is an indicator used to assess the receptiveness and importance of brands in the retail sector. This index measures how customers and consumers react to brands and their presence in a retail environment, such as a supermarket or hypermarket.

Certain segments hold brands with a high sensitivity index. This means that consumers absolutely want their brand and not another. For example: consumers have a high index for shampoo or coffee. If the brand sensitivity index is high, we prefer to set up by brand rather than by product.

Other criteria to be taken into account in a layout

Physics

  • ‍Product volumes: heavy products are placed at the bottom of the shelf, and lighter products at the top.

Management

  • ‍Stockcasquette : Some products "recall products", are placed on the last shelf of the shelf which is inaccessible to customers because too high. On the other hand, it gives a feeling of profusion and allows for stocking.‍
  • Volumetric: Products are placed in baskets in front of the shelf of fast-moving products. This gives customers easy access to products without breaking the shelf facings. This limits stock-outs.

Price

  • ‍Price gradient: This involves placing products according to their price. The most common is to place the cheapest products at the bottom and the most expensive at eye level with a whole gradient.

For a brand, the dream shelf is a mosaic. This means being the only brand on the shelf. Of course, the reality is more complex, and we're going to find out which are the best positions to take in a shelf.

The mosaic

Distributor shelf space

The most visible areas of the linear

In France, it's mostly women who do the shopping. Their average height in 2023 was 1.63m. The most popular and accessible areas are between 0.60m and 1.75m. Beyond 1.75m, products are no longer sufficiently accessible, hence the introduction of reminder products.

Combined with the 3/3 rule, we can deduce the most visible, reachable and therefore most profitable areas of a display.

On the scale of a gondola

Take center stage!

Facing refers to the number of times a product is directly visible to the consumer on a shelf. Facing is a key factor in sales. In fact, beyond its position in the store, on the shelf, there is the actual visibility of the product. The more facing your product has, the more visible it will be! That is, up to a certain threshold. Optimizing visibility with facings is based on a very clear mathematical rule: the visibility threshold and the saturation threshold.

Threshold of visibility

It corresponds to the minimum size for a product to be seen by a customer passing through the aisles. A customer is considered to be moving :

  • In "cold" areas at a speed of 1.5 to 2m per second
  • In "hot" areas at a speed of 0.5m to 1m per second

At the same time, the eye is able to see a limited number of images per second. That's right! The faster you go, the less you see! Think of your car or TGV journeys.

Threshold of visibility = Speed in m/s / Retinal perception in frames per second

Hot Zone = 2m/s / 3 frames per second = 0.66 m

Cold Zone = 1m/s / 3 frames per second = 0.33 m

The visibility threshold is between 33 cm and 66 cm. This means that facings of juxtaposed products must be at least 33 cm wide to have an impact.

The saturation threshold

This is the inverse of the visibility threshold. The saturation threshold corresponds to the point at which the size of the facing no longer has any impact on increasing product sales. We consider that beyond 80 cm to 1 m facing width, the product will not be sold any more.

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