Micro-retail and merchandising – understand the challenges and set standards

Merchandising is a key component of any retailer — irrespective of size. It is the activity of promoting goods at retail level, and displaying products at the right time, at the right place in the outlet, in the right quantity, and at the right price to increase sales. 

In the traditional retail market, merchandising provides organisations with several challenges. Unlike modern trade, outlets are numerous and sales volumes are low.  It is also unprofitable to support small outlets or micro-retailer with merchandising support services. If outlets are directly visited by company salespeople, they can provide merchandising services such as stock rotation, and cleaning of equipment. However, most salespeople will spend less than eight minutes in the outlet — with the focus on getting the order and limited time for merchandising activities.  

In most cases, small micro-retailers might not even buy directly from brand owners or manufacturers, and work with distributors and wholesalers. As they prefer to buy smaller quantities, they often make use of wholesalers or distributors to break bulk into smaller, more affordable quantities. In most markets they remain underserviced  — and don’t qualify for minimum drop sizes* set by delivery companies. If they do receive delivery services, distributors might provide limited merchandising services. Distributor sales people are mostly not incentivised for merchandising, and their focus remains on getting the order and making a commission on the sales. For most miro-retailers,  merchandising will be their responsibility, with limited or no support from brand owners or distribution partners.  

*The drop size is the amount of inventory purchased and delivered per visit. 

Merchandising activities – overview

ActivityWhy?
Stock Rotation
Old in front of new – first In first expired (FIFE).
Merchandising is a daily activity and consumers buy the highest quality and not expired products. Expired products should be removed.
Cold Availability (e.g. dairy)
Products must be visible in the cooler. Maintain cooler purity in the company provided cooler.
Certain products such as beverages taste better chilled, and perishable goods will go bad if not stored in refrigerators. 
Equipment
Equipment should be placed in high-traffic areas or on countertops in a visible position. Check and report damaged equipment.
The more visible the equipment, the higher the sales. Damaged equipment reduces sales and should be replaced. 
Clean
Make sure equipment and products are clean.
Cleanliness will improve the quality of the product display and increase sales.
Facings & planogram
Make sure brand labels or facings are visible. Ensure products are merchandised according to the planogram. A planogram is a diagram that shows where and how  (e.g. the brand order) products should be placed on shelves, or in equipment (e.g. cooler). It is done to increase visibility and sales.   
The correct merchandising attracts attention and increases sales and profits. By providing merchandising services, you build relationships with customers.
Warm display
Ensure product displays are visible, including floor, shelves and hanging displays.
Products and cartons are visible to increase sales.

Lack of space

For micro-retailers, space is limited and comes at a premium. Shops are poorly lit and they have limited shelf space to stock and display products. For companies, placing equipment such as coolers and point of sales material (POSM), is a challenge in small groceries. New shop owners also rarely have the market knowledge to display and merchandise products in the correct way to increase traffic and volume. They often need training and sales people need to demonstrate the correct merchandising techniques.  However, with limited time and service, that is challenging for most companies. 

Purchasing power

Building displays and creating block branding requires stock. For micro-retailers, that is not always possible, and they are more likely to run out of stock. They have limited cash flow and purchasing power, and stock limited brands per product category — often two to three per category. Micro-retailers are often unwilling or financially unable to purchase all products required to display and merchandise products —  in the fear that they will tie up cash flow into slow-moving products. Convincing shopkeepers to purchase additional brands is difficult — especially new and untested products.

Differences between traditional trade and modern trade for merchandising

CategoryModern tradeTraditional trade
Decision-makers to approve merchandising decisionsMultiple layer decision-making process that requires time for decision making Central offices and sometimes individual branchesSometimes decisions are made by committee or management teamOne or two decision-makers Often the owner or manager
Brand and packs available for merchandisingExtensive rangeMostly limited range of products
Out of stocksLess commonMore common and changing brands based on availability of products at wholesale or distributor level 
EquipmentRequire specialised equipmentMultiple points available to display or cross-promote productsPlacing equipment requires detailed negotiations with multiple stakeholdersStandard equipment e.g. racks Limited space available for equipment placement
Often use company equipment such as coolers to store personal items e.g. milk, butter
PromotionsProvide ongoing promotionsCentralised promotion negotiationsSome promotional prices
Negotiate promotions with owner or manager
Merchandising supportOften dedicated merchandising teams to support the sales team and storeLimited support or no support

Advantages of micro-retail merchandising

However, micro-retailers also provide benefits for consumers and companies they work with. Successful stores are often well-stocked, and there is a high percentage of first-tier brands available. Shopkeepers are flexible to customer needs, and will stock products upon request. They often offer more affordable small pack sizes to their cash-strapped shoppers, such as small plastic bags of sugar, rather than a standard manufacturer packaging.

They are also in tune with the customer and merchandising preferences. Modern retail practices, such as artificial colouring of vegetables or in-store ripening of fruits, are often at odds with the preferences of more traditional customers. They are sensitive to customer needs, avoiding “unconventional” retail practices.

Even though space is limited in traditional outlets, companies could find it easier to negotiate merchandising space compared to modern trade. Multi-nationals have more leverage with mom-and-pop retailers, and they can control their in-outlet message better. Innovative merchandising designs, such as hanging racks to maximise space, and product dispensers, could further support this strategy.

Setting Execution Standards in Emerging Markets

For any company working with micro-retailers and traditional markets, it is important to establish what success looks like for the sales team and the company. Even in  the smallest outlet. Below are some questions to ask when evaluating or setting merchandising standards:

Market visit and research

Prior to setting standards, it is important to understand the market and channel dynamics that could influence your merchandising and product placement. Below are some issues to consider:

Reasons for merchandising practices – Explore why products are displayed in a certain way in the channel.  There could be several reasons. e.g. space, lack of equipment, packaging, limited stock. 

Quality of call – Observe and rate the service quality of your company and competitors. Do the competitors and company salespeople provide any additional services such as merchandising and stock rotation?

Inventory visibility –  Observe what and where products are displayed, and what percentage is in the storeroom.

Execution levels & standards – Review the current execution level.  Observe whether there are any visible execution standards and POSM in place by channel. How are execution standards tracked?

KPIs – Assess key performance indicators (KPIs). How are merchandising standards being tracked or monitored?

Equipment – Check the equipment in the outlet, including cold chain and display racks. Consider the floor, counter or roof space required to place and hang equipment in the outlet. 

Technology – Explore if any technology is used to track and monitor execution standards. 

Aids – Assess if the company uses any material or merchandising aids to communicate the standards and merchandising practices.

How shopper insight can assist merchandising activities

Shopper insights could be very valuable research for companies setting standards.Shopper insights focuses on retailers and channel insights, and the activities to improve distribution. But importantly for the study of merchandising, it assess product placement, merchandising and promotions in outlets. It is concerned with how shoppers buy when they enter the stores, and when they buy (e.g. number of times a week) when in the store. The research looks at what they buy (e.g. package sizes, products) and what they don’t buy.  Companies could organise field trips to observe merchandising practices, conduct focus groups, or hire a research company to conduct the research. 

Shopper insights can help answer the following questions:

  • What is the right pack to sell in micro-retail outlets?
  • How often do they buy this product and what package size do they buy? 
  • What merchandising equipment is currently being used in micro-retailers?
  • Where did the customer stand or move inside the shop?
  • The space and position of competing products or segments?
  • Where do products need to be placed in the store and next to which brands?
  • Is it better to hang products, or display on shelves or floors?
  • How durable does your packaging need to be considering the handling and storing in micro-retail outlets?

Key issues to consider with merchandising in micro-retail

With the limited shelf and floor space to stock and display products, consider your product packaging and merchandising equipment footprint when setting standards or launching a product in a traditional channel. 

Most micro-retailers trade in low to middle income areas, but some trade in higher income areas, where there is a demand for more upmarket brands and packs. Segment product offering based on neighbourhood income and the customers they serve. 

Micro-retailers often offer more affordable small pack sizes to their cash-strapped shoppers, such as small plastic bags of rice or sugar, rather than a standard manufacturer packaging. Consider a small “trial” package size and innovative ways to dispense products into smaller units.

Setting standards 

Once you have collected all the data and evaluated options, you can set standards. When setting your standards in traditional retail, consider the following:

Visibility – Identify the brands and SKUs (stock-keeping units) that need to be available and visible in the outlet. 

Display – Determine where you would like your products displayed in the outlet. Also consider the floor, roof, warm and cold display, if it applies to your brand.

Promotions and pricing – Review the promotional equipment and visible pricing in the channel. 

Equipment – Determine the right equipment required by channel.  Take into consideration the size and footprint of equipment.

Standards – Set minimum standards by channel. Determine the amount of space you would like to have in the outlet, including equipment and display space. In micro-retail, also consider the complexity the channel can handle and the space available in the outlet.

Compliance standards – Review budget and set minimum compliance standards. Implement an incentive system for the sales team and outlets.

Ad hoc teams – Where micro-retailers are not directly serviced by the company and distribution partners, consider ad hoc support teams to train shop owners and  share knowledge. 

Documentation – Determine how you will communicate with the sales team and shop owner. Documenting standards with pictures, videos, planograms and other visuals.

Key performance indicators (KPIs) – Set the key performance indicators to be tracked by the sales team.

Audit – Create a standard template for the sales team to conduct internal assessments. Make “searching for opportunities” part of the business culture.

Tracking – Implement a tracking system to measure standards and track compliance.

Test and follow-up – Test standards and make changes where necessary. When working with micro-retailers, keep standards simple. 

Companies and startup snapshots

Several companies and startups are also changing the way micro-retailers are dispensing or displaying products, and tracking standards.  Below are a few examples:

Company & RegionOverview
Optimetriks- retail tracking
Territories: Kenya, Tanzania, Uganda, Cameroon, DRC, Ghana and Mali
Optimetriks developed a sales force automation platform that helps consumer goods companies and distributors digitise and track their operations in the African market. 
The East African startup makes use of local freelancers and students, that are paid per visit, to perform a retail census and audits, collect data, and take pictures in the trade through an Android application and a Facebook Messenger chatbot. Data is checked and cleaned, and photos are analysed with an artificial intelligence solution. It displays the results through a web-based dashboard to companies and key decision-makers. 
Companies could also use the services for collecting data for network design (e.g. routing), evaluating sales force productivity, and monitoring standards and product levels in the market. 
Figjam – retail tracking
Territories: Zimbabwe, Zambia, Kenya and South Africa. 
Zimbabwe-based Figjam’s Android app automates sales tasks and provides management teams with real-time order and inventory information. The app also assists with merchandising activities, such as capturing photos, allowing management to measure merchandising standards, and promotional activities across the retail landscape. 
Algramo – product dispenserTerritory: ChileAlgramo is a startup that promotes reusable plastic containers as an alternative to single-use packaging. They sell food and personal care products such as rice and washing powder through vending machines at micro-retailers in reusable containers. The company has also expanded their services with a consumer app and mobile vending machine or electrical tricycle. Customers can order products online and schedule tricycle deliveries in the Chilean capital. 
Smollan – product dispenserWith the need for more affordable small pack sizes in micro-retailers, Smollan, a retail solutions company and DYDX, a digital transformation practice, collaborated to create a product dispenser for the informal retail market in South Africa. The Gcwalisa (fill-up) dispenser allows shoppers to purchase food and home care products for as little as R1 ($0.07). It dispenses goods into reusable containers, enabling companies to deliver bulk products (e.g. sugar), and shopkeepers to sell products in small sizes, without the need for single-use plastics.

Photo: Smollan Gcwalisa

Photo credit: HBS Digital

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