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Come to where the big profits are: frozen food among the frontrunners.

Come to Where the Big Profits Are: Frozen Food Among the Frontrunners

Study commissioned by National Frozen Food Association shows that retailers can actually boost profits by taking space away from dry groceries, general merchandise and health and beauty care, and giving it to FF, produce, dairy and meat/fish.

Frozen food produces three times as much direct profit per square foot as dry groceries, and will keep producing three times as much if retailers give it more space.

"With this kind of information, you've got to want to go back and talk to (your) top management team," said Bob Mueller, vice president and director of dairy and frozen food merchandising for Tops Friendly Markets, Buffalo, N.Y., after hearing the results of the study.

John Phipps, director of consumer product consulting for the market research firm Deloitte & Touche, gave out the figures at the National Frozen Food Convention last October in San Francisco. A follow-up study on the impact of promotions and the problems of stock maintenance is due at this year's convention in Las Vegas.

Deloitte & Touche studied sales at 86 supermarkets of four major chains in the Northeast, Southeast, Midwest and West. These are all good-sized outlets with at least 30,000 square feet of actual selling space and $300,000 a week in sales. The study was carried out during 13 weeks (January through March 1990), "a fairly neutral period of the year," as Phipps put it.

Other studies have previously shown that frozen food profitability exceeds that for dry groceries, despite the additional expense of frozen food cabinets. Deloitte & Touche's work confirms that, but goes on to (without actually tearing out shelves and replacing them with FF cabinets) develop a model to demonstrate the incremental increase on frozen food sales and profits that come with increased space allocation.

In a crucial thought experiment supported by the model, Deloitte & Touche examined what would happen if a store with actually reduced facings for dry groceries and general merchandise-health and beauty care by eight percent, while increasing them 40% for frozen food, produce, dairy and meat and fish. With the same overall square footage of facings, the study concluded, sales per week would increase 3.5%, or $9,673.

Direct product profit in the same situation would increase 0.6%, or $1,696, the study found. The store would lose $5,173 in sales and $617 in direct profit on dry groceries, and $527 and $112 of general merchandise-health and beauty care. But it would gain $5,591 and $895 on produce, $4,016 and $755 on frozen food, $3,860 and $575 on dairy, and $1,906 and $200 on meat and fish. Frozen food would account for 26% of the sales increase and 31% of the profit increase.

"Strategic space allocation" is the name of the game for supermarkets at a time when "proliferation of products has made shelf space a scarce resource," Phipps said, and Deloitte & Touche's study is the first of its kind -- the first "to look at the whole store in terms of space allocation and, even more important, space elasticity -- the impact on sales and profits of reallocating space."

Mueller saw some obvious implications in the study that go beyond the figures in the space allocation model. Noting that 90% of the new frozen food products introduced don't make it, he wondered: "How much of that could be due to the fact that we do not have the space to accommodate the manufacturers' new items?" And there remain unanswered questions -- beyond increasing space for frozen food, he asked, where should that space be located? Retailers may have to rethink their store layouts.

Tops itself is building superstores with 80,000 square feet of selling space, and if the Deloitte & Touche data "is confirmed by our own information. I don't think we'd have any problem expanding the space for frozen food," he said. One thing that Tops will want to study is how to allocate space for categories within the frozen food department (which for the purposes of the Deloitte & Touche study included ice cream, frozen novelties and frozen yogurt).

In answer to one question from the audience, Phipps said the study doesn't include shrink as a factor in direct product profit, but that it does allow for trim in the produce area and reimbursements for unsold dairy products. Counting shrink probably wouldn't make much difference in the QFF category. He noted that his firm's study had already researched the impact of promotions and stock maintenance, but that the firm had decided to save its revelations on those subjects for this year's National Frozen Food Convention. [Graph Omitted]
COPYRIGHT 1991 E.W. Williams Publications, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Frozen Foods in North America
Publication:Quick Frozen Foods International
Date:Apr 1, 1991
Words:775
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