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Retailers must rethink soft drink merchandising.

Soft drinks is one of those incredible categories. Consumer demand has made its products--especially the leading brands--the largest selling products on supermarket shelves. Research shows that water is the only beveraged consumed in greater quantity. Considering the soft drink category's continual growth, water might not hold the lead too much longer.

This consumer demand is nurtured by one of the largest advertising budgets accorded any product category. Advertising budgets at Pepsi and Coke, for instance, have continually placed those companies among the leading national advertisers.

Moreover, since soft drinks are store-door delivered, a supermarketer's costs to inventory this phenomenal growth category are low in relation to other products that need to be warehoused.

Soft drinks have been used as traffic builders since the early 1970s--more sober days when bottlers used price-off deals sparingly. The discounts created increased store traffic for the retailer. Because discounts were used sparingly, consumers felt the need to stock up while the price was right. This need generated store traffic, and increased soft drink unit sales were nine to 10 times greater than usual.

Today, discounting has gotten out of control. With increased competition forcing bottlers and retailers to use discounts more frequently, consumers no longer feel the need to stock up. They know every time they walk into a supermarket, one of the brands they like will be on sale. This consumer ambivalence shows up in the fact that those impressive sales increases of a decade ago have dwindled to only three to four times normal movement.

It's time for the supermarket industry to begin rethinking the way it merchandises soft drinks. The challenge for today's retailer is to develop a strategy that will once again utilize soft drinks to generate more store traffic and, at the same time, enable him to generate increased ongoing profits from the huge soft drink volume. The answer to this challenge is a balanced promotion plan. Here are some ideas for retailers:

Better Use of Promos

1. Reduced the frequency of price-off promotions. If price-off deals are going to generate store traffic and increased volume, the retailer has to reduce the number of times he uses them as promotion vehicles. Returning to the price-off promotion frequency of the early 1970s is certainly appropriate. Of course, this raises the question of what a retailer should do to combat the price-off frequency of his competitor. This leads to...

2. In between the price-off promotions, run high-impact consumer promotion events. Here the challenge is to be competitive and still provide consumers with a value that is as good as a price-off deal.

A primary reason why trade discounting has gotten out of hand is that the trade too frequently demands discounts from the bottlers. So, it's up to retailers to reverse this trend by requesting more meaningful and distinctive consumer events from bottlers. Events such as under-the-crown games could be utilized not only for in-store displays, but also in feature ads to generate consumer traffic.

Retailers can also create their own consumer offers by tying soft drinks in with popular items such as bread, ice cream, snacks, etc. Given the substantial trade allowances bottlers offer retailers, the retailer is in an ideal position to provide consumers with meaningful soft drink tie-in offers and still increase his sales and profitability.

The objective is to tie soft drinks in with an item that has universal appeal--like ice cream, a $3 billion category. You must admit that a summertime feature ad offering "a $1 in-store refund on your fvorite brand of ice cream with the purchase of two Pepsis" is certainly more interesting than a simple price-off event. And you get to sell an additional product.

Programs like this can be executed profitably by reallocating the 50-cent or 75-cent per unit price differential between normal retail and price-off on a soft drink promotion. The retailer can then use these discount funds to provide a modest price-off on the soft drink and a high value tie-in discount with another product.

Glendinning's experience has repeatedly shown that creative consumer offers providing real perceived value will repeatedly draw more consumer interest and participation than price-off events.

3. In order to generate greater ongoing profits from consumer soft drink demand, establish permanent end-aisle displays feturing major soft drink brands. As noted earlier, the major soft drink brands are heavy advertisers and have built a strong consumer base. Retailers should take advantage of the consumer interest developed by brand advertising by establishing end-aisle displays so that the major soft drink brands are readily available. In very little time, these displays could be the most profitable pieces of real estate in the retailer's store.

The bottom line is that price-off promotions can no longer be counted on to generate the store traffic or sales values of the past. But soft drinks can still be extremely powerful traffic builders and profit generators when they are coupled with a balanced merchandising plan.
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Author:Swift, Peter
Publication:Progressive Grocer
Date:Nov 1, 1984
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