Tesco

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The Need

Tesco decided in the late 1990s that they wanted to raise the stakes in the quality of their space optimization. They realised that conventional approaches to planogram production would not be able to deliver the results they now sought.

They identified a number of problems that are common to generic or mix-and-match planograms:

• Low levels of store compliance.
• Wide variations of interpretation and execution.
• Poor product availability.
• Difficulty of reacting to rapid, unforeseen product changes.

These problems are inherent with the manual production of generic planograms, and could not be solved by, say, staff training. Each store has unique physical characteristics and fixture layouts, so a standard plan can never match reality. This forces judgement calls to be made at the front line every day. At best, such decisions are sub-optimal, but in reality many of the plans were not even used. So, no matter how much effort went into producing planograms for generic store types, compliance rates were very low and unacceptable – never greater than 30%.

Varrying Assortments

Store individuality is not limited to physical characteristics, however. Even identically-sized stores in similar areas have different customer profiles, based on local house prices, regional cultural and ethnic variations, and so on. Each store can therefore have its own unique product range. For optimization purposes, calculating space allocations precisely is a huge task, which cannot feasibly be done manually.

No-One Tries Harder

Tesco famously coined the phrase ‘No-one tries harder for customers,’ and their spectacular success over the last few years bears witness to the fact that this is no mere platitude.

The Scale of the Problem

Dealing with change on the magnitude of Tesco is a challenge in a class of its own. Tesco calculated that store-specific planograms would ideally need to be created at the rate of 25,000 in a day. It amounted to one every four seconds, a specification
of unprecedented degree.

Tesco calculated that to produce a single store-specific planogram would require over 10,000 calculations. But it also transpired that a solution would need to take into account shelving that can be removed or added in order to occasionally accommodate oversized products. These would require even more calculations.

The Solution

The groundbreaking solution that Galleria delivered was as a result of the ambitious vision and dogged determination of both Galleria and Tesco to define and develop a system embracing the following needs:

• Each store’s unique fixture configurations and space allocation.
• Each store’s unique product assortments, which reflect their current local customer preferences plus market data.
• Tesco’s current central merchandising strategy and priorities, including product promotions.
• Product adjacencies that influence associated purchases.
• Downstream feed to replenishment systems.
• The ability to cascade from a template even when shelves have been added or removed.
• Space-specific calculations to account for visual display rules such as consumer decision tree logic.

In addition, the system uses a patented process to balance the three antagonistic drivers that are notoriously difficult to reconcile, but without which true optimization cannot be realised:

ASSORTMENT – the range of products that should be incorporated across each category segment.

INVENTORY – the number of each product to be stocked.

AESTHETICS – the visual merchandising of the fixture.

– all optimized by a solution that reads the template space planogram and applies the category management rules without the need for any manual intervention.

Workflow Management

After the initial implementation, the joint Tesco/Galleria team decided to seek additional ways to help Tesco’s fixture replenishment staff plan their daily work patterns more effectively. To this end, a workflow optimization feature was added. This automatically calculates how much variance there is between the current, implemented planogram and the new one to be released, informing the replenishment staff how long it is likely to take and enabling them to plan their time to greater effectiveness.

The Results

• Successful implementation
  The solution is currently rolled out across almost the entire Tesco FMCG spectrum, categorized into approximately 150 merchandising groups from Adult Soft Drinks and Bacon to Vitamins, Yoghurts and Yorkshire Puddings, with any one merchandising group represented across up to 700 stores.
• Speed
  In live tests a figure of 4 seconds per store-specific planogram is achieved or exceeded.
• Compliance
  An immediate and substantial win for Tesco has been in-store compliance to planograms. This increased from approximately 30% to over 90% as a direct result of the Galleria solution.
• Sales increase
  The introduction of Galleria’s planning solution at Tesco has coincided with outstanding sales results at the group. From
  Tesco’s 2004 Annual Review are taken these extracts.

The Way Forward

There was once a time when retailers and product suppliers largely controlled the retail model and could predict, with some certainty, what customers would buy. But today it is the customer who is in the driver’s seat, and thus the challenge for retailers is how to adapt to this new model. The retail winners and losers make headlines in the mainstream media every day, and the message is clear: Retail is a brutally competitive industry, and customer demands are both relentless and increasingly sophisticated.

It therefore speaks volumes that Tesco have become today’s pre-eminent retail success story, achieved through 100% customer focus and by not taking customer loyalty for granted.

Part of this new thinking is the new need to combine the best strategic thinking with the most locally-sourced intelligence possible. Today, it is important for retailers to move beyond ‘mere’ customer satisfaction towards customer anticipation. Demand planning, based on local intelligence, is seen as the way forward.

Galleria focuses on creating the most advanced demand intelligence in the industry, assimilating diverse sets of data into one coherent platform of information that not only feeds its renowned cluster, assortment and space management systems but also integrates with other retail execution systems such as replenishment, pricing and promotion.

The result is increased retailer sales and profits – Galleria’s primary goal. For stores to grow they need to make every retail inch perform at maximum, every day – no matter what that store’s particular size, region or customer demographics are. Beyond mere efficiency, optimization is a process that takes real live customers into account – their preferences, how they view a store fixture, how products relate to other products, and so on. It’s a huge amount to consider, but it has a crucial role to play in a retail world that becomes tougher and more competitive every day.