The number of store visitors – the footfall in physical stores – is a crucial driver of every retail business.
To increase the number of visitors, retailers often leverage prices and promotions (advertising included). In saturated markets with pressing competition, both instruments are often played too heavily – eroding profitability while not really building a loyal customer base. We know how “ungrateful and opportunistic” price-sensitive shoppers can be. Once the promotion is completed, they simply switch to another retailer.
It’s a fact, and retailers should build their customer base while maintaining profitability with more advanced tactical approaches. Tactical soundness is a condition of a sustainable & successful retail game.
Destination categories are keystones in the tactical part of #leverage – our product for successful retail spaces.
Properly executed they are increasing store footfall, while also working as pull levers (against pushing of promotions). They are the excel points of the store. They make retailers not only different from the competition but also more valuable to the customers. Despite their effectiveness, they are still widely overlooked as a lever to bring visitors into the store.
Let’s take a look at how this lever works.
— THE MECHANICS EXPLAINED
Suppose we have two customers.
Customer A lives near grocery store A and customer B is closer to grocery store B.
Location, location, location chirp the sparrows on the roofs of shopping malls. Related to this rule, customer A shops store A and customer B shops store B.
But location, location, location is not everything.
Store B might drop prices so heavily that at one point it would be insane to shop at store A. (as we said, this instrument is not sustainable long-term)
But what if store B doesn’t want to lower the prices?
Then store B might offer the best selection of local & French cheeses, provide the biggest choice of fresh fish and add a provisional wine cellar where you can shop international wines. All destination categories. If those categories are valuable for customer A, the offer might attract him and drag him away from grocery store A. Pull marketing principle which makes shoppers satisfied on a deeper level than mere pushing of lower price.
So we have an example marked by a dashed line on the above illustration. Customer A drives past nearby store A but does not turn her car to the parking lot. Instead, she crosses a few miles, maybe even a state border (Ikea!) just to get to location B.
The principle works for other stores as well. One shop is closest to each one of us. But we don’t buy everything there. Also, there is one with the lowest prices. But we don’t necessarily buy there. One of the main reasons – besides prices – are destination categories (and destination products).
Due to the extremely fresh fruit and vegetables, you go to store X, due to the good offer of canned vegetables you sometimes visit retailer Y, and toilet paper and washing powders are bought from retailer Z whenever possible. All destination categories (destination products). Destination categories are thus an important generator of store traffic, as they attract customers to the store and act as leverage for additional purchases.
A category role matrix comes from the Category management toolbox. We're focusing on destination role here.
A destination category should have a high buying frequency and potential to attract a significant share of shoppers.
— HOW TO SELECT PROPER DESTINATION CATEGORIES
The selection of the appropriate destination categories is one of the strategically most important tasks of every retailer. The intention of the retailer must be proved by customers – the market. Customers’ feedback is the only real barometer of the suitability of the selected destination categories.
How does the retailer select the right categories to develop them into destinations?
First thing is to accept that the choice of destination categories should be limited. It takes time to manage the destination category. And, very important – it takes valuable store space. Thus, the choice of destination categories should be limited. The retailer must resist the temptation to try to please customers in all areas at once. In this case, he quickly falls into the loop of “more is less” and becomes completely (below) average. Destination categories are supposed to somehow cover 5-10% of total sales, no more.
The choice of proper destination categories is helped by the following criteria:
CRITERIA 1: The performance index of the category. The market share of category X purchases from the observed retailer within the entire market.
CRITERIA 2: More regularly and more frequently purchased categories are in principle better destination categories, as they tend to represent a higher long-term cost for households (eg dairy products, bread, fruit and vegetables, spreads, etc.).
CRITERIA 3: The level of penetration in households is also extremely important – what % of households use a certain category regularly. Despite the exceptional size of the market, tobacco products are limited to around 1/4 of households. For the remaining 3/4 of households, they have no destination value. In contrast, bread and fruit, and vegetables are present in more than 99% of all households!
ADDITIONAL CRITERIA: With the above categories, we can quickly get an estimate of the suitability of a destination category.
However, the real levers come with the criteria below, where “smart math” and the understanding of individual categories are added to the equation. Both are an integral part of the new view of category management, summarized in the principles of Swift Category Management.
For destination category success the following additional criteria should be tested:
- category share in the shopping baskets of the target group of customers: if the retailer targets afternoon customers “on the way home,” then prepared food might be a very good candidate for the destination
- categories that are often associated with other categories in the cart are better candidates (e.g. bread)
- priority is given to categories that better support the retail sales strategy (sustainability -> organic section; local products -> cheeses)
- how many different shopping missions does a category cover (eg mineral water appears in snacks, for dinner, supplements, meals, etc.)?
These four criteria are also closely linked to the understanding of shopping missions. If the individual destination categories start to support each other, then 1 + 1 = 3!
— INSIGHTS FROM DESTINATION CATEGORY RESEARCH
Although the notion of destination categories has been established among retailers and suppliers for some time, the scope itself is still rather shrouded in ambiguity.
Category Positioning and Store Choice: The Role of Destination Categories by Briesch, Fox, and Dillon is one of the few studies that has used the model to measure the direct effects of increasing store visitors.
The authors collected data on nearly 400 families and their shopping habits for 80 major categories over 2 years. They were able to compare data for the 80 largest categories from 5 competing stores, including some merchandising items in the stores themselves.
Therefore, the research manages to shed new light on some facts about destination categories:
- The four key destination categories have the same effect on store selection as the remaining 76. This means focusing on the right categories is paramount! Successful destination categories can be present in both fresh wards, dry products, and non-food categories.
- Destination categories are not created overnight but are the result of the trader’s long-term activities. This is very different from promotional advertising, which often attracts customers to the store in the short term with “crazy” discounts on individual products. The good side of this long-term is that successful retailers become the first providers of individual categories in the eyes of customers permanently. In Slovenia, for example, French retailer chain Leclerc managed to convince customers by offering an extended range of fish, cheese, French buns, and wines. By the way: there is also a link with a unique selling advantage, as this is a French trader who uses the stereotype of world-renowned French cuisine as leverage!
- When defining destinations, the level of penetration in households must be taken into account: tobacco products have only 23% penetration (meaning that they have zero value as a destination for 77% of customers!), On the other hand, e.g. fresh bread is present in 99.18% of households. An interesting category, which is placed somewhere in between, is certainly dog food, which has a penetration of 50.8% in the research – which also our projects validate.
- An important factor in creating “destinations” is, in addition to the frequency of purchases, also the share of income that households dedicate to each category. From the research, e.g. there is a large share of frozen products, where the income spent over a long period on frozen seafood is almost the same as for the wine category – while frozen pizzas, chickens, ready meals are far above wine.
- The strongest destination categories for the observed US market are carbonated drinks, salty snacks, fresh bread, prepared salad, crackers, beer, yogurt, cereals, coffee, frozen breakfast food, toilet paper, cups and plates, milk, dough, frozen products. With a few cultural adjustments, we can transfer this also to the Slovenian market. In this group, in particular, there is an unusual category of “ceramics cups and plates”. Over a long period, 60% of all households buy this group. Although it is not a large sales group, this group has weight as a destination!
- Let’s add some large categories that are relatively weak destinations: 1) cigarettes, 2) biscuits, 3) dog and cat food, 4) cheese, 5) frozen poultry, 6) chocolate candies. Least suitable category among the most important categories for the destination: air fresheners!It should be noted that e.g. cheese can be an extremely good complementary destination (eg for local traders or the French trader mentioned above). The more the retailer has destinations related to their recognizable value to the customer, the stronger the seemingly weaker categories may also operate.
— MANAGE DESTINATION CATEGORIES
As we said, no success comes without cost. Destination categories take additional focus and time from the retailers’ team. Also, more store space and higher inventory levels are part of the investment. But when properly executed, this serves as a pull trigger for attracting customers, and the cost is much lower than heavy price-off promotions.
To achieve that special value which proves to the buyer the exceptionality in the field of the destination category, the retailer must combine several elements:
1. Destination categories need to be given a priority status – retailers need to devote more time to professional services, refresh planograms more often, and respond to assortment changes faster.
2. A wider and more thorough range is provided, accompanied by a faster listing of new products throughout the year; the exclusive in individual products are also emphasized
3. More allocated space in the store
4. Stronger presence in flyers, promotional, and communications materials
5. Give special weight to those groups of products that are strongly related to the sales strategy or. a unique sales proposition. If the company cultivates an image of ingenuity, innovation and has salty snacks for the destination, then it is not enough to provide only dominant brands, but also this category to strengthen innovative products, highlight different ingredients (quinoa, spinach, lentils, coconut, etc.), unusual flavors, offer additional packaging, natural lines, etc.
6. The category needs to be regularly refreshed, in-out products or special selections brought in to increase interest, seasonality explored
7. You might build a story underpinned by influencers or expert recommendations (say, “house sommeliers” in the wine department)
8. In the physical store, the destination category should be expanded with online touchpoints (by using an app, QR codes, subscriptions, etc.)
9. Destination categories also provide an opportunity to upsell with cross-merchandising
— DESTINATION CATEGORIES IN #LEVERS FOR SUCCESSFUL RETAIL SPACES
In the diagram above, the destination categories are represented by baskets marked k6, k7, kx. They are groups of products/services in which the trader manages to take an above-average market share and become the first choice for customers.
As we said, our method #leverage is designed to help all sorts of retailers build and implement successful store layouts. Within a #leverage model, each category gets a “destination rating”. Based on this we then stretch the recommended space and assign special positions in the floor plan. Part of the model is also connecting store layouts positions with category roles, which is one of the steps of category management.
If you want to build up your tactical retail game by leveraging destination categories, then our product #levers is the right place for you.
We might arrange coaching consultations for your team or fully expanded workshops combined with actionable data insights.
Contact us, let’s discuss!