Evaluating Your OTP Set

steve-sandmanDo you have the right mix of products and accessories? Here are tips for improving sales.

By Steve Sandman

For many years I have been involved in tobacco department “sets.” I’ve looked at them from a hundred different angles, moved products around, put tags in the right places, hung advertising on the shelves and above the racks, and I’ve listened to more people than I can remember tell me why this product was here and that product was there.

In all that time, I’ve yet to hear one manager, clerk, buyer or owner tell me, “This is the perfect set.”
Retailers face changes in today’s tobacco environment. The dynamics of what products are selling today are likely to be noticeably different in a very short time due to new products, increased or decreased promotional dollars, contractual requirements, FDA regulations, state taxes and changing consumer preferences, not to mention retail competition.

If there’s no “perfect set,” how could we get as close to one as possible and keep it at that level? There are some simple best practices that different retailers have implemented, and by combining those practices, your other tobacco products (OTP) department can produce the maximum sales and profit. More importantly, those profits can be sustained.

BEST PRACTICES
Evaluate space to sales. Establish what percentage of your OTP department is dedicated to each sub-category, and each brand. Include both unit sales as a percentage of space and PROFIT dollars as a percentage of space. This is fundamental to your OTP set, as it serves as the baseline for all decisions you will make in allocating product in your store merchandising. This should include the profit dollars generated quarterly or annually by each subcategory, i.e. chew and little cigars.
Rank your subcategories. What products are the most profitable to you? Line the products up in order of profitability and see what kind of space is dedicated to them currently. If cigarette tubes are producing 24% of your OTP profits, and you’ve only dedicated 10% of your space to them, is this correct?

If you don’t have space to expand, can visibility and accessibility be improved to encourage sales of a highly profitable group of products? You want to sell more of the products that make you money, not less. Warning: Don’t be fooled by margins, you can’t take those to the bank. A product that generates 75% margin, but only represents 1% of your total profits and sits in a prime shelf position should be switched for a product that turns a better profit.

Vendor/Supplier Input. Engage your vendors to help you make the right decisions. A great idea is to ask the vendor for their item sales rankings in the market you service. Even though you have already evaluated your sales, that doesn’t mean you have the vendors’ best-selling products or those that are trending upward.

Control Your Stores. Over the years, I can’t tell you how many times I’ve been in a retail store and moved products I represented around on the shelves or in the rack. I put up advertising for my products, removed advertising from competitive products, asked for and received the store’s order guide to place orders with their distributor and even changed prices.

After you’ve done all the work to get as close to the perfect set as possible, how can you let your locations make changes to your sets or allow representatives that really only have their companies’ best interests in mind put up signs, tear down ads and move products around?

The most common excuse is “we like to allow our managers flexibility to serve our customers.”

Unfortunately, that’s a green light for the retail store to look nothing like what you intended, and that can negatively affect your profits in a significant way. Instead, if this is a concern, designate a space for local needs, or put in place a communications procedure for managers to make a requests for something they feel they need to adjust or change.

If you take the time to evaluate your product mix by comparing profits to space, adjust your sets to encourage more profitable items to sell better and make sure all the work you’ve done isn’t unraveled at store level, you can easily improve your OTP category performance. And, the best part is that you get to do it again in about six months if you want to keep the positive results going.

Steve Sandman has worked in the tobacco industry for more than 30 years, most recently as president of Republic Tobacco. His extensive experience includes product management, smokeless tobacco and roll-your-own tobacco products. He can be reached at (812) 569-1388.

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