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Q -. . .. \- . . o ‘ .1 . . x . ‘ n N. n .. ‘ .. . . ‘. .. ‘ u 4 .I a - . . . _ . . . . . . \ .. . _ . . .5 . , .. .\ . x . .. .. . ‘ . . . . n . \ . ,. o . . ‘ - . . . . . . _ .. . . . . I . i . . ‘ . ‘ o . Q t it ~ c ~ O - ~. ~ . . . .. . v I l- . . . . ‘ _ . . .4 Q I . . ‘ ‘ . V . . O .- . . . ... § 0 O Q 0 s . .. . I h . Y" ‘ Q I - ~ ~. , C . . . N . . . . . . . ‘ . n c , I . . . . Q ‘ s 9 _ ‘ . . - § . ‘ . ., A . l— . O ‘ I . . . . . . . v .. . . . I « ‘ 0 . . . ~ . . .. ‘ u I I. I U . _ ... . . . . . . l ‘C . . ~ \. . \ Q . ‘ . . . . . . V. 1 1|4 . THOUNE ”T0 DUPLICATE ORDER 37 , MADEINU.S.A.r/ 195$ch with rich! hind ran cm REMOVE REPLAC mncr folder sz Tfifl IHiCdTANCE CF BLN-FCCDS AKD THEIR RUALITY CCNTRCL IE Tfln HnTAIL GRLCbfiY IKDUSTRY Lowell Byrcn Hamilton A THLSlb Submitted to Michigan State University in partial fulfillment of the requirements for the degree NASTLd OF ARTS 1961 ACLRORLEDGLMTS The author wishes to express his sincere apprecia— tion to Dr. Edward M. Barnet, Dr. Stanley C. fiollander, and Dr. Edward A. Brand for their advice and guidance in the preparation of this thesis. Additional acknowledgment is due Mr. Burt Kaiser, Mr. Curt Kornblau, Mr. John R. Hertz, Mr. Richard Shuman, Mr. Sidney Kohl, Mr. Paul Powell and many other industry leaders. These men contributed through written corres- pondence and the supplying of pertinent secondary data to the successful completion of this paper. Also, Special consideration and acknowledgment is due to the fine information services provided by the Super Market Institute in complying with my varied requests for specific data not otherwiseanmnlable to me. Finally, special appreciation is extended to my wife, Mary, for her endless perseverance and encouragement during the writing and typing of this report. ii TAbLE LF CCNTENTS Page ACIXNC W‘LLDGILU {1:3 0 o o o o o o o o o o o o o o o o o o o i i LISP Cb‘. 'I‘AbL-‘ZIS O O O O O O I O O O O O O O O O I O O 0 iv Chapter I 0 II\ TRC :JUC‘PIC‘D: o o o o o o o o o o o o o o o o 1 Definition of the Iroblem rurpose of the 5tudy Importance of the Study Limitations of the Study II. nISTLRICAL quiLCEhLNT A33 IREoEET ICJITILN LF ECN-FCCDS . . . . . . . . . . . 8 Non-Foods Development with The Supermarket Industry Future Trends in hon-Food selling Iresent Attrioutes of Hon-Food herchandising III. MnRGhALDISth TnCthgULd--ECCDS V5. IVCIV-‘FCC/U‘O o o o o o o o o o o o o o o o o 55 General Grocery Merchandising folicy Non—Food Lerchandising rolicy IV. ch IRE CLaINS RAY MdET THE NCN FCCJ gUALITY CCRTRLL rRCBLBM . . . . . . . . . . 6j Control Methods Utilized by Other Eon—Food Chains Control Methods Utilized by Food Chains selling Hon-Foods V. SUihaTILA AND CCHCLUSICN . . . . . . . . . . 7) In Review The Challenge Recommendations deIthDIXL . . . . . . . . . . . . . . . . . . . . . . . '7b BIBLIL GJIR.AEHY o O O O I O O O 0 O O O O O O I O O I O O 82 Liar or TABLbS Table Iage 1. Growth of Non-Foods in Supermarkets . . . . . . . ll 2. Percentage of Business Done in Non-Foods . . . . 15 5. Trends of Commodity Sales in Drug and Food Stores Total U.S. . . . . . . . . . . . . . . . 21 4. Eon-Foou Gross Erofit Percentage on iroduct Categories for 1958 . . . . . . . . . . . . . . 29 iv CnAPTEfi I INTRODUCTION Definition of the Problem Since the cessation of World War II, the American economy has been typified by the dynamic expansion of the retail trade industry. Initially, this expansion was supplied by the pent-up consumer demands resulting from the shortages precipitated in the five long war years. However, before the impetus of these latent con- sumer demands had been exhausted, the highly skilled management of botn the manufacturing and distributive trades had converted their production forces to the creation and distribution of a dazzling array of new products distributed and merchandised by unique methods. Not satisfied with the windfall sales and profits of these latent consumers' desires being actualized, the creative and innovative genius inherent in the Amer- ican industries forged ahead to provide broad product lines and the mass market merchandising facilities to distribute these products. These activities have pro- vided the highly competitive and steadily expanding industrial picture of today. Not the least of these participants, the retail 1 food industry has constantly revised and improved their facilities to enhance the swelling flow of both staple and new food products to the eager consumers. From almost a standing start, the food industry has propelled itself into the supermarket age with astonishing speed. with the realization that the consumer was seeking ease of access, quality, variety, and freshness in her product selection, the management of the food industry at the retail level quickly provided the now familiar super- market in compliance with these demands. One-stop shOp- ping became a reality, and the consumer was provided with even more leisure time to pursue the economically impor- tant recreational pastimes. Accompanying this rapid expansion of the retail food chains was a tightening competitive picture. Cus- tomer service costs were constantly increasing and, at the same time, competitive pricing was driving the profit margins lower. Either the acquisition of external Operating procedures or a spontaneous internal revision was needed to revise this unfavorable trend in profits and sales. Food chain management began to analyze both com— petitive food chain Operations and related retail chain industries for the answer to their problem. The problem was two-fold. How to attract more cus- tomers by a wider product line was the first consider- ation. In addition, what product line was going to yield a more satisfactory profit margin in the total merchandising mix and sales effort. The increasing popularity of one- stop shopping and the analysis on commodity group profits provided the answer. Non-foous seemed to offer the solu- tion to both problems and, at the same time, lend itself physically to the distributive systems already operative in the food industry. Non-foods merchandising was not a totally new con- cept to the food industry. Rather, it was an available tool that had not yet been fully utilized. With this realization, followed by the imputing of non-food merchan— dise into the food retail outlets, the industry manage- ment solved some of their immediate proolems. At the same time, they created the need for new long-run con- cepts in the promotion and handling of non-food merchan- dise. How to fit the positive and negative attributes of non-foods into the total product mix was the central problem and would continue to be of major importance. Purpose of the Study The purpose of this study is to outline the impor- tance of non-food merchandising in the total product mix utilized in supermarket merchandising. The histori- cal, present, and future importance of non—foods will be considered. Along with the physical contributions of profit and volume, the effect of the quality and type of non-food merchandise on the total retail store image will be discussed. Above all, how can the merchandising of non-foods in the future be better co- ordinated with existing food merchandising policy? The areas concerning quality control of non-foods will receive Special consideration. Since the supermarket chains are relatively new in the field of mass non-food merchandising, the analysis of programs utilized by non-food chains should provide addi- tional pertinent material on the subject. Especially the methods of quality control and product analysis could be most valuable to a food chain merchandiser of non-foods. and maintaining an over-all competitive position in the ' present retail food market. Importance of the Study The importance of the study is based upon the hypo- thesis behind its formulation, that hypothesis being: The future of non-foods in the retail food chain operation is based upon the ability of the food chain management to successfully integrate the merchandising of non-foods into the total pattern or phiIOSOphy of present food merchan- dising Operations. If the present market images of food chains do exist, how will the types and qualities of non- foods affect the consumer image? where shall the emphasis of advertising and promotion be placed and how will it affect retail operations? These are questions that must be answered before the food chains can successfully move forward with their integrating plans. Through demonstrating the rise of importance of non- food Operations, the level of customer acceptance of non-foods in the food supermarket, and the trends in present non-food operations, it may be possible to qualify a state- ment about future non-food selling policies. If no other objective is realized, this study will, at the least, point out some of the excellent potential in this merchandising area. Also, it will demonstrate the rising importance of creating and maintaining an effective product-service mix with a definite active part being played by the non-food categories of merchandise. One recent speech given at the S.M.I. Conference on January 13-14, 1961, points out the importance of concen- trating on all aSpects of merchandising in the food re- tailing industry. At the dawn of the supermarketing era, each retail outlet served on an average of 5,000 families. This service figure has drOpped to 1,700 families per supermarket outlet and shows signs of further decline as the saturation of the retail market is completed. With the steadily declining patronage per unit of outlet, the merchandisers must pull all stops to boost the average ticket or sales per customer. Non-foods offer one proven effective method of doing this.1 lNeal Hathaway, "How the Lowney Approach Contri- butes to Profitable Progress in General herchandise," presented at Super Market Institute Inc. Conference on General Merchandise, January 15-14, 1961. Limitations of the Study There are some factors which may limit the depth of penetration of this study. The first of these concerns the quality and type of data available on non-food mer- chandising programs. In addition to being limited, the data on non-food merchandising is well scattered through- out the various food industry periodical publications and related publication sources. S.M.I. is currently trying to launch an effective program to collect and tabulate industry data on non—food promotions, but no concrete re- sults are yet available. It is indeed unfortunate that such a fertile promotional field has received so little concentrated market research effort. This report will not try to prescribe the methodology by which any particular retail food chain should insti- tute a non-food merchandising program. Many chains have quite adequate systems for their present stages of devel— Opment. Rather, an over-all observation of the status of non-foods within the present product-service mix, and the increasing importance of quality in non-foods to match the regular product standards is the proposed limitation of this paper. The remarks will be confined mainly to observations on present food industry systems as well as those utilized by related chain organizations. Through these observations, and the review of available data, some concepts for the formulation of an effective non—food program or the reorganization of an existing program may be formulated by both this author and inter— ested readers. CHAPTER II HISTORICAL unvstornnnr AND ERnonhT ECSITIOh cs wow-rooms Non-Foods DeveIOpment with the Super Market Industry As is often true, many people tend to look upon their present problem as unique and entirely different from those recently solved and past. This definitely follows in the observations being made by industry personnel about the present problems and situations evolving from the diffi— culties of non-food integration. In many cases, they seem to feel that this new horizon has Just developed and that non—foods are presenting problems that have not previously been surmounted. with relatively little research effort, the historical development of non-foods would demonstrate how other Operators have already solved many of the most perplexing current problems. Early non-food development.--Almost as old as the concept of supermarkets is that of selling non-foods in the retail supermarket outlets. When the early pre-super market grocery retailers finally divorced their operations from those categorized by the general store, many product lines were still retained that definitely did not come under the heading of grocery food products. Soap chips, 8 pails, brooms, dusters, sponges, and twine, represent only a few of products retained by the grocery department that now come under the heading of dry grocery product. Thus, in a small way, non-foods have always been a part of the grocery product-service mix. In a large, more dramatic, but often forgotten way, is the type of integration that actually saw the creation of individualized non-food departments spring into life right along with the birth of the super market. The Big Bear, Opened in 1952 in Elizabeth, New Jersey, is one example of mass non-food merchandising. This store was opened in a 50,000 square foot vacated factory building. Actually, only 50 per cent of the total Space was devoted to the food business. The rest was devoted to non-food departments which were leased on a percentage of sales basis. These eleven departments included: 1. meats 2. fruits and vegetables 5. dairy products . fresh bakeryproducts . candy . cigars and tobacco cut-rate drugs and cosmetics . electrical and radio supplies . auto accessories 10. soda and luncheonette ll. paints and varnishes \OCDVIO‘UT-P 0 Although all of these departments are not non-food Operations, the resulting lease fees still help prove the point that alert merchandisers early realized the profits 2M. M. Zimmerman, The Super Market (New York: McGraw Hill Book Company, 1955) p. 42. 10 to be gained through non-food selling. The first year's sales receipts totaled $1,685,876.80 of which 5.15 per cent was turned into the Operators of the Big Bear as the percentage of sales lease fees. Considering the total rental obligation of the Big Bear Company was only $15,000, the resulting profit was over 370,000.5 Recent non-foods development.--Unfortunately, many of the food industry leaders were slow to visualize the possibilities offered by the supermarket concept and even slower to grasp the significance of non-foods as a highly profitable and versatile product line. It was not until the close of the second world war, as mentioned in the introduction, that the dynamic expansion of the non-food lines really began. A study by Sgpermarket herchandising in 1954 clearly shows the important change in non-food merchandising in the six years following the close of World War II. As demonstrated by Table 1, many items such as after-shave lotions, baby creams, lighter fluid, furniture polish, auto waxes and brushes arose from ob- scurity in non-foods operations to almost 100 per cent integration in all supermarket outlets. (See Table 1, pages ll, 12, and 15.) Each year new items become standard product line, providing additional gross dollars and net profit returns. 5mm. 11 Table l.--Growth of Non-Foods in Supermarkets 1947-1955 W Percentage of all Supers Non-Food Categories 1947 1950 1955 Health and Beauty Aids sanitary pads 67.0 86.4 94.0 shaving cream 56.0 81.9 92.9 cleansing tissues 87.0 90.5 92.6 toothpastes 57.0 85.8 92.5 shampoos 64.0 85.4 92.5 razor blades 68.0 85.0 92.0 toothbrushes 45.0 74.9 91.5 hand lotions 66.0 80.5 91.2 deodorants 50.0 77.7 91.2 absorbent cotton 41.0 75.7 90.6 after-shave lotion 90.6 home permanents 64.9 90.6 first-aid items 44.0 8.0 90.0 hair tonics 47.0 76.9 89.1 hair pins 52.0 71.4 89.1 talcum powder 44.0 75.5 88.6 mouthwashes 49.0 75.4 88.0 headache remedies 75.4 87.1 cleansing cream 56.0 75.4 86.9 hair comos 59.0 71.8 85.2 cough remedies 44.0 66.7 81.5 laxatives 47.0 71.8 81.2 safety razors 78.9 nail polish 52.0 54.6 76.6 hair nets 25.0 55.5 76.5 sundries 76.0 face powder 41.0 62.9 75.1 hair rinse 74.6 Surgical dressings 70.9 curlers 21.0 49.1 68.6 Chest rubs 54.0 65.5 68.6 lipsticks 50.0 44.5 61.7 patent medicines 65.6 foot preparations 56.5 hair dye 52.5 Perfumes 43.7 Baby Needs powder 75.0 92.9 baby oil 75.7 92.6 baby lotion 90.6 baby creme 87.1 ‘ 12 Table 1 (Continued) Non-Food Categories Percentage of all Supers 1947 1950 1955 bottles 55.2 85.7 nipples 50.9 81.7 baby pants 60.9 Magazines, Books, Records children's books 55.4 72.0 magazines 55.0 56.9 61.1 pocket books 51.1 49.5 records 4.2 8.0 51.1 Soft.Goods cotton work gloves 65.4 hosiery 60.0 rubber gloves 52.9 men's socks 48.6 children‘s socks 6.6 48.5 plastic tablecloths 51.5 44.6 towels 19.8 55.2 handkerchiefs 10.6 15.9 28.9 aprons 6.0 7.5 22.9 draperies 8.5 18.9 children's wear 4.2 4.7 9.4 work clothes 4.2 8.5 pillowcases 4.2 8.5 sheets 4.0 7.7 blankets 2.6 6.9 plastic curtains 6.8 6.9 lingerie 5.0 5.7 handbags 2.7 4.9 sandals 4.0 Stationery school supplies 42.0 52.0 68.6 inks 55.5 68.6 stationery 54.0 46.8 67.1 gift wraps 58-5 pens 56.6 cards 45.5 15 Table 1 (Continued) Percentage of all Supers Non-Food Categories 1947 1950 1955 Paper Specialties freezer paper 80.9 wooden spoons 76.5 freezer containers 76.0 paper tablecloths 51.1 taps 49.1 Toys toys 10.5 24.6 48.5 games 56-5 Housewares and Appliances kitchen utensils 54.6 86.9 electric bulbs 66.0 70.9 85.8 fuses 45.0 57.8 81.4 batteries 79.4 can Openers 74.0 cutlery 51.1 ironing board covers 50.5 small tools 50.0 mixers 8.0 19.4 radios 7.6 15.1 house paint 8.0 10.9 freezers 4.1 5.4 washers 2.9 4.6 refrigerators 5.5 4.0 ranges 5.8 5.7 dishwashers 2.5 fi-7 Miscellaneous candles 69.5 pet-care items 51.5 notions 24.6 jewelry 5.2 8.9 4"Non-Foods Jump to Major Rank," Super Market merchandising (January, 1954). 14 As further evidenced in Table 2, page 15, the volume of non-foods becomes a mador factor in the total store volume. The same 1954 study showed that the average super market counted non-foods as doing 11.9 per cent of the total store volume. Cne-fourth of the stores do 12.5 per cent to 50 per cent in non-foods. nven with these stag- 7} rering figures, the retail food mercnandisers had not I. realized the full potential of non-food products. From the early fifties, the importance of non—food dollars in the total retail volume of the supermarkets has continued to increase. The width of the product line and the type of merchandising presentation has constantly improved. In addition to individual firm efforts, there have been national conferences on packaging, advertising, displaying and other important facets of non-food merchan- dising. Super Market Institute and Chain Store £32 have been two of the leaders in these programs. Through this type of concentrated effort, the executives of both the chain super markets and the general merchandise or non- food distributors and manufacturers have fostered the growth of non-foods to their present position of prominence. Also, the basis has been laid for extensive gains in the supermarket selling of non-foods as the industry proceeds through the sixties. Present_position of non-foods.--In 1957 and 1958, the total share of sales enjoyed by the non-foods portion of the supermarket product mix was between 4 and 5 per cent. 15 Table 2.--Percentage ongusiness Done in Non-Foods/ % of Total Volume % of Company's . % of Store's in Millions Volume Selling Area 0.5-1.4 5.8 1.8 1.5-2.4 5.6 5.5 2.5-5.4 5.8 5.0 5.5—4.4 7.2 5.6 4.5-5.4 7.2 1.5 5.5-8.4 8.7 4.5 7.5-12.4 24.7 55.1 12.5-17.4 14.5 15.0 17.5-22.4 5.8 5.0 22.5-27.4 - 4.4 1.2 27.5-52.4 1.4 0.5 52.5-57.4 2.9 1.2 57.5—49.9 1.4 0.9 50.0-over 4.4 5.6 100.0 100.0 51bid. w In 1959, this total share rose to a solid 5 per cent and the available figures for 1960 seem to indicate that the total volume, as well as the percentage of sales, will again rise. This is in contrast to 1954, when non-foods accounted for only 5.5 per cent Of the total supermarket volumes.6 If this percentage gain is used as a forecast trend, then it is not impossible to visualize a day in the near future when non—foods may account for 7 to 10 per cent of the total supermarket dollar sales volume. In 1959, the average Of over 5 per cent included food Operators who did as much as 50 per cent of their total store volume in non-foods. Cf course, this average figure also included many operators who did less than 1 per cent of their store volume in non-foods. This again points out the fact that the industry, at the same tire, contains Operators who are aware of the high potential of non-foods, and those who cannot see the merchandising advantages inherent in the promotion of non-foods.7 Figures published by igpgressive Grocer put the pres- ent non-food volume at upwards of 32 billion, 200 million a year. An important part of these sales are accounted for by the movement Of health and beauty items. The 6Curt Kornblau, "Facts and Figures about the Progress of General Merchandise in Super Markets," speech presented at Super Market Institute, Inc., Conference on General Merchandise, January 15-14, 1961. 71bid. 1’? supermarkets in 1959 sold over 50 per cent of national sales in leading health and beauty items. Thirteen per cent of all phonograph records were sold by food stores. Twenty per cent of total newsstand magazine volume was handled by the food supers. Obviously, the importance Of the retail food industry in marketing many non—food product categories cannot be denied.8 Future Trends in Non-Food Selling Sales.--There are two major forces that should con- tinue the increase in non-food sales. The first of these is the increasing consumer preference for shopping in large Stores and one-stOp shOpping. Cne indication of this Preference is shown in the declining number Of food retail outlets reaponsible for more than 70 per cent of the total food store sales in the United States. In 1959, the total number of stores responsible for over 70 per cent of food sales was 112,000. This had been reduced from a high of 120,000 in the late nineteen twenties. In 1948, the number of food stores was 90,200; in 1954, it was 50,525; and in 1958, it was 44,501. The analysis Of the 1960 market shows that 59,500 food outlets accounted for z{1548.6 billion of over 70 per cent of the total food dollar Sales. Obviously, the consumer prefers to find all Of her food needs at one location rather than shOpping \ . W. Muller, "Where We Stand on Non-Foods," Progres- EL3L9 meg (February, 1961) p. 6. 18 9 in individual markets for each food product line. A recent Nielsen study disclosed that, based on an analysis of tonnage sales of thirty important commodity groups, the consumer in 1958 purchased 69.9 per cent of her total requirements in chains and supers. In 1959, the total advanced to 71.4 per cent and in 1960, 72.8 Per cent. This again would seem to indicate the prefer- ence for one-stop shopping and the possibility Of wide consumer eXposure to non-foods through the use Of fewer and fewer retail outlets.10 If the non-food producers, distributors and the retail food chain merchandisers were to become fully aware of this situation, one immediate merchandising ad- vantage would become apparent. The use of the distribu- tive systems already developed by the corporate food Chains would allow maximum consumer exposure with minimum merchandising expense. The fixed capital investments of COI‘POPate food chains incurred by the creation of ware- houses, stores, and tranSport fleets, in many cases, have a high degree of unused potential tonnage capacity. If this unused tonnage capacity were to be utilized by the movement of non-foods through the vertically integrated corporate food chains' distributive systemS. there M31119 be two groups of benefactors. \ 9 . The Consumer Votes A Research Stud "" y by the A. v. Nielsen Company, I96 . ’ 10 , lag. 19 First, the corporate food chain merchandisers would be utilizing the fallow capacity with the movement of a high- profit line of product. Second, the non-food producers and distributors would be getting increasingly efficient coverage of a dynamically expanding market. working to- gether, these two groups should not only be able to improve the customer's selection of product, but the unit cost of many non-food items should be reaching the consumer at a lower figure. This, in turn, should generate more sales which would readily compensate both the producer and the distributor in additional profits. The second major factor that should enhance a growth trend in non-foods is the way in which the consumer is utilizing her constantly increasing purchasing power. According to some recent survey work done on how the indi- Vidual utilizes her diSposable personal income, the future 0f non-foods lOOhS very bright. As disposable personal income goes up 1 per cent, the a:ount of money spent on foods goes up only .8 of one per cent. Cn the other hand, the amount of money spent by consumers on toys goes UP 1'5 Per cent. The amount of consumer expenditure on drutis and sundries goes up 1.4 per cent. For example, if a Customer has 3280 extra to spend on food, then she will have “150 eX’GI‘a to spend on non-durable toys.ll This index is the result of a government study in r ' - Etail lndustries, such as the May Company and the General \\ ll Hathaway , loc . c it . 20 Electric franchise outlets. The index may have its own built-in faults, but the important point is the sensitivity Of non-food products to the rise in dislosable personal income. Obviously, this means that the food chain oper- ator, in order to share in the steadily increasing national standard of living expenditures, must revise his product line to include those types of product which the consumer is most likely to buy with her increasing purchasing power. To demonstrate the validity of the above predictions, consideration need only be given to one important segment of non-food merchandising. A quick look at the food re- tailing industry's increasing share of the health and beauty aids sales will clearly show where the non-food po- tential lies in today's market. Table 5 shows the trend in commodity sales of drug and food stores in the 1958 and 1959 years. (See Table 5 on page 21.) TwO important facts can be learned from such an obser- vation. First, of course, is the tremendous increase in sales in.a11 product categories of the beauty and health aids. This alone should make the manufacturers and retail- ers aware of non-food's potential in retail food outlets. Thetmanufacturer of a national brand drug product should quickly lose any hesitancy he may have about placing his product before the consumer in the lowly food market. Likewise, the food merchandiser should be hard put to Table 5.—-Trends of Commodity Sale Food Stores Total U.S. Drug Stores l2in Drug and Food Stores 1959 vs. 1958 1959 vs. 1958 headache remedies 0 % +7 % dentifrices -1 +5 laxatives +2 +4 shampoos +1 +2 razor blades +4 +9 cold remedies +17 +41 deodorants +5 +11 sanitary goods +5 +11 oral antiseptics +7 +15 hair tonics +2 +15 home permanents -7 -l2 shave creams +2 +9 hand care +4 +5 tape and bandages +5 +6 toothbrushes +5 +9 muster any resistance to non-foods in the face of this most obvious demand.15 The second observation to be made is that of the re- ward to be obtained by giving the merchandising of a non- food product category a fair trial. The self-serve drug department is probably closer to becoming a reality in all supermarket outlets than any other department in non-foods. The consumer acceptance of a segregated drug department clearly demonstrates what a concentrated effort on a non- food category will produce in profit and sales. Although 2 waenty-Sixth Annual Neilsen Review of Retail Grocery Store Trends (1960) p. 15. l 53 immerman , pp. cit., p. 42. 22 garden supplies, soft goods, and housewares are receiving spotty consideration for separate departmental treatment, there has been no concentrated effort in these areas equal to the treatment given the drug sections. When the mer- chandising abilities of the corporate food chains are turned to these comparatively new areas, there is no reason to believe that the results will not be as rewarding as those incurred through departmental merchandising of beauty and health aids.14 Allocation.--Turning from the projected sales of non- foods to the store allocation of the product, the trend again predicts growth. As previously mentioned, some of the early supermarket Operators devoted as high as 70 per cent of their selling area to outside agents represented by both food and non-food merchandisers. however, it has not been until recently that the designers and architects, planning the modern supermarkets, have included individual departmental facilities for the integrating of non-foods into the total store product mix. Again, the lessons learned in the merchandising of drugs provided the basis for this new concept. Consequently, the average new super market opened in 1959 devoted 10 per cent of its selling area directly to non~foods. This selling area was generally segmented,and departments for individual non-food product lines were supplied. From this selling area, the 1959 new —_ l4 . Kornblau, 92. c1t., p. 8. 25 supers were realizing about 6.7 per cent of their total store sales. That the importance of non-foods will continue to in- crease, there can be no doubt. How the merchandisers inte- grate the positive attributes of non-foods with those already evident in their food product service mix is some- what more questionable. Present Attributes of Non-Food Merchandising Non-foods a promotional tool.--Cne of the newly found, but to date little utilized, promotional tools of the super- market merchandiser is that of the non-foods. Used as a loss leader or a regular weekly feature, the non-food prod- ucts lines are proving themselves capable of pulling as much traffic as those Specials from the dry grocery or perishable departments. Many arguments have been stated against the proba- bility of having a general merchandise product used in this manner. One of these is the fact that the super- markets are accustomed to having considerable financial aid in the way of c00perative advertising whenever they promote a particular manufacturer's product. Since the amount'«of branded merchandise sold in a general merchan- dise promotion is often relatively small, the manufacturer is unable to extend much promotional aid to the grocery Promotion program. The supermarket organization is, thereforwe, pushed into the position-of underwriting most °ftheprtnnotional expense, and often must deve10p the 24 entire promotional program, including the theme and compli- mentary media advertising c0py. One industry report shows that most advertising and promotional expenditures for general merchandise tend to vary from 0.5 per cent to 0.8 per cent of sales. Super- market expenditures for other major categories account for close to 1 per cent. This does not include stamps or other promotional costs.15 It seems that expenditures for pro- motional activities are not governed by sales returns or profit dollars, but by the amount the manufacturer is willing to devote to the selling effort. If this is the case, the Jobbers and producers of general merchandise non-food product will have to loosen their purse strings or face a long, hard climb to ever reach the desired posi- tion of prominence in the total sc0pe of supermarket merchandising activities. It is not clear whether this above mentioned deterrent to efficient non-food integration is an argument for the supermarket merchandiser or the non-food vendors. In the case of the supermarket merchandiser, it would seem rather foolish to neglect a product category where a little promo- tional Spending could be so handsomely rewarded. Likewise, the near-food vendor would easily move toward a compromise, realizing;that a small loss incurred by giving more pro- motional support would be more than compensated for by h 1 l m SRaymond Loewy Corporation, Super Markets of the W (Loewy Corporation, 1960) Section I, pp. 104-105. 25 the additional product movement incurred through weekly exposure to a mass market. A second argument against the use of advertisements for non-foods is that all stores may not carry the merchan- dise. Many stores are still physically limited by the Space they can devote to non-foods. This forces the stores with adequate home centers to go without promotional aids.16 The answer to this dilemma is obvious. iany chains are already using informative advertising which points out which retailing locations have the product available. Also, the present trend in supermarket construction and layout is more and more providing the necessary merchan- dising footage for non-foods. A third criticism is the type of promotional fore- thought that now accompanies the majority of supermarket non-food promotions. Kuch of the advertising is done on a last-minute basis. Frequently, the merchandise will move through the warehouse and into the retail outlets without any forewarning to the store managers. It is not possible to give the non-food product the merchandising treatment it needs when no notice of delivery is given or a last-minute ad appears.l'7 The answer to this problem is the same as the answer t70 any merchandising problem concerned with the promotion g 1 6Ibid. , p. 105. 1'? IIDid. of any type of product line. Scheduling is the key to successful non-food merchandising. In the use of non- foods as a promotional tool, one must make sure that he schedules his promotions and items. He must make sure that he has adequate detailed description of the merchan- dise from the supplier for his ads. He must make arrange- ments with the advertising department for signs, banners, and streamers or other advertising material needed. Notes to the stores should be made up, advising them of the pend- ing promotion and giving them details so that displays can be planned. If possible, tie-in items and a variety of possible display locations should be given.18 One company has found it advantageous to devise a monthly calendar to point out possible promotional activ- ities for each month of the year. Their program is as follows: January White sales February Valentine's Day; Lincoln, Washington birthdays March Garden supplies April Easter Hay Mother's Day; Memorial Day June Father's Day; kicnic supplies July Clean-up-—spring and summer August Back to school September Labor Day-—Back to school Cctober Halloween-~Housewares; hakeware November Thanksgivinggfnd Christmas December Christmas 1 8Martin Latter, "Practical Ideas for Promoting General Kmrchandise," presented at Super harket Insitute Inc.t price on the bowls was not as great as if a food itmn kiad been used.21 Clver all, the non-foods seem to offer a definite pro- m0t1013£il tool when utilized as add features or loss-leaders. ”1th €33qperience comes confidence, and many of the corporate N EEC) _ "Albertson's Chain Scores with nous wares Setup," EEEQQELEEPket News (January 9, 1961). " Find~ " "Non-Food Pullers nffective, Less Costly, Jansen's °9 Supermarket News (Eebruary 20, 1961). 29 I chains are now including a non-food item as a part of their regular weekly promotional plan. Non-foods a profit tool.--It is in the realm of profits that non—foods offer their brightest Opportunity. Currently, the trend in the average store layout is from 10 to 20 per cent devoted to non-foods. From this space comes about 6 to 10 per cent of the total gross profit sales dollars. Presently, about 27 per cent of our super markets have a separate non-foods section for all non-foods. From these departments, the stores will realize as much as a 51 per 22 As shown in Table cent average profit on gross sales. 4, many non-food items carry an exceptionally high mark-up. This can be demonstrated by comparing the product group mark-ups with the figure of 20.5 per cent which represents the average gross margin of grocery products for chains selling in 1958.23 Table 4.~-Non-Food Gross Profit berggntage 0n lroduct Categories for 1958 W_._. I“ sat Department Dollar Sales Percent of Percent of Total Sales Margin on Sales Health a "23,000 2.50 % 52.5 % Beauty Aids Housewares 9,200 .92 55.0 MagaZines & 5,800 .58 26.0 Books ioft Goods 5,400 .54 51-9 P333 5.500 ~95 25-2 onograph 5,000 .50 28.4 ”Records flitmnery 2.500 .25 41.0 $11 Non-Foods Average 331‘ Market 1958 352.000 5.20 % 51.0 x, 22 ‘ Sal 'flq3etter Merchandisin Doubled Our Magazine and Book eséj.éggogressive Grocer %April 1959) p. F-l}. dillbur B. England, Operating Results of Food Chains 50 The profit addition to a supermarket merchandiser's mix is most obvious when we look at a National Association of Food Chains study made in 1958. The study points out that the relative amount of non-food items sold affects the gross margin materially because of the much higher mark—up placed on such items. For example, if grocery products were being sold at an average mark-up of 17 per cent, and if non-food items, with a mark-up 0f 55 per cent were subsequently added, total net sales of 95 per cent grocery products and of 5 per cent non-food products would produce a gross margin of 17.9 per cent. This shows how influential the addition of non-foods can be on the total produce mix and gross margin return in a food merchandising organization.25 In order to obtain these higher—than-average mark-ups and still maintain the desired consumer demand for non-food product merchandised in supermarkets, the supermarket mer- chandisers can resort to either of two pricing theories. The first of these is the "full-price theory," in which the mark-up on product is maintained at an average of 55 Per cent. This is done by two methods. First, the Oper- ators can carry low-ticket items in the non-food section to give the image of general low prices. Second, there is g }£_l22§ (Howard University Press, 1959) p. 11. 4 o o - 7- n _ ,, "Better Merchandis1ng Doubled Cur magazine and Book ‘files’" 100. cit. ’3 LF’ CiJulian Handler, How to Sell the Supermarkets alrchild, 1359) p. 44. 51 constant promotional activity going on in the department which draws the consumer's attention to the department's selling area. Tie-in product and impulse sales more than compensate for the markdown which must be taken on the feature item. The second theory is the "low ticket" theory, which reduces the average margin to 28.5 per cent. The group of merchandisers using this policy does not specialize in low price features on loss leaders. Rather, they claim that they are using the supermarket principle of mass mer- chandising. First, they try to impress upon the consumer that he will receive lower across-the-board price on all products, hence extending the supermarket theory of mer- chandising. Second, they believe that this policy of lower price will attract the additional patronage necessary to achieve by volume what the followers of the full price theory achieve by price. So far, this theory has not proven to be adequate, since the "low ticket” policy users are only obtaining about 5.5 per cent net return and the "full price" theory merchandisers are realizing upwards 0f 4.0 per cent net profit.26 Regardless of the pricing methodology utilized, it can safely be said that the markup enjoyed by the general cate- gory of non—foods is substantially above that of the regu- lar grocery'merchandise. Also, the additional profit M.» 26 .Loewy, pp. cit., p. 100. margin allows the merchandiser more freedom of price move- ment and, thereby, creates a very feasible merchandising weapon. Non—foods offer added variety as a merchandising tool.-- hon-foods can offer depth, width, and interest to a super- market's merchandising approach. The first of these_cate- gories (depth) is developed by catering to a particular marketing area's characteristics. For example, if a neigh- borhood or marketing area is known for its fisning and recreational activities, then the non-food department can cash in on sales of items such as boat hats, fishing equip- ment, swimming equipment, and picnic supplies. Adjusting to a market particularization is an excellent way to build the store's non-food volume. The attribute of width is obtained by carrying a wide line of product. Many authors have written about the impor- tance of impulse sales in supermarket merchandising. With a wide variety of non-food product displaying a multitude Of choices in cclor and style, the non-foods department is 80ing to attract many extra sales dollars from those all- imPOrtant impulse sales. The merchandise is available in abundance, and the innovistic ingenuity of our supermarket merChandising personnel should be able to capitalize on the Consumer's impulse buying habits. Finally, the prospect of interest is also an important component of non-food merchandising. Some day the consumer hMo has seen everything and understands everything may 55 evolve, but until then the non-foods sections of the food stores will continue to captivate the interest of the con- sumer through the consumer's own natural curiosity. What is more interesting, especially to the male partner on the weekly shOpping tour, than a thirty foot section of shelving loaded with the latest and some not-so-late do-it-yourself gadgets? Frequently, these product lines can be in the lowest product price line and still carry above a 55 Per cent mark-up in profit. Even the lady of the family will stop each week if she learns that the management keeps fresh product lines on the shelf and that she can depend upon the department's having her household small hardware needs. If-the concept of multiple sales to a single customer is to remain as the core of our supermarket merchandising theory, then non—food products can be instrumental in maintaining the multiple sell idea. Non-foods through the types and varieties available for sale are especially well fitted for the type of impulse merchandising that is be- coming increasingly important in supermarket selling. One final advantage of non-food merchandising is the creation of competitive equity. Unfortunately,many of our Supermarket outlets are in the non-food business merely because they feel that they need to keep pace with their comPetition. This is probably one of the reasons that there.has been a hesitancy on the part of supermarket man- agemaut to accept non-foods on a wide scale. The peOple 51+ responsible for formulating and implementing the non-foods programs are only trying to look good and keep up with the competiticn. This type of activity has killed creative merchandising thought and left much of the industry in the wait-and-see follower's club. Nevertheless, the creation and maintenance of a non-food department will give the supermarket a competitively equal base upon which it may build its merchandising scheme. History is probably on the side of the non-food vendor. That is, as the alert supermarket merchandisers learn from experience what merchandising benefits can be derived from an aggressive non-food policy, they will use this tool more often in the formulation of their merchandising pro— grams. The not-so-alert will soon follow when it becomes evident that their lackadaisical attitude may leave them in their competitor's dust. CHATTER III MERCLIANDIJING TECHNIQUES--FCCDS VS. l‘iCl‘i-FCCDS The importance of non-foods and the pattern of growth which they now have and will continue to follow having been established, it now seems important to investigate both the type .of merchandising presently being utilized on non-foods and the consumer acceptance of, or reaction to, such mer- chandising. iarticularly the consumer reaction to the 911511 ity of non-food product offered should be investigated. A150 s the difference in approach to promoting food versus non- food items must be considered. to see if the inccngruity in merchandising techniques utilized on food versus non-food cate glories is creating undesirable consumer images of both the food chain. and the non-food department. General Grocery Merchandising Policy Realizing that the super market operation may only Survlve if it has the ability to impress upon the consumer th .— t _, v o 1 . ~ - . e lmdlzfe of wide selection, quality merchandise, reliable ual' —. ~ - «- q its? , and convenience, supermarket merchandisers have conce . . . . . . Jrltrated their promotional actiVities in these areas. These p . . . . I‘omctional tools, in turn, prov1de the high customer tra ‘ . file count which enables the supermarket operator to 55 \JJ OW sell not only the product on the consumer's shOpping list, but also the wide variety of impulse items that are dis- played throughout the store. In order that the supermarket merchandiser might first establish this necessary traffic flow, the consumer's con- fidence in quality staple goods must first be gained. Here, national brands and standardization of quality of private labels become of major importance. The supermarket mer- chandiser relies upon the consumer's knowledge of this product to help him in his attempt to promote heavy store traffic. The merchandisers utilize this consumer knowledge by low pricing of the known brands and standardized staple products. These offerings, along with a wide and deep mer- chandise assortment, give the consumer the confidence in a store because it enables her to choose and compare. These above facts pertain to the dry grocery Operation, but of course not to the perishable departments, where little or no pre-selling of the consumer can be done. The personajlity of the store will frequently rest on the ability 0f the corporate food chain's staff to provide the various retail operations with quality retail product for the per- ishable departments. hothing can destroy the shOpper's image of a store more quickly than the poor quality of dairy, produce, or meat product. Along with poor quality, the lack of merchandise in a standard product line such as milk, lettuce, or ground beef can also destroy the image of rel iability - 57 The food chain merchandisers realize that the important question in their retailing activity is the problem of es- tablishing a unique consumer image. They must accomplish this consumer confidence by the utilization of the follow— ing merchandising tools: 1. The use of pre-sold national brands or private labels which may be promoted through pricing. 2. Maintaining a constant supply of product to assure the consumer of one-stop shOpping. 5. Carrying a wide variety of product containing both width and depth in individual product categories. 4. Carrying merchandise thatis packaged for con- venience of use and standardization of unit size. 5. Carrying product that has quality equal to or in excess of the oovpetitor's products in the same price range. When every supermarket is laid out in the same fashion and the product line carried by each is quite similar, adherence to the above principles for dry grocery and perishable products has been a definite merchandising pre- requisite. Although these above considerations do not constitute all of the facets of supermarket Operations that create competitive inequalities or advantages, they do constitute the important aspects of product merchandising and presentation. All of the product carried by the supermarket must either fit the above stipulations or it will detract from the over-all merchandising image. Gen- erally speaking, the dry grocery and perishable product fits well into most merchandising operations because of \H O) the conscious or subconscious use of these above principles when fabricating the imputing process of a product or product line for implementation in an established product mix. Non—Food Merchandising folicy Due to many factors, he merchandising techniques utilized in promoting and selling non-foods deviate from the established food product policies. The type of product represented by non-foods and the methods of mer- 'chandising differ so much that the grocery merchandisers are not quite sure how to induce the non-food product into the merchandise mix without disrupting their all—important consumer food image. Rather than treat the non-food prod- uct lines as an additional department with emphasis on the traditional product qualifications, the non-food merchan- disers have been shoved into a Catch-as-catch-can basis. Methods of non-food procurement.--Cne of the main factors contributing to the confusion on non—food merchan- dising is the variety of methods by which the food chain operators procure their non-food product. There are five main channels of non-food distribution through whicn the non-food products reach the Store. A present-day chain operation may utilize any one, or possibly all five, of these distribution methods in acquiring their non-food product. Concessionaires.--Cne method by which the non-food product may enter the supermarket merchandise mix is through 59 the use of concessionaires. This is a system whereby the supermarket operator will lease a certain amount of selling floor Space to an outside person or firm. This firm will be responsible for setting up and maintaining the non-food department. This department will be self-contained, and the sale or purchase will be closed in the department, eliminating the necessity to collect for the non-fOOd items at the checkout. The disadvantaves of this merchandising approach are many. The store manager has little or no control over the quality or Variety of product offered by the concession- aire. Also, it is up to the other departments in the store to carry the weight in the advertising and promotions to draw the necessary heavy volume of traffic. If the store is a single unit of a multi-unit chain, the Opportunity of tie-in promotions are not available, since each leased department will be handling its own particular line of merchandise. The type of merchandise handled by the con- cessionaire could easily destroy the attempt by the market management to build up a favorable consumer image. This could be done by either lack of product variety or selling sub-standard merchandise lacking quality. Food wholesalers.--The general food wholesaler is a second pattern by which the non-food product may enter the retail merchandise mix. This is a method through which most of the independent and small chain supermarkets re- ceive their product. A food wholesaler non-food distributor 40 is usually an old-line wholesaler who has gone into the ’merchandising of non-fooas to provide his clientele with merchandise variety. His primary interest is with his regular grocery line, but he carries the non-food product to retain trade that would go elsewhere if such a service were not offered by him. Since the wholesaler is not using the non-food product as a main source of income, his treatment of the product and merchandising approaches are far from adequate. Under this System, it is the responsibility of the individual store manager to decide what he wants to merchandise and how he Will ciiSplay the product. So counselling or in-store ser- vices; are available. Service generally terminates with the delivwery of the product to the store receiving door, and SO doees the effectiveness of the non-food program. {The retailer under the general food wholesaler non- food Ciistribution plan is again faced with the problem of PTOduc:t quality and variety. The product quality is limitead by the ability of the wholesaler buyer and the var- iety'tny'the fact that the wholesaler is only carrying the Exodqut as a convenience item. Again, this breaks the continlaity of presentation in the retailer's attempt to create a.desirable merchandising image. §19€H3ial wholesalers.--A third method of acquiring n0n‘f°C>Cl product is through the use of Special wholesalers. T _- .. ~ - hese‘NIIQlesalers are Similar to food wholesalers in oper- ating Methods. but they do not carry a regular line of dry 41 grocery product. They are specialty houses concerned mainly with the merchandising of one particular product line, such as drugs, pet supplies, soft goods, housewares, and toys. Generally speaking, these men are masters of their given fields and can be a real aid to the store manager in mer- chandising a particukn?product. This asset of product specialization, however, is more Often than not a disadvanta e to the supermarket operator. If the store management is to utilize this type of non-food acquisition, it means many man hours must be spent to assure the store adequate non-food product. The merchandiser must devote a.gpod part of each week to consulting with any number? of different wholesaler representatives depending upon tihe number of product categories which he chooses to carny. Consequently, some other aspect of the operation will siuffer from lacL of proper management supervision. Cine other disadvanta e is the fact that little mer- ChandiJsing or promotional capital is offered by the Spec- ialty liouses for adve tising purposes. huch the same as the Sexleral food wholesalers, these Specialty wholesalers IQly ori the store management through regular fcod promo- tional activities to draw the desired store traffic. This againlnfieahs that the non-food products are riding the imagepr‘ovided by food promotions without adding any im- Pemhscxf‘ their own to the store or chain merchandisin 0* Program - 42 Bgck igbbing.-—The use of the rack Jobbing system of acquiring non-food product carries the work of the specialty Wholesaler one step further. Under this system, the super- market merchandiser receives the services of both an expert in distribution and an able merchandiser of non-food prod- uct. Although the rack jobber is not always effective and is a highly controversial method of distribution for non- foods, some of the following are advantages that may be enaoyed by the supermarket Operator utilizing the rack Job- bing system: 1. The rack Jobber has special training. 2. The Jobber saves the chain a capital investment. 3. The Jobber is a labor saver. Ll . The Jobber guarantees all merchandise and absorbs all markdowns. 5. Any unit on Split cases is available, saving in- ventory cost and tie-up. :3. The Jobber is aware of new products, as well as trends in the market, before the chain mer- chandisers. 77. The Jobber absorbs the cost of billing,2§rans- portation, warehousing, and pricing. Vfith the Special training the rack Jobber has, he is better‘ able to merchandise the non-food department. he undamstsands the importance of product movement and display technixgiles. Good product knowledge and the awareness Of the 10