Goliath’s Dilemma and David’s Opportunity: A Retail Fable
Richard Schwartz, Pensa Systems
Every day, countless “David vs. Goliath” battles are being waged between consumer packaged goods brands for the finite amount of space available on retail store shelves around the world.
The big players — the Goliaths of the industry — are able to leverage their market leadership to command a lot of shelf space for their products. And shelf space translates into consumer mindshare. From a Goliath perspective, their share of the shelf should be dictated by market demand and the market share they command overall. But, these industry giants might argue that they rarely, if ever, are allocated a percentage of shelf space that matches up with their market share.
In other words, a brand with 40% U.S. market share for ketchup (or beer, toothpaste or whatever the product is) would argue that they've earned 40% of the shelf space — and furthermore, that consumers would be inconvenienced with anything less. But this rarely occurs, as it would tend to make it difficult for retailers to showcase new brands and products.
So what is the impact of having less than a “fair share” of the shelf? Well, products are more likely to run out. As stock-out levels rise, brands face a very real risk of losing market share — inarguably, a bad thing.
So what’s a Goliath to do? They can try to negotiate more shelf space. Or work with the retailer to ensure shelves are restocked more often to compensate. That’s "Goliath’s Dilemma."
So, where does David — the smaller brand marketer — come into the story? David doesn’t have Goliath’s resources or scale, so how can he possibly command enough shelf space to build and grow market share? David’s opportunity is that, since a retailer can’t carry the entire "long tail" of niche products, he is guaranteeing a higher share of shelf than his market share by getting on the shelf at all. As a result, David's products will naturally run out of stock less frequently.
Goliath’s Dilemma presents David with its opportunity. When Goliath’s mega-brand is out of stock, chances are David’s niche product is in stock and steals the sale. This is "David’s Opportunity," literally a golden opportunity to build brand awareness and market share — provided that David can ensure his limited supply is kept on the shelf.
Creating a Continuous View of the Shelf
Sadly, many large and small CPGs are doing battle in stores with the same level of sophistication and advanced technology of the original David and Goliath and their fellow Bronze Age warriors. The supply chain has its core back-end systems such as ERP to manage things before retail, and its point-of-sale systems to track items leaving the store. But the most critical link in the chain — the actual retail shelf itself — has no viable system of record. Previous attempts to develop one have proven woefully inaccurate.
There simply have been no automated systems to monitor the shelf and provide any kind of continuous view of stock-outs and "share of shelf" for products. So in the store, it’s been virtual slingshots and swords instead of modern technology.
Of course, there are designs for the shelf: “planograms” for what portion of the shelf should be devoted to each product and each brand. The problem is that those plans have only a little to do with what is actually on the shelf as the customer reaches for the Heinz ketchup. In reality, every store is of a different shape and size, which leads to various interpretations of the plan.
What’s more, the shelf is very rarely fully stocked, so it may never actually look like the original plan. So, when Heinz runs out, does the shopper opt for Hunts? Or perhaps one of the Davids in the ketchup category — maybe Muir Glen Organic Tomato Ketchup can have a moment in the sun.
But we now, finally, have viable, advanced commercial technology to provide a system of record for the world’s retail shelves. Autonomous systems leveraging computer vision and artificial intelligence can monitor an almost continuous view of stock-outs. They can produce read-outs showing the actual share of shelf for each product at any given time of day and even anticipate the noon rush or the before-dinner hustle. The key periods when Heinz is out and Hunts is low are precisely the times for Muir Glen to be in stock and screaming, “Pick me instead!”
Quit Guessing, Start Optimizing
These David and Goliath battles in retail stores around the world are no fairy tale. The stakes are very high for retailers and brands of every size. Retail is a multi-trillion-dollar business for both brand manufacturers and retailers. It is a fight for mindshare and dollar share from every consumer.
And those consumers want products from both category leaders and smaller CPGs. They want their favorite ketchup, but they also want to discover the best new frozen pizza from a small artisan producer. The question is, who wins and who loses in this process.
Going forward, winners and losers will be decided based on who best uses modern technology to monitor, and manage, what is actually happening on store shelves. And on how well brands and manufacturers can develop a common view from which to make informed decisions.
When brands and retailers alike know precisely what is transpiring on the shelf, only then can they truly optimize the store to meet customer expectations and their own business goals. And that would be a perfect ending to the story.
About the Author Richard Schwartz serves as Pensa Systems’ president and chief executive officer. He has repeatedly created and led organizations to innovate and develop software that has made significant market impact globally, and previously founded four venture-backed technology companies.