Wednesday, July 18, 2007

P&G looks to tiny tiendas for big growth

While Wal-Mart is P&G's single largest customer, as a percentage, they derive a much larger amount of revenue by selling into thousands of small, high-frequency stores frequently found throughout developing countries. While the stores may be tiny, collectively they add up to big business, as the WSJ recently illustrated. "Sales of P&G products in developing markets currently total $20 billion, up from $8 billion five years ago. In recent years, emerging markets have contributed about 40% of the company's "organic" sales growth, which excludes gains from acquisitions.... Last year P&G derived 26% of sales in these regions."

With that kind of growth it's no surprise that P&G is actively pursuing more business in these high-frequency stores. And while they've primarily competed on price and brand-power alone till recently, the company is now adding a new approach to the mix: providing merchandising advice. Since most of these stores are tiny -- many are run out of a small room on someone's home -- space is at a premium, and stores carry at most two or three brands for most product categories. This can be challenging for a company like P&G, who might make several different brands all by themselves, or might be trying to sell a full line card into a store that already carries as much product as their space allows.

To combat this, P&G is introducing new integrated displays that come fully stocked with a complete range of products, and they're working aggressively to "own" the space behind the cashier's counter. As the article notes, "P&G calls space nearest the cashier the 'hot zone,' and considers it the most valuable real estate in these small stores. Since more than 60% of customers already know what they're going to buy, P&G figures, little time is spent browsing. But P&G researchers found that shoppers tend to gaze at the cashier's area for a precious five seconds as they wait for the owner to hand them a product or get their change -- a prime opportunity to influence future purchases."

The company is also taking a page from Frito-Lay and having local distributors re-stock shelves, which cuts down on labor required by the store owner, but also ensures that the P&G products are shown in the best possible conditions. Likewise, they've ditched efforts to have their own sales force handle sales to each store (there are over 220,000 in Mexico alone), in favor of having local entrepreneurs handle that part of the business.

Tags: merchandising, POP displays, marketing at retail

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