Industry
Retail
Omnichannel CX and Intelligent Innovation – The Future of Retail
HIGHLIGHTS
- Managing seasonal and promotional space in complex retail environments has been a longstanding challenge. Additionally, retailers must now ensure HFSS compliance.
- Retailers are taking several steps, including adopting different approaches to redesigning store layouts and urging suppliers to reformulate products to meet HFSS compliance standards.
- A data-led approach to space and range planning can help retailers maximize returns on investment (ROI) and deliver a positive customer experience.
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The HFSS impact on space planning
Maximizing sales and profit while adhering to HFSS compliance is a core challenge for retailers during the holiday season.
Managing seasonal and promotional space in complex retail environments has long been a challenge, requiring a balance between detailed central planning and the flexibility to implement continuous rotations without adding unmanageable complexity. The high fat, sugar, salt (HFSS) legislation that came into force in October 2022 in the UK, perceived as one of the biggest shakeups to store layouts, has only compounded this further. For example, retailers are prohibited from placing HFSS products near store entrances or in central aisles along main customer pathways. Consequently, popular items such as chocolates, biscuits, and snacks that once enjoyed prime spots will now have to be relegated to secondary spaces to ensure legal compliance.
As retailers strive to remain HFSS compliant while aiming to maximize sales and profit, it is more important than ever for them to consider space and range in a holistic manner as they replan their store layouts. A data-led approach to space and range planning will enable them to optimize returns and enhance customer experience.
One rule, different layout approaches
Retailers are taking different approaches, both toward all-year-round and seasonal space, largely determined by space planning dynamics.
When central planning is prioritized and store-level autonomy is restricted, retailers tend to manage changes more tactically, making less disruptive adjustments to macro space layouts. In stores with strong compliance to central plans, retailers can strategically position front-of-store ranges by showcasing healthy product options first, followed by non-HFSS compliant products, while carefully maintaining the required distance from the entrance to stay compliant. However, where high levels of store autonomy exist, the risk is too great to allow local interpretation of the rules. This is perhaps why some UK retailers have spent several million pounds on relocating front-of-store snack sections to the back of the store, eliminating any risk of compliance in the long term.
We have also seen differences in the interpretation of the rules. It is clear that non-compliant products cannot be placed on promotional end caps or within 50 cms of them. A few retailers are diligently relocating promotional bays deeper into the aisle, accompanied by new point-of-sale (POS) displays to attract shoppers. However, a few others just blank off the end cap and still apply promotional graphics for HFSS products. Then, they move the end cap slightly forward just enough to meet the legal distance requirement and place the promotional bay immediately behind its original location. This approach still serves as a beacon to promote products. Ultimately, it raises the question of whether retailers are honoring the spirit of the legislation or skillfully navigating it to maintain commercial gains.
Unexpected outcomes for retailers
HFSS regulations bring with them both new complexities and opportunities.
While the aim of enforcing HFSS regulations is to improve public health, the challenge remains: what do you do with the primary and seasonal space where you can no longer display sweets, chocolates, snacks, and cakes? So far, retailers have seen a significant increase in the placement of beers, wines, and spirits in these prime locations. Perhaps, unsurprisingly so, given the legality and the opportunity it presents to balance the books.
Amid the shifting regulatory landscape, another key outcome has emerged—large retailers are exerting pressure on suppliers, urging them to innovate and reformulate their products. If suppliers can reformulate their products to meet compliance requirements while preserving much of the familiar taste and flavor, these products can still secure a spot in the coveted primary promotional locations. A lot is happening in this space with retailers reviewing the nutrient profiles of their product portfolios, hopefully, for the greater good of public health. Prior to HFSS regulations, in response to the sugar tax that came into force in April 2018, consumer packaged goods (CPG) companies reformulated a few categories by replacing sugar with HFSS-compliant synthetic sweeteners. The growing media reports about health concerns related to artificial sweeteners raise a debate on staying compliant for the sake of it versus bringing meaningful change.
Additional HFSS restrictions on promotions, including bans on multi-buy and buy one get one free (BOGOF) offers on HFSS products, have been postponed until October 2025 due to the pressure of food inflation, particularly affecting lower-income families. A few leading retailers in the UK are championing the efforts to combat obesity with self-imposed bans on BOGOFs and multi-buy deals of unhealthy products and urging other retailers to follow suit. In 2023, six months after the HFSS legislation came into force, market research firm Kantar reported a movement toward healthier, non-HFSS products.
Staying compliant with AI
Strict guidelines alone for displaying HFSS products are no longer sufficient.
Managing the high volumes required during peak seasonal trade demands careful planning. Artificial intelligence (AI) optimization models can help retailers:
- Predict impact on sales: By analyzing the layout data from various stores, predictive AI models can predict the impact on the sales based on the position of each product category in the store. This insight can then be used to design store layouts that minimize KPI losses while adhering to the legislation.
- Curate healthier assortments: Retailers can revisit their product mix and specifically look at exposure to HFSS products. This can be done through a new metric that quantifies the HFSS content in each product. This metric can then be fed into the optimization tools with the objective of maximizing KPIs and minimizing HFSS levels. This would result in ensuring KPIs such as revenue are not too compromised while minimizing HFSS exposure.
- Negotiate with suppliers: Retailers can use the HFSS metric to negotiate with suppliers and encourage them to reformulate the product ingredients. GenAI can help with the reformulation process. After reformulation, predictive AI can be leveraged to predict the success of reformulated items, which can be considered as inputs for space and range planning.
- Optimize pricing and promotions: The AI models can provide optimal pricing and promotion recommendations, using elasticity models and other techniques, to make healthy options more compelling to purchase. This helps retailers offset revenue losses due to bans on multi-buy and BOGOF offers on HFSS products.
- Ensure accurate floor plans: The AI models will allow retailers to adopt accurate floor plans that reflect all fixtures and promotional locations, supported by best-in-class planograms that consider store-specific nuances and differences in fixtures. This will ensure that changes recommended by the head office are accurate, driving legal compliance. Technologies such as computer vision can monitor store compliance and swiftly recommend corrective action. They can also track customer response and product performance and maximize sales.
The HFSS legislation aims to combat obesity by reducing impulse purchases and banning volume promotions. Grocers and supermarkets have a crucial role in enhancing public health outcomes. Leveraging AI can help retailers drive this change by promoting affordable, nutritious, low-calorie options and boost their reputation while maintaining sales.
