What Can the CPG Industry Learn from IKEA?

  • I read with interest the recent Report on Business article “How Does IKEA Seduce Us?” partly because I have played the role of the “mouse in the maze” too many times, but also because I think that there are a few things that the CPG Industry can learn from the success of this global retailer.

    Here are my thoughts:

    Provide Value By Adding Experience to the Retail Visit

    People shop at IKEA because they help the shopper save money while making them (and their homes) look good. Shoppers know when they go there that it will not be a “quick trip”.

    People don’t mind spending longer in a retail environment when they can find value and entertainment in the experience. In the CPG world it seems like only Costco has latched on to this idea with any great success.

    IKEA does it with ballrooms for kids and low cost meatballs, ice cream and hotdogs. Costco does it with low cost flat screen televisions, ice cream and…hotdogs!

    It may be simplistic to pin their success on the humble hotdog but making the store a destination for some other reason than buying in the centre of the store creates value not only through prices but also through “retail-tainment”.

    IKEA and Costco make a lot of money through their expanded view of “value”.

    There is room for us to think beyond price when it comes to value and to ensure that shoppers “want” to visit the store rather than “have” to visit the store.

    Be Trend Watchers and Early Adopters

    The article refers to IKEA’s success in equipping households with flat screen TV friendly “Besta” entertainment units. IKEAs launch of Besta, back when the price of a flat screen was high, might not have been a good short-term investment of precious retail space. However, by displaying the product prominently in its stores ahead of the trend, IKEA consumers knew exactly where to go when they were finally able to afford a 42” Plasma and needed a way to display it as the centerpiece of their family room.

    It is tough to launch a product when the idea is still “ahead of its time”. I have seen launches such as laundry tablets and heart friendly margarine with planet sterols fail because retailers were too addicted to the revenue and margin today vs. the potential market of the future.

    Innovative retailers who are willing to gamble on trends and stick it out past six months of sales before discontinuing an item might just find a profitable niche and competitive advantage as the reward for their risk.

    Executional Excellence

    In the CPG world most companies are all too happy to achieve 80% distribution in six weeks or 2% redemption on the latest direct mail campaign. We are all smart people who are well paid and have substantial resources to draw upon. We must set the bar higher vs. settling for “good enough”.

    IKEA is driven to pay attention to details right down to ensuring that photography in it’s advertising is typical of a Canadian home – which is not always the case in IKEAs stock photography from Sweden. Retail is detail.

    CPG suppliers should focus on “pay for performance” schemes and develop a way of tracking performance in real time. Put more money on the table for 100% compliance and enforce it for new launches and promotions.

    From a retailers perspective you must pick the three or four major initiatives that will really drive category sales in each quarter and “execute flawlessly”. Suppliers should see the value in perfect execution and “pay to play”.

    In the end, there is money to be made (and shared) by developing a greater sense of executional excellence in our industry.

    Encourage Shoppers Stay In Store Longer

    I am fully aware that there is great debate around this concept. I agree that putting the milk in the back left corner of the store is stupid – especially when the “quick-trip” is one of the most valuable to the retailer. Why make shoppers jump through hoops when they only want milk?

    But keeping shoppers in the store longer by making them “want” to stay there is not such a bad thing.

    IKEA helps people stay in store longer by keeping the concept fresh, constantly adding new items and entertaining them along the way. Their cafeteria selling low cost and good tasting food is located halfway through the “maze” – giving you the opportunity to fuel-up before hitting the impulse section of the store.

    Today’s CPG marketplace has become mundane and un-exciting. How do we engage shoppers to linger longer? How do we get them to see more of what the store has to offer?

    Similar to the IKEA, one innovative US retailer, Stew Leonard; has laid out their supermarkets in a maze or “serpentine” formation to ensure a logical flow through the store and increase the chances of cross category purchases. Their per-store sales are much, much higher than the average supermarket.

    Maybe this is how we increase shopper interest in the “centre of store” – by eliminating it all together.

    IKEA is by no means a perfect retail concept. However, I think that there are many ideas the CPG Industry can adapt / steal in order to grow sales and shopper satisfaction – maybe even including hotdogs!

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