Shelf Space vs. a Planogram Incentive in a Neighbourhood Store
Sunrise General Store is a 900 sq ft neighbourhood shop in a Jaipur colony with four shelving bays facing the entrance. The distributor of a national biscuit brand has supplied a planogram that allots the two centre bays - 8 ft of shelf run, three shelves high - to its own SKUs and pays ₹1,500 a month as a compliance incentive. Last month's figures: biscuits sold ₹19,000 at a 12% gross margin; a local namkeen brand sold ₹44,000 at 22% margin from a single 4 ft shelf at the far end of the aisle. Customers routinely ask for the namkeen at the counter, and the owner has twice found it out of stock on weekends. Diwali is six weeks away and 40 gift-pack cartons are due to arrive, with no free storage space. The shop's monthly rent is ₹22,000 and the owner wants to raise gross profit without losing the distributor's incentive.
1. Using shelf productivity, decide how the 8 ft of centre-bay space should be allocated. Quantify the effect on monthly gross profit and state what you would do about the ₹1,500 incentive.
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Step 1 - Put both lines on the same unit: gross profit per shelf foot per month.
- Biscuits: ₹19,000 × 12% = ₹2,280 GP ÷ 8 ft = ₹285 per ft
- Namkeen: ₹44,000 × 22% = ₹9,680 GP ÷ 4 ft = ₹2,420 per ft
Namkeen earns about 8.5 times more gross profit per foot, and it is supply-constrained (repeated weekend stock-outs), so extra space should convert at least partly into extra sales. Biscuits are not space-constrained, so shrinking them costs roughly proportional profit.
Step 2 - Price the swap.
- Move 4 ft from biscuits to namkeen: biscuit GP falls by 4 × ₹285 = ₹1,140.
- Namkeen's space doubles. Assume a deliberately conservative 20% sales lift, not 100%: +₹1,936 GP.
- Net gain before incentive: +₹796 a month.
Step 3 - Treat the ₹1,500 as a cost, not a fact. If the incentive is all-or-nothing, the swap nets −₹704 and is not worth doing on these numbers. So the first move is not the shelf, it is a conversation: show the distributor the per-foot figures and ask for a revised planogram (4 ft rather than 8 ft) or a higher compliance fee. Distributors usually defend facings, not feet.
Recommendation: keep one centre bay (4 ft) fully compliant, convert the second bay to namkeen and other fast-moving local lines, and give up the incentive only if the distributor refuses and the measured lift after one month exceeds ₹1,500.
2. Where would you display the 40 Diwali gift-pack cartons given there is no free storage, and how would you justify taking that space from a line that is currently selling well?
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The justification is time value, not per-foot profit. Gift packs have a hard deadline: on the day after Diwali their realisable value collapses, so a leftover carton is close to a total loss, while namkeen sold slowly in that space still sells next month. A seasonal line with a 100%-loss tail therefore outranks a steady line for prime space for a short window - provided the seasonal stock is bought to a realistic forecast, not to fill the bay.
Placement plan:
- Entrance-facing bay and the right-hand side of the first aisle - shoppers turn right and buy on impulse at eye level (chest to eye height for adults, lower for children).
- Vertical brand blocks, not horizontal rows: one brand stacked top to bottom reads as a set and stops the shelf looking like a jumble.
- Price-tier the shelves: ₹200–₹400 at the bottom (bulk, easy to grab), ₹500–₹1,000 at eye level (the target price), ₹1,500+ on top (display, low stock).
- Cross-merchandise with dry fruits, tea and greeting cards on the adjacent end so the average bill rises.
- Hold back about 60% as backstock in the space freed by the namkeen reallocation, and replenish from the back so the display never looks half-empty; FIFO on the backstock.
- Do not block the aisle or the exit - a display that narrows the walkway loses more in lost browsing than it gains.
Measure weekly sell-through (cartons sold ÷ cartons received). If it is behind plan at ten days before Diwali, start a bundled offer then - not two days after the festival.
3. The namkeen keeps going out of stock on weekends. Set a reorder rule for it and say what data you would check first.
Read the worked answer
Check cause before setting the rule. Two weekend stock-outs can come from three different failures: (a) reorder point too low, (b) supplier fill-rate or delivery-day slippage, (c) pilferage or unrecorded issues at the counter. Compare the last four weeks' stock book against the physical count and the supplier's delivery challans. If the stock book says stock was there and the shelf was empty, the problem is control, not the reorder point.
If it is a reorder-point problem:
- Average daily sale: ₹44,000 ÷ 30 ≈ ₹1,467.
- Weekend days run roughly 1.6×, i.e. about ₹2,350 a day.
- Supplier lead time is 3 days. Expected demand over lead time ≈ ₹4,400; if the 3 days include a Saturday–Sunday, use ₹5,200.
- Safety stock = one peak day (₹2,350), which covers normal delivery slippage.
- Reorder point ≈ ₹7,500 of stock on hand - roughly five days' cover. Order when the shelf value drops to that line, not when the shelf looks empty.
Order quantity: a weekly order covering 7 days plus safety, about ₹12,000, so the delivery cycle and the review cycle match. A simple two-bin system (second bin = one week's stock) works if nobody remembers to check a register daily.
Measure: record daily sales and any 'asked-for-but-not-available' events for four weeks; those lost sales are the real cost of the stock-out and are what justify holding the extra safety stock.