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Since international hypermarkets entered China in the mid-1990s, the KA (Key Account) store channel has developed into one of the main sales channels in the FMCG industry, occupying approximately 25-50% of market share. However, whether for well-known enterprises or ordinary companies, most face numerous problems in store operations. They have mixed feelings about stores: "Doing stores is suicide, not doing stores is waiting to die," and many enterprises sigh at the sight of "KA." Currently, the main problems in operating stores include:

  1. High investment, high costs, low output;
  2. Complex operational processes requiring multi-department communication;
  3. Need for strong operational, management, and marketing skills;
  4. Many unreasonable overbearing clauses, requiring strong negotiation, communication, and public relations abilities;
  5. Long payment cycles, slow settlement, high capital occupation, and slow capital turnover;
  6. Not only must operations be emphasized, but maintenance is also crucial.

Why does store operation seem difficult and fraught with problems? I believe the main reason is "lack of expertise." Anyone finds unfamiliar things difficult, as the saying goes, "Easy for those who know, hard for those who don't." To operate stores efficiently, one only needs to do the following three things well to transition from novice to expert:

  1. Clarify basic store concepts—this is the prerequisite for everything;
  2. Do pre-entry work, mainly contract negotiation before entering the store;
  3. Do post-entry work, mainly display, promotion, and maintenance.

I. Basic Concepts, Classification, and Professional Terminology of KA

(1) Concept of KA

KA stands for Key Account, meaning "important customer" in Chinese. For the FMCG industry, KA generally refers to large retail terminals with advantages in business area, customer traffic, and development potential, such as Walmart, Carrefour, Yonghui Superstores, China Resources Vanguard, RT-Mart, Tesco, Auchan, etc.

Note: In other industries, the definition may differ, and even within FMCG companies, definitions vary.

(2) Basic Classification of KA

  1. KA Classification: Generally classified by business format (or by coverage scope), specifically including: Hypermarkets (Carrefour, Walmart), Warehouse and membership clubs (Metro, Sam's Club), Department stores/shopping malls (Dennis), Convenience stores and mom-and-pop stores (7-Eleven, FamilyMart, Kedi, Shizu, etc.), and specialty stores.

The above are basic classifications; actual operations may differ. For example, Yonghui classifies its own stores into five formats:

  • Super flagship stores: 20,000-40,000 sqm;
  • Hypermarkets: 10,000-12,000 sqm;
  • Supermarkets: 5,000-10,000 sqm;
  • Community stores: 1,500-3,000 sqm;
  • Premium supermarkets: mainly selling high-quality fresh and imported food from various regions. Currently, the "premium supermarket" format is developing rapidly, with relatively more presence in South and East China.

By coverage scope, KA can be divided into international, national, and local stores.

  1. Based on actual business conditions, classification by business area and scale (specific classifications can be adjusted by each company according to their channels; the following is for reference only):
  • Class A KA: Business area over 10,000 sqm, or monthly revenue over 20,000 yuan;
  • Class B KA: Business area 5,000-10,000 sqm, or monthly revenue over 10,000 yuan;
  • Class C KA: Business area 1,000-5,000 sqm, or monthly revenue over 5,000 yuan.

(3) Basic Store Concepts

  1. Out-of-store barcode: Also known as international commodity barcode, it is printed on packaging during production, used to indicate the uniqueness of the product, allowing free circulation across borders. In China, it usually starts with 69.

  2. In-store code: A barcode label compiled and printed by the store itself, used only within the store, forming a closed barcode system. It is commonly used in bulk, fresh, and cooked food areas, mainly in joint venture models.

Excerpt from Baidu: ※ What is an in-store barcode? Recently, while shopping in supermarkets, I noticed some barcodes look a bit strange. Although the shapes are similar and the numbers below are 13 digits, these numbers start with 20. The International Article Numbering Association (GS1) assigns barcodes to China between 690 and 695. Therefore, products manufactured in China should have barcodes starting with 69. Could counterfeit barcodes be entering supermarkets openly?

After researching barcode standards, I learned that barcodes starting with 20 are in-store codes. Some products, such as fresh meat, fruits, vegetables, cheese, and cooked food, are sold by random weight. The barcode encoding for these products is usually not the producer's responsibility but the retailer's. After purchasing, the retailer packages the product, weighs it with special equipment, automatically encodes and prints a barcode, then attaches it to the packaging. This equipment depends on the encoding method, so manufacturers must produce equipment according to agreements with retailers. The codes compiled by retailers can only be used in the store's internal automated management system, hence called "in-store codes."

In-store codes are not arbitrarily set by supermarkets or companies; they must comply with national standard GB/T18283-2000. When making in-store codes, three basic points must be followed: choose the correct code system; ensure printing quality; and strictly follow standards to place labels correctly. For example, supermarket in-store codes must start with "20" or "21" as per national standards. However, in-store codes are determined by the supermarket based on product type and price, differing from internationally used commodity barcodes; they can only be used within the supermarket's own information system for settlement, inventory, distribution, and management.

Generally, in-store codes are a supplement to commodity barcodes. Their coexistence in supermarkets is not a problem; the key is the proportion and strength of each.

Overview of in-store codes: In-store codes are barcode labels compiled and printed by the store itself, used only within the store, forming a closed barcode system.

Usage and production of in-store codes: In foreign supermarkets using barcode management, there are two practices: one is to use self-made "in-store codes" regardless of whether the product has an original barcode; the other is to fully utilize the original barcode and only label products without barcodes with self-made in-store codes. In domestic supermarkets that have adopted barcode management, these two situations also exist. The former is basically used in mid-to-high-end stores or specialty stores; the latter is used in all supermarkets and chain stores because product values are low and sales volumes are high, and using in-store codes for all products would increase costs, hindering sales. Of course, the latter is also applicable to all stores. The advantage of using all "in-store codes" is that you can compile codes according to your own management requirements, and you can use assembly line operations to automatically generate in-store codes, improving efficiency.

Question: If your product lacks an international barcode, how can it enter KA stores for sale?

  1. POP advertising: Point-of-purchase advertising. It refers to advertisements in supermarkets that promote sales, also known as point-of-sale advertising. In retail stores, promotional information is posted or hung near products or in prominent places using artistic drawing or printing to attract customer attention and stimulate sales.

  2. DM flyer: Short for direct mail advertising, also known as promotional color pages, generally used as a promotional tool for supermarket products, distributed via mail, newspaper inserts, manual distribution, or in-store pickup. DM promotion is the most effective promotional method in supermarkets.

Note: Sometimes stores also publish insert flyers specifically for a manufacturer's product series. DM can be store-level, regional, or national. For example, Century Mart, Carrefour, and Auchan can do store-level flyers, while RT-Mart mainly uses regional flyers.

  1. End cap: The position at the ends of shelves, which is also the most frequently passed area by customers in the store (in Carrefour, end caps and TG are the same concept, but in other systems they differ). Some KA systems differentiate between end caps and end shelves; end shelves refer to the shelf section near the end cap.

Note: TG (TOGETHER) refers to the centralized display of products on shelves. Different KAs have different names; some call TG vertical centralized display, whether on cold cabinets or regular shelves; some call it the golden display area, and any good display area can be called TG.

  1. Stack display: Also known as promotional area, usually a pile of goods stacked on pallets, wire baskets, or cut boxes. Manufacturers regard stack displays as the best display and an effective promotional tool.

  2. Changeover: The replacement of products between two consecutive promotional flyers.

  3. Tidying: Arranging messy goods neatly.

  4. Restocking: The operation where stock clerks replenish out-of-stock products to the shelves according to their designated display positions.

  5. Price tag (also called price label): A label used to indicate the selling price and for positioning management.

  6. Deactivation: The process of deactivating anti-theft tags on products during checkout.

  7. Inventory count: Periodic counting of products in the store to accurately grasp operational performance and inventory status during that period.

  8. Loss compensation: When discrepancies are found between actual inventory and book inventory during inventory counts, suppliers are required to compensate for the difference.

  9. EDI: Electronic Data Interchange system. It refers to the electronic exchange of transaction data, connecting computers of different enterprises in different industries to conduct data exchange without phones or paper documents.

  10. Order number: The number of each order placed with suppliers.

  11. Product turnover rate: Average sales / average inventory.

  12. Product inventory cycle: Average inventory / average sales, calculated in days. Supermarkets generally use the inventory cycle to control capital utilization and manage payments to suppliers.

  13. Category: A category is a collection of products and services that reflect common or similar consumer behavior patterns.

  14. SKU (Stock Keeping Unit): The smallest unit of inventory control.

Note: SKU is not a barcode; it differs from barcodes. For example, some products have SKU as a case, but barcodes are calculated at the smallest unit (e.g., bag).

  1. SKU management: A management method that uses computer systems to analyze sales information and trends for a specific SKU, including gross profit, purchase amount, returns, and inventory, to grasp ordering and purchasing conditions.

  2. Front-end and back-end gross profit: Front-end gross profit is the difference between sales revenue and cost; back-end gross profit is the discount or various fees collected from customers as stipulated in contracts based on sales or purchases.

Excerpt from Baidu: Front-end and back-end gross profit are colloquial terms in supermarket purchasing, also called front gross and back gross. Front-end gross profit refers to the gross profit amount or rate generated from product sales as seen by supermarket managers through computers. Simply put: Front-end gross profit = actual retail price - actual supply price, or front-end gross profit rate = (actual retail price - actual supply price) / actual retail price. Back-end gross profit refers to other gross profit contributions obtained by supermarket financial personnel through statistics. Simply put: Back-end gross profit = total fees actually collected from suppliers, or back-end gross profit rate = total fees collected from suppliers during a period / actual sales of supplier products during that period.

  1. Lock code and unlock code: Due to specific reasons, a SKU is eliminated and no longer sold, and suppliers cannot supply it, called lock code; restoring supply through various means is called unlock code.

Note: Product elimination (lock code) is based on sales data in the system, with KA implementing a bottom-ranking elimination system for SKUs based on the contribution rate of the manufacturer's products. Products ranking at the bottom for three consecutive months are locked. Another situation is when the company's key account department has tense relations with the purchasing department due to contract negotiations or other reasons, leading to retaliatory lock codes against the manufacturer. A third situation is when regional sales staff have tense relations with regional purchasing (CCU) due to fee negotiations or other reasons, and CCU suggests the head office purchasing to retaliate with lock codes. Fourth, seasonal products may be locked seasonally.

Of course, where there is lock code, there is unlock code. Except for seasonal locks, other unlocks generally require certain fees or conditions. Fees are usually not higher than new product entry fees, and conditions are typically promotional activities.

Ways to unlock:

  1. KA manager coordinates with the system's head office purchasing for unlock;
  2. KA manager communicates with regional CCU, who suggests the head office purchasing to unlock the SKU.

Conditions for unlock:

  1. The cost of unlocking is generally to run a sensational promotion on the SKU and guarantee its monthly sales contribution;
  2. Pay a certain unlock fee to the head office purchasing; it is recommended to use product promotions.

※ How to prevent lock codes? If abnormal lock codes occur, take them seriously to avoid being cleared out or permanently locked.

  1. If it's a new product lock: Ensure the first order is fully delivered to avoid lock due to non-delivery;

  2. If sales are too low: Quickly adjust the display space and run promotions to boost sales in the short term;

  3. If delivery is not timely or out of stock: Organize supply to ensure sufficient stock;

  4. If relations deteriorate: Go to the retailer to communicate as soon as possible;

  5. If it's a seasonal lock, e.g., for New Year goods, it's normal to be locked off-season; no need to manage;

  6. If barcodes are locked due to duplicate product types: Find product differentiation as much as possible, communicate with purchasing, and present a specific market operation plan.

  7. Customer count, average transaction value, conversion rate: Customer count refers to the number of people entering the store in a specific period; average transaction value is the average spending per customer based on sales data analysis. Currently, RT-Mart has the best average transaction value among KA systems; conversion rate is the ratio of customers who purchase products to the total number of people entering the store in a specific period.

  8. Cross ratio: Cross ratio = gross profit rate × turnover rate.

Note: The cross ratio is usually calculated quarterly. Products with low cross and turnover rates are prioritized for elimination. The higher the cross ratio, the better, as it considers both gross profit rate and turnover speed. It provides a more intuitive analysis of each SKU's gross profit contribution rating within a period.

  1. Sales per square meter and per meter: "Sales per square meter" refers to the efficiency of 1 square meter in a terminal store, generally an important standard for evaluating store strength. "Sales per meter" refers to the sales per meter of the linear length of the sales surface on supermarket shelves.

  2. Order fulfillment rate: After KA places an order, actual delivery / ordered quantity = order fulfillment rate.

  3. Payment term: The period agreed in the contract between the store and supplier for paying for goods after receiving them.

Note: A 30-day payment term can be settled in two ways. One is monthly settlement, meaning goods from January 1 to January 30 are treated as one batch; the payment term starts from February 1 and extends 30 days, so payment should be made on the first day after February ends. However, since stores generally use a fixed payment date, January's goods should be paid on the store's fixed payment date in March. The other method is to calculate the payment term from receipt of invoice. If the supplier can deliver the invoice with the goods, both methods are the same, but if the invoice is delayed for various reasons, the payment term may be extended.

  1. Short delivery: Delivering less than the ordered quantity. Different stores handle short deliveries differently. Walmart's system requires 100% delivery; each short delivery results in a 500 yuan fine, and three short deliveries of the same SKU lead to deletion.

  2. Product turnover rate: Average sales divided by average inventory.

  3. Product inventory cycle: Average inventory divided by average sales, calculated in days. Supermarkets generally use the inventory cycle to control capital utilization and strengthen control over product sales time.

  4. Negative inventory: A negative difference when the computer-recorded inventory is less than the actual inventory, usually due to input errors, product loss, damage, etc.

  5. Magnet point: Refers to the places in the store that most attract customer attention, where appropriate products are placed to promote sales and guide customers to walk through the entire store, increasing impulse purchases. The significance of the magnet point theory in product configuration is to place suitable products in the most attention-grabbing areas to promote sales and guide customers through the whole store, maximizing purchase rates.

Excerpt from Baidu: "Magnet Point Theory" from a certain enterprise:

First magnet store: Main products The first magnet is located on both sides of the main aisle, a must-pass area for consumers, attracting them to the inner store and being the main sales area. Products placed here should be:

  1. High-consumption products
  2. High-frequency products. Products with high consumption and frequency are used by most consumers at any time and are frequently purchased. Placing them at the first magnet increases sales.
  3. Main products

Second magnet store: Products with strong visual appeal The second magnet is located at the end of the aisle, usually at the back of the supermarket. Products here are tasked with inducing consumers to walk to the back. Products placed here should be:

  1. Newest products. Consumers always seek novelty. Products unchanged for 10 years, even with good quality and low price, are hard to sell. Introducing new products carries risk, but placing them at the second magnet will attract consumers to the back.
  2. Seasonal products. Seasonal products are the most changeable, so supermarkets can use seasonal changes to attract attention.
  3. Bright and gorgeous products. These are usually fashionable and trendy. Since the second magnet area is darker, brighter products are placed to enhance brightness.

Third magnet store: End cap products The third magnet refers to the end cap position. End caps usually face exits or the ends of main aisle shelves. The basic role of third magnet products is to stimulate and retain consumers. Typically, the following products can be placed:

  1. Special offers
  2. High-profit products
  3. Seasonal products
  4. High-frequency products
  5. Promotional products End cap products can be seen as temporary stores. End caps should be changed frequently (at least twice a week). The speed of change can stimulate customer visits.

Fourth magnet store: Single items The fourth magnet refers to both sides of the secondary aisles, where consumers are attracted along the display line. This position cannot be planned by product group but must use single-item methods to strongly appeal to consumers. Includes: popular products; specially mass-displayed products; advertised products.

Fifth magnet store: Stack displays The fifth magnet is located in the middle area in front of the checkout (cashier) area. It can organize large exhibitions or special sales according to various festivals, mainly using stack displays as a non-fixed store.

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