Dairy departments are still near the bottom rung when it comes to category management.
Despite the potential of improving the performance of a department with relatively high profitability, apparently few retailers are seeking to invest the time, effort and funds necessary to fuel sophisticated category management in dairy.
Even those operators who have been embracing category management strategies wholeheartedly in nonperishables departments -- Vons Cos., H-E-B Grocery Co., Hannaford Bros. and Ahold among them -- reportedly just now are beginning to approach the dairy case.
And they are reluctant to talk about it. Few retailers who are identified by industry sources as testing the waters were willing to discuss details, offering SN the refrain that it is still too early to draw any conclusions.
Dairy would seem to be the most likely candidate among perishables departments to be category management-friendly. Some of its main categories -- juice, cheese, yogurt -- have big players as suppliers; the department is fully scanned at the front end, closely analyzed by the third-party data brokers, and it generally looks and operates more like a grocery section than most other perishables departments.
So why is category management still only lurking on the outskirts of dairy? To a large extent, it could be that it simply looks too complicated from the retail standpoint.
Add to that the pressures and inducements from high-powered, multinational grocery behemoths for retailers to rework their grocery buying structures first. That leaves the fresh departments, including dairy, on the back burner.
"Dairy has not been on top of the category management list, because the stakes are higher, the tonnage is much greater and there are not as many reliable players to supply that quality of analysis," said consultant Ken Harris of Cannondale Associates, a category management specialist who spoke on the topic last month at the Food Marketing Institute's annual convention in Chicago.
Price Chopper Supermarkets, Schenectady, N.Y., does not yet practice category management in dairy, but chain officials said they have a pretty good idea of how to go about it.
"We will be doing category management in dairy," said Jim Meizeur, vice president of grocery. "The focus will be on the customer, and how to increase sales and profit.
"This may or may not include partnering with specific manufacturers," he added.
When it does approach dairy manufacturers about such partnership possibilities, Price Chopper will be tapping into the knowledge gained from experience with category management in other areas.
"We have selected some manufacturers because of their objectivity and what they can bring to the party. There is a better understanding now of what category management means. We're starting to see some change in manufacturers' attitudes. Part of it is that some now know they have to be better prepared to discuss things with us.
"These days we talk more about investing in the 'sale' of the product rather than the 'buy' of the product."
Some progress already has been made in preparation for category management's ascendancy, Meizeur said. "We are doing some continuous replacement with dairy that was unheard of before."
Nash Finch Co., Minneapolis, and Bashas' Markets, Chandler, Ariz., also are working on category management plans, but company officials said both chains were not far enough along with the process to offer any analyses.
"We don't have sophisticated systems at this point," said Bashas' dairy buyer Duane Proulx. "We are looking at building an infrastructure and we will be putting things in place over the next two years. Our goal is better information to help us make choices about what items we should be carrying. But ultimately, we're just not far enough along with this right now."
Proulx said partnerships with manufacturers as "category captains" are a definite possibility for the future.
Big Y Foods, Springfield, Mass., also has just begun category
management in dairy, having waited until there were satisfactory results in other departments, such as grocery. "People just naturally start [category management] with grocery," said Claire D'Amour, vice president of communications. "Because with dairy, you're dealing with refrigerated space, so it's more difficult. If you mess up in grocery, it's not that big a deal, and people would rather make mistakes in areas where it's easy to recover."
Terry LaRue, director of category development for juices at Coca-Cola Foods, Houston, offered other explanations for why many dairy departments are still in the dark ages.
"Category management takes so long that most retailers are picking six to eight categories to start with. So it may be a while before they get down to [dairy]," he said. "They just start with some of the bigger grocery categories and work their way down.
"It's a shame, because some of the opportunities are bigger in dairy than anywhere else, but the dollars just aren't jumping out at people."
Where category management has been implemented in dairy departments, it is mostly due to a manufacturer's initiative, LaRue pointed out. Retailers tend to be more eager to pursue category captains for nonrefrigerated products.
There are several reasons for this, he said. "You only have so much chilled space in a store and products keep multiplying. Also the movement of the items is so rapid that they can't keep up. Juices run about 20% to 25% out of stock. Some retailers can do continuous replenishment, and some can't.
Another reason for dairy lagging behind may be a lack of manufacturer impetus, LaRue suggested. "With yogurt, cheese or frozen dough, there may be one major manufacturer for each doing category management. Maybe in other [nondairy] sections there are a lot more."
Gary Schneider, vice president of sales strategy at Coca-Cola Foods, agreed. "Maybe the manufacturers who have invested [in category management] are not in dairy."
But he also emphasized retailers' overall reluctance to initiate the overhaul that is required. "Generally, there are still relatively few of our customers doing category management. It is time-intensive, expensive, and requires an enormous amount of reorganization."
There are a few chains who are undaunted by all of this, LaRue notes. "I think most leading retailers are at least looking at it. H-E-B and Hannaford Bros. have really gone in for it; they've changed employees' titles and what they are responsible for, restructured wherever necessary, everything." Neither of those two retailers would comment when contacted by SN.
But a growing number of retailers will see the light, predicts consultant Chris Hoyt of J. Brown/LMC Group, Stamford, Conn.
"Retailers are starting to direct cash toward long-range [goals]," he said. "Ahold USA, Tops in Buffalo, Giant, Ukrop's, Shaw's, Dominick's, Publix, Vons -- they're all leading-edge, intending to build equity not only for the brands involved, but for the category and the store image."
Retailers should check their numbers before giving dairy short shrift, Hoyt advised. "Dairy is 8.2% of the total food business, making 28% profit," he noted. Hoyt added that dairy's share is expected to decline only slightly, to 7.5%, by the year 2000.
Hoyt agreed with other observers that fewer manufacturers exist to lead the charge. "There's a lot of private label in the dairy case."
Within the dairy department there are products more likely to support category management than others, he said. "Cheese is the foundation of dairy, but yogurt and juice are the hot growth areas, so they're the ones where category management would be concentrated."
