CATEGORIES BY NUMBERS

Retailers' increasing use of customer databases built from loyalty card programs and of national scan-data services points to a growing hunger for information that boosts efficiencies and profitability for Center Store categories.This hunger is facilitating more effective store-specific planning, a better knowledge of customer preferences when it comes to deleting or adding items, and sharper pricing

Retailers' increasing use of customer databases built from loyalty card programs and of national scan-data services points to a growing hunger for information that boosts efficiencies and profitability for Center Store categories.

This hunger is facilitating more effective store-specific planning, a better knowledge of customer preferences when it comes to deleting or adding items, and sharper pricing capabilities.

"As we face more competition and higher costs of doing business, we have to be smarter about how we maximize the return on investment," said Randy Slentz, grocery buyer/merchandiser, Save Mart Supermarkets, Modesto, Calif. "That's what category management does for us."

Marv Imus, vice president and owner, Paw Paw Shopping Center, Paw Paw, Mich., is renowned in the industry for his use of shopper data to refine his marketing programs. "It creates our niche," he said.

"Instead of creating a niche in items or pricing like our competition is doing, we create that niche through marketing to our consumer based on our understanding of what she wants," he said.

Save Mart is using scan data and syndicated data, but has a new software program that is enabling it to fine-tune its store-specific category approach. "We have a real category focus," Slentz said. "But as a smaller chain we also want to focus on store-specific items. That's our niche. While we continue to manage categories at the corporate level, we are also going to keep a close eye on what is happening in the individual stores."

The new database software tells Save Mart how items are performing and why, Slentz said. "Rather than just knowing that we scanned so many units, we actually know when they sold, if they sold on or off promotion, and the margin on that sale," he said.

Unified Western Grocers, Commerce, Calif., is looking toward a convergence of internal data based on its shipments to retailers, syndicated data from national companies and scan data to improve speed-to-shelf and category reviews, said Bob Lutz, executive director of procurement.

"It is critical for the independent retailer that we improve speed-to-shelf. Studies by Food Distributors International have shown that it takes three weeks to get new items on the shelf for the average chain, and seven weeks for the independent retailer. So there is a lost sales and margin opportunity there, and we want to close the gap," he said.

But using this data is a greater challenge for a wholesaler like Unified than for a self-distributing retailer, he said. For example, Unified does not have the same level of access to scan data from all of its retailer customers. Also, "from the standpoint of syndicated data, we are very underrepresented in the samples" provided by companies like ACNielsen, Schaumburg, Ill., and Information Resources, Inc., Chicago.

"So I think there is a need to look at data from different sources to try to come up with the best overall solution," Lutz said.

For the future, Unified is looking at setting up an intranet to make category reviews and schematics available to its retailer customers on a more timely basis. "If they need a 32-foot cereal planogram, they will have ready access to it," Lutz said.

One solution found by Supervalu, Eden Prairie, Minn., is the Category Business Planner program from ACNielsen, which makes sure retailers and suppliers are looking at the same data in the same format. For example, one might call a category "soft drinks" while the other refers to it as "beverages." Category Business Planner provides a consistent structure that helps both sides prepare for meetings more efficiently and communicate more effectively once they get together.

Supervalu's corporate category managers are now using the program mostly for Center Store categories, and the company is preparing to roll it out to its regions, said Mike Terpkosh, director of category management development.

"It has allowed us to put together better information faster in order to prepare for those planning sessions. On the category management side, it is starting to allow us to get more information internally without having to rely on vendor partners," Terpkosh said. The program gives the category managers at Supervalu more knowledge about categories and the vendors within the categories. "It lets us have discussions with the vendor-partners that are much higher level and detailed. It also allows our category managers to continue to grow in their positions and become more detail-oriented and greater category experts than they have been in the past," he said.

"We have come to a turning point with category management," said Lori Tanking, vice president, retail business solutions, ACNielsen. "The industry is completely ready for a change. It is ready for tools and data that do it faster, quicker, cheaper and allow them to do it more often and more efficiently," she said.

All this is a part of a greater trend to retailer-vendor collaboration, sources told SN.

"What all this is leading to is collaborative planning, forecasting and replenishment conducted over the Internet allowing suppliers and retailers to better manage those products," said Ralph Jacobson, managing principal of business innovation at the West Coast-based division of IBM Global Services.

"Ultimately, retailers hope to achieve collaborative category management that includes monitoring and evaluation of trade promotions and real-time communication with their suppliers. So it is no longer a matter of just spitting out a planogram, but really a collaborative effort with the suppliers giving the retailers up-to-the-moment, usable information, not just a ton of raw data," he said.

Retailers doing over $1 billion a year in volume need to consider establishing a private trading exchange on which category management and CPFR are central components, Jacobson said. "It's a very large, overall enterprise-transformation strategy that they are going to try to achieve with the utilization of more tactical initiatives like category management," he said.

"Some category management is not yet as collaborative as it could be," said Doug Adams, vice president, Prime Consulting Group, Bannockburn, Ill. Suppliers are providing retailers with category management help, but are not sure how well it is being utilized. "That has to change for people to feel like they are getting a good return on their time and money investment," he said.

There is a much greater use of information by the retailers, but getting the results executed at store level is still a challenge, Adams said. "That is getting more attention, but we still don't have the key to it on an industry level," he said.

"The best-laid plans at the corporate level are only as good as the store-level execution, which we are still seeing problems with when it comes to category management," Jacobson concurred.

But retailers are getting sharper in their use of data to sharpen their marketing, Adams said. Among the aspects of marketing being addressed by some retailers are assortment, pricing and promotions.

A retailer Adams singled out as a leader in this area is Imus of Paw Paw.

One of the many ways Imus is using data in the category management process is to determine the impact of product deletions on his best customers to keep them from shopping elsewhere. "We look at the shelf through the eyes of the consumer; we look at it based on how the consumer buys the product," Imus said.

"You go into your historical databases and try to find out who is buying your products and what effect that consumer has on your business. Then you try to determine how to protect your best customers if the discontinued product is one of their most-desired or oft-purchased items."

Sometimes that is under the retailers control, but other times it isn't -- for instance, when the supplier has dropped the item. When that happens, Imus will contact the customer and try to obtain a case of the product if they want it.

"It takes a lot of human input to do that process. It takes some interpretation and the software tools aren't out there yet," Imus said.

Ken Wyker, president, Wyker Marketing, Charlotte, N.C., and the former head of the Food Lion loyalty program, calls this a consumer-centric approach. "I believe the big win out there is to leverage the loyalty data to understand the dynamics of consumer behavior and the behavior change that drives increased profitability," he said.

"Now that retailers have developed databases of customer-specific information, they can use that to sharpen the focus of the category management process," noted Glenn Hausfater, managing partner, Partners in Loyalty Marketing, Chicago. "There is now some use of the data, but it is not as extensive or as impactful as many in the industry thought it would be," he said.

Hausfater said these systems may lead to more use of this data in pricing. "Ultimately, it could lead to an almost household-specific pricing on items" similar to the yield management approach airlines take to filling seats at the last minute.

Price optimization is becoming a hot topic for retailers right now, said Jacobson.

"There are some great tools out there that have come into their own in the past 12 months. Many grocers are testing them as we speak to drive incremental revenue and incremental margins taking price management to a new level with advanced science," he said.

Paw Paw has done work on price elasticity, noted Imus. "There is a certain price point where either the promoted item is so good that the consumer can't pass it up, or that the difference between that and their normal item is not significant enough to get them to switch," he said.

"The lower the volume, the less awareness the typical consumer has of the competitive pricing on an item -- whether we trim it back or expand, they seem to be less responsive. Invariably, those are the categories that we have to take the closest look at."