LANDOVER, Md. -- When Giant Food here began mapping out the objectives of its category management program, it made sure one aspect was clear -- the consumer comes first.
Three years later, that same principle still holds true.
Giant's initiative differs from chains that have focused on the supply side of the management process -- negotiating the best deal of the day. Instead, Giant targets the consumer, first centering on products its consumers want and then working with suppliers to secure the best deal.
Launched in 1993 as a pilot test in laundry detergent, Giant's category management program has become one of the more highly regarded programs in the industry. Manufacturers place the retailer eighth on their list of Top 10 retailer category management practitioners, according to "Winning Through Consumer Insight," a 1996 category management study conducted by Cannondale Associates, Wilton, Conn. H.E. Butt Grocery Co., San Antonio, came in first.
The bulk of Giant's program involves Center Store items. To date, category management plans have been completed in categories that account for 35% of the supermarket operator's total grocery operations volume, said Dave Herriman, senior vice president of grocery for Giant. The remaining 65% are expected to be completed by the end of 1997, he added.
Giant initially planned to base its program on categories tracked by Information Resources Inc., Chicago, and ACNielsen, Schaumburg, Ill. Both companies classified about 200 categories that should be included in the program. However, Giant decided to consolidate several product areas to reduce the number of categories to 130. For instance, rather than listing baby formula and baby health and beauty care items as separate areas, Giant grouped them into one category.
"We pared it down because we feel the customer looks at the categories a little differently. As a result we developed our own set of categories," Herriman said. One of the first categories defined was laundry detergent. Herriman said Giant began there because it felt its laundry detergent business was being undercut by the mass merchandisers.
Following is a summary of how Giant's eight-step category management program operates:
Definition. Classifying the category is the first action in the grocer's process. To do this, Herriman said Giant follows the Efficient Consumer Response Best Practices guide, 'Enhancing Consumer Value in the Grocery Industry," developed by the Partnering Group, Cincinnati.
"In fact, the study that wrote the book was done here," he added. Giant worked with The Partnering Group in developing the ECR guide.
Role Development. Once the category has been defined, the chain develops a role for it, meaning the category gets labeled as a destination, preferred or convenience category. Assessment. The next step is to assess the category. Data are culled from focus groups, market analyses and demographic information.
For example, Giant modified the laundry detergent set because its consumer information showed its product offering wasn't meeting the needs of a segment of the chain's customers.
"We were not addressing the single people, young married couples or the elderly people because we were so devoted to merchandising and promoting the big gallon-size jugs," Herriman said.
After realizing its stores catered to shoppers other than the large families of five, Giant changed its laundry product assortment to accommodate all its shoppers, he added.
The chain referred to its market data when it began writing the plan for its pet care category. After reviewing the information, Giant acknowledged it couldn't compete against the category killers, such as PetsMart, Petco and Petstuff, so it downgraded the category from a destination to a preferred.
"[Category killers] are 25,000 square-foot stores; we have one aisle. We can't compete with the variety of items -- the totality of the department," Herriman said.
Despite the competition, Giant reviewed and formatted the aisle to better serve its shoppers. The chain, which historically had not advertised pet food and products, began promoting and advertising via newspaper ads, in-store circulars, in-store signing and dedicated end-display space.
"We saw an opportunity to grow the total transaction by cross-merchandising [food] with supplies and toys," said John Clutts, director of Efficient Consumer Response for the chain.
The Scorecard. Once the data and information have been analyzed, Giant develops a scorecard to help decide the category's target. The goal varies from category to category. Sometimes Giant wants to increase sales volume, profit, assortment or loyalty within a group of products.
For example, when the retailer examined its soft drinks, it found two things: the assortment needed improvement and there was an unfilled product niche.
Strategy and Tactic Development. Implementation strategies and tactics (steps five and six, respectively) follow the target decision. In the case of soft drinks, Giant picked a transaction building strategy and created several private-label drinks to meet that strategy and fill the niche.
Families comprise the core of Giant's business, and the presence of kids drives soft drinks and flavored beverages, according to Clutts.
"All the private-label products we developed were flavors because we found this segment was missed by the branded products. That's where assortment can play a key role in delivering the numbers for your plan because we found a segment we weren't satisfying very well," Clutts said.
Giant views efficient assortment as another tactic used to better serve the customer. Ninety-two percent of retailers surveyed in May said they agree that understanding the consumer purchase process is critical to distinguish variety from duplication, according to Cannondale Associate's "Winning Through Consumer Insight" study.
In order to serve the customer, Giant must understand the customer. "You may have a certain consumer who is the focus of this category -- based on who's coming in our stores, or based on who spends the most money. You try to align the products and have the broadest coverage of the products that they're most likely to look for," Clutts said.
Just as maintaining the right assortment is important to Giant, so is its private label. "[It] gives you a loyalty factor with the customer because in order to get that quality product at that value price, [the customer] must come back to your store," Herriman said.
But the key, executives point out, is to understand the role of private label within each category. Herriman said the store brands fit into soft drinks, but not in the laundry detergent category, where the chain withdrew its private-label products.
Implementation. The beginning and middle steps of Giant's category management program, primarily focused on planning, lead to implementation.
With all the publicity surrounding meal solutions and home-meal replacement, Giant wanted to incorporate Center Store to expand the idea beyond the store's perishable departments.
Herriman said the supermarket chain added a 4-foot section to its frozens area for Easy Meals -- larger, multiportion frozen entrees around which a family can build a meal.
"We basically made a section within our frozen aisle using signage to draw attention to it. You can build a meal out of these frozen components," Clutts said.
Category management is helping the chain organize its product offerings around the consumer, but in a way that benefits the category.
"We have to make the decisions on what's best for the category," Herriman said. "This is the first thing we say to our partners when we sit down for that first meeting," he added.
The idea here is that the business plans are not developed for the sole benefit of Giant or the manufacturer. If the plan is created with the category's best interests in mind, then Giant and the manufacturer ultimately will be rewarded for their efforts, Clutts and Herriman said.
The retailer's partners are the manufacturers and suppliers. Giant picks a primary partner who helps the chain form the business plan. Once the plan is completed, the chain shares it with the other manufacturers in the category.
Program Review. The principal vendor works with the grocer for a year. After a year, the category is reviewed as the final step in the process, and a new partner is chosen. Sometimes the grocery operator keeps the same partner, or it may choose another one, depending on each one's capabilities and presentation, Herriman said.
Once the new partner has been picked, the process begins again.
He added that the process is different than what he envisioned it to be. "As you gain more experience and refine the process, your ability to execute and your expectations increase. Category management is absolutely not a static process; it is ever-changing and evolving."
Setting the Stage
LANDOVER, Md. -- Preparing for a category management program is almost as involved as implementing it.
When Giant Food here began the process, it put itself in the shoes of the customer, said Dave Herriman, the chain's senior vice president of grocery. To find out just how its shoppers think, the chain invested in focus group studies and demographic and market data. It then evaluated its staff to determine what its employee roles would be.
"We went through a laborious process where we dissected all the activities, such as buying, merchandising, promoting, product information and logistical characteristics. We determined the roles needed to do all these functions and then restructured the entire department on that basis," said John Clutts, director of efficient consumer response at the chain.
An industrial psychologist was hired to develop a skills assessment test for all parties interested in applying for a category management position, Herriman added. Giant already had qualified people, so there was no need to hire from the outside, he said.
Technology, too, came into the spotlight, because the supermarket needed to garner accurate information from its stores. Giant's information systems department created Decision Support Software, a program to record data and transfer results.
DSS warehouses item-by-item, week-by-week, and store-by-store sales and profitability for the last two years, Clutts said.
"In a push-button mode, you can dynamically create any report, any analysis you want, across the different products we carry," Clutts added.