RETAILERS, VENDORS REACHING CONSENSUS

WILTON, Conn. -- Fact-based category management, say many experts, is well-understood by few in the business of fast moving consumer goods and well-practiced by even fewer.Results of a new survey of manufacturers and retailers by Cannondale Associates tend to support this assessment. They also suggest that, limited as industry experience may be, category management is already leading to broad areas

WILTON, Conn. -- Fact-based category management, say many experts, is well-understood by few in the business of fast moving consumer goods and well-practiced by even fewer.

Results of a new survey of manufacturers and retailers by Cannondale Associates tend to support this assessment. They also suggest that, limited as industry experience may be, category management is already leading to broad areas of consensus between manufacturers and retailers.

A high percentage of respondents -- 92% of retailers and 91% of manufacturers -- believe their commitment to category management will increase over the next five years, the survey said. Significantly fewer reported "successful implementation" of category management -- 54% of retailers and 52% of manufacturers.

"There has been a lot of talk but little action," said Don Stuart, a partner at Cannondale, about the survey respondents. "The initial round of activity has certainly begun, but it will be a protracted exercise."

Cannondale, a sales and marketing consulting firm based here, conducted what it called its "Category Management 1994 Benchmark Study" by mail last spring, and received some 300 completed responses from brand marketers and food, drug and mass retailers.

Stuart said the responses indicated that "successful implementation" of category management can be measured in two ways:

Quantitative measures look at improving sales and profitability of both the category and the brand at the customer level.

Qualitative measures look for furthering the long-term relationship with the customer, penetrating higher in the organization and positioning the manufacturer as the "table captain" or consultant to the category.

In interpreting the survey results, said Stuart, what manufacturers define as initial success "may mean only with a handful of accounts."

This view is supported by manufacturers' rating of retail leaders in the practice of category management. In a survey question, 28% rated San Antonio-based H-E-B among the top three practitioners, ahead even of Wal-Mart, which drew top ratings from 23%. Eight other supermarket operators, including Kroger Co., Dominick's, Publix, Wegmans, Vons, Schnuck's, Hannaford Bros. and Jewel, were top-rated by between 12% and 5% of respondents.

That fully half of those leading retailers are regionally dominant supermarket chains may reflect how those operators view the strategic importance of category management, said Stuart.

"In the future there will be a continuing consolidation in the retail community. Category management leadership is a way these retailers can enhance their own value by investing in their own technology and practices," he said.

When retailers were asked to identify category management leaders among the manufacturing community, consensus was high about a very few companies. Procter & Gamble topped the list with a 38% top-three rating. Quaker was next with 19%. Johnson & Johnson/McNeil was cited by 15%.

Stuart said he feels category management (for retailers) and category marketing (for manufacturers) will continue to grow in importance, even as differing roles for the two communities resolve themselves.

"Category management will be owned by retailers, with their own identities, goals and processes, while manufacturers will focus on marketing," he said. "The best programs from manufacturers will be cherry-picked by retailers, who will select the best elements for their needs."

Manufacturer and retailer responses also revealed a high degree of consensus in rating several critical issues. Top issues of common interest and concern included margin erosion, rated extremely or very important by 92% of retailers and 82% of manufacturers, category management (72% of retailers, 84% of manufacturers), item optimization (80% of retailers, 64% of manufacturers), and logistics/ operating efficiencies (76% of retailers, 72% of manufacturers).

Notably, issues rated lower in importance by both groups included everyday low pricing and so-called alternative retail formats. Both issues were the object of intense concern as recently as two years ago, and within the supermarket industry they were major catalysts behind the creation of the Efficient Consumer Response initiative.

"It is not surprising that EDLP has been rated less important," said Stuart, who added that he felt events since that time have changed many outlooks.

"In 1992, P&G's initiative on EDLP opened a hole in the line for other manufacturers to follow through," he said. "Today that opening has just been engulfed by practical reality."

Deals and allowances have come back into the picture, he said as the hoped-for "EDLP utopia" has been watered down with deals, promotions and other bids to create shopper excitement.

The trend toward de-emphasis of EDLP is linked with the moderating of concern about alternative formats, he added. Traditional retailers may see the growth of membership clubs as beginning to crest, and there are fewer operators today as a result of consolidation.

Two other major areas of disconnection between retailers and manufacturers both relate to what items belong on the shelves: assortment optimization and store brand strategy.

Both groups recognize the benefits of eliminating item duplication -- 67% of retailers and 72% of manufacturers agree or strongly agree that retailers would be receptive to manufacturer assistance in addressing efficient assortment. However, only 20% of retailers agree that manufacturers are taking significant initiative in addressing the issue.

Asked whether private-label products generate higher category dollar profits on average, 88% of retailers agreed or agreed strongly, while just 31% of manufacturers shared this view.

On Common Ground

Retailers and manufacturers share similar outlooks on several critical issues.

PERCENTAGE RANKING AS EXTREMELY OR VERY IMPORTANT

Margin erosion Retailer 92%

Manufacturer 82%

Item variety vs. duplication Retailer 80%

Manufacturer 64%

Logistics/operating efficiencies Retailer 76%

Manufacturer 72%

Category management Retailer 72%

Manufacturer 84%

Private label Retailer 72%

Manufacturer 50%

Trade promotion inefficiencies Retailer (not rated)

Manufacturer 86%