BRADENTON, Fla. -- Retail dairy cases are due for a revolution, and category management is going to lead the charge.
That's the future according to Tropicana Dole Beverages here.
The beverage company's marketing executives told SN that, rather than seeing dairy as a problematic department replete with food safety pitfalls, handling issues and stocking headaches, retailers can -- and with some help, will -- refocus on dairy using the magnifying glass of fact-based category management.
That vision, indeed, is leading Tropicana to aggressively pursue category management on its own, with a new program reaching beyond its expertise in the chilled juice arena to encompass the whole department.
"The dairy case is perfect for category management," said Mike Internicola, Tropicana vice president of customer development. "It's more dynamic, there are more elements to it, it's a very profitable section and it can be even more profitable when you address the out-of-stock and labor issues."
When it comes to prospects for the juice category, however, Internicola said the future is not-from-concentrate products. That segment, in his view, will soon make redundant the entire subcategory of from-concentrate juices, which he classified as the mid-tier between premium not-from-concentrate and private label.
"The mid-tier has been eroding profit in the category," Internicola said. "In the past year, we have watched [mid-tier] prices coming down drastically and starting to put pressure on private label.
"Retailers will have to manage the mid-tier either up or out, because it has no reason for being. If you really want to think about category profitability, all the mid-tier does is either drag down premium or put pressure on private label."
His prediction: "We think the mid-tier will be dead five years from now."
Scanning data analyzed by Information Resources Inc., Chicago, showed that for the year ended March 24, 1996, Tropicana owned 40% of the refrigerated orange juice category, its share up 6.8% over last year. Private label was pulling in the second largest share, at 24.2%; and Coca Cola, the manufacturer of Minute Maid, was in third place with 18.4%, according to IRI.
Tropicana is ahead with the disposition of the mid-tier in mind. "We already know what products we're going to have two years from now," said
Russell Evans, group manager of customer marketing. "We've already set the benchmark to deliver things in 1998 that people haven't even thought of yet."
While the Tropicana executives did not reveal what those deliveries are likely to contain, they did make it clear that their company's future directions will be based at least in part on the marketing intelligence gathered through category management.
It is already busy collecting that intelligence and putting it to work through a category management program it calls True View.
True View is currently in use with 50 retail customers, of whom four are at "Level One," which means there is a two-way exchange of information. The company is shooting for partnerships with 15 retailers at that level, the executives said.
Among the lessons already learned: Accurate ordering is the best way to fight the perennial dairy problem of out-of-stocks. "Chilled juice is out of stock about 10% of the time. Retailers are losing a lot of sales and profits," Evans said.
To wage the fight, Tropicana's shelf management system integrates ordering, shelving and product selection more efficiently, he said. "It tells them how to set the planogram, how to take on new items, how you fully stock it."
The company has been attacking the problem with a proprietary concept it originated, called "efficient continuous stocking," Evans said.
"With continuous replenishment, what no one has really done is take it the next step, to the consumer," he said. "We've developed it to the point where it's CRP at the store level."
Another element is neighborhood marketing, brought to bear on planograms and logistics. Tropicana uses "behavior block" planograms to change the section based on the consumer demographics of each store or cluster of stores, Evans said.
The only way to market effectively is to have a detailed understanding of the consumer. As Evans put it, "That means knowing where they live, what they do, what kind of car do they drive, did they go to college?"
Neighborhood marketing means narrowing the focus down to communities and even smaller microcosms.
"It's getting back as an industry to where we were with the corner store. We believe neighborhood marketing is the future -- as we need to analyze from our customers' level, retailers need to do the same with consumers," Evans said.
Tropicana now analyzes the potential and viability of merchandising and promotions programs in order to tailor them for each store, "so a store in the North may get different couponing and promotions than a store in the South," he explained.
In testing, Tropicana and retailers learned that optimal placement can come from recognizing and exploiting the way different products interact.
"One customer in the Northeast drastically changed how much space they allocated for each segment," said Evans. "We understand that some products have negative interactions when placed next to each other; some have positive.
"We haven't found anyone else [configuring that way]. People just tend to say, 'give me the picture and if it fits on the shelf, great.' We came up with a planogram that quantifies, 'what would happen if we did it like this.' "
At the same time, Tropicana has simplified the typical planogram jungle, Internicola said. "Everyone is talking about clustering -- you can have 75 different planograms, but we've boiled it down to about five.
"We're now seeing fill rates of about 99%, in-store loss is down and sales are up double digits. We have accounts where inventory is down 13%, warehouse turns are up 33%, the lead time needed to turn around orders is down 37% and average weekly sales are up 16%."
Indeed, the company claims to be increasing retailers' "true margin" from 35% to 66%, with the "true margin" penny profit at $1.65 per $2.49 shelf price. Tropicana has also developed a method for more accurate invoicing, Internicola said. "We've created a proprietary way of making sure the negotiated price gets into our invoicing system well in advance, and we're now invoicing correctly about 91% of the time."
At the merchandising end of the spectrum, category management is likely to sharpen the industry's promotional efforts, the Tropicana executives said. Promotions for juice, for example, are likely to trend more toward high-profile, entertainment-oriented events in the future.
"We're going to do a lot of big themes like movie tie-ins. It creates excitement and adds value," said Internicola.
"We're starting to understand how we can help customers more effectively promote our product -- using this very fact-based methodology of how to go to market."