Retailers are taking back the ownership of the category plan. They are asking Center Store manufacturers to help them, but now they do not relinquish control, according to a range of industry observers.
"It tends to focus more on their joint asset, the consumer. It's ultimately a good thing, in that the level of information is trying to attract more consumers," said Terese Herbig, senior vice president, retail marketing, Information Resources Inc., Chicago.
Category management is not meant to try to affect the consumer's decisions, but to capitalize on all the decisions that a consumer makes, using the consumer's decision as input, she said. The retailer is either trying to get the consumer to come to the store more often, to get them to buy more once in the store, or to get new consumers. Barriers between departments are coming down, as well. The goal is to develop the best plan, develop the category as a business unit, so the retailer can track trends and understand how consumers are deciding to purchase that category, she said.
"We are trying to get them to be happier and more satisfied at my store, or with my product," said Herbig.
Craig Hodnett, vice president of category management, Dr Pepper/Seven Up, Plano, Texas, said, "We've done a lot of research in category management. We try to show bottlers and retailers what's moving. We know which brands are not turning and have disproportionate amounts of space, at retail, for the velocity of the product. That's a pretty powerful story. You will turn it several more times if you give that product an additional 6 inches of space on the shelf," for instance.
Hodnett says his company has developed space management as its area of core competency. "Everything has become more financial, as we are in a penny-nickel-dime business in the grocery industry. Everything now has financial ramifications. As recently as three years ago it was not so important."
Hodnett says his message to retailers is, "Let us help you identify what that cost is."
"When customers go into a store, they either like it or they don't," noted Ed Gallina, one of the pioneers of the process who now is executive director of category management at Associated Wholesale Grocers, Kansas City, Kan. "They don't know why. The store either has organized clutter or the product where customers think it should be intuitively. All the drinks together, all the breakfast items together, groups to make it easier for the consumer to find, and then, categories are laid out according to the consumer decision tree, the hierarchy of choices," he told SN.
Coffee, for example. You want coffee. But -- whole bean, ground or instant? Whichever you want, there are more divisions. If it's ground: electroperk, fine grind and, regular or decaf? It should be set up in a manner that makes it easy for the consumer to find, merchandising the category in the most user-friendly layout, Gallina told SN.
Further, if the store is merchandised in such a way that consumers have to pass by the whole-bean coffee and a sign says "Half Price," consumers might change their decisions, Gallina said. In this case, the tactic was laying out exactly that presentation. Category management can spur shoppers on to buy extra items through strategy and tactic execution to entice the consumer, Gallina said. Some retailers put the bigger sizes at eye level to target the consumer. "If their hand falls to the eye-level shelf, they have a tendency to buy that instead of having to reach way down. In the past, retailers put the largest sizes down on the bottom. They might now decide to move bigger packages to a higher shelf, as a strategy," Gallina said.
Strategy is one of the eight steps in the classic category management process, promulgated by Brian Harris, who wrote a book on it, and Gallina, who worked with Dr. Harris. Tactics is another one. Defining the category comes first, then assigning a priority to it, to allot space and advertising to the most important. The hardest part is step three, the category assessment, Gallina said. "It's the grueling, behind-the-scenes work. You find out everything. Drill down to the final week's worth of sales."
Next comes the scorecard, to evaluate performance, and then setting strategies. Tactics is step six, the assortment, shelf pricing and promotional activity -- "the blocking and tackling of our business," Gallina called it. Next, implementation of the whole plan, and lastly, the category review.
Although some today say the eight-step process is antiquated, Gallina says it must be used to truly manage the category.
Cannondale Associates, a consultancy in Wilton, Conn., and Evanston, Ill., has refined the process to five steps, and calls it Consumer Marketing at Retail.
Demographics have become a huge influence, as technology and research have increased ability to deliver data on buying patterns and preferences, countless factors that retailers can slice and dice. Some say retailers are not making enough use of their technology. Others disagree.
"There is a tendency to over-manage that, in my opinion," said Jim Wilsky, senior vice president of Marketing Management Inc., Fort Worth, Texas. He says it depends on the politics and the personality of the retailer. Some are known for being extremely techno-driven, while others are not.
Larry Harris, in charge of grocery purchasing for Pratt Foods, Shawnee, Okla, said its wholesaler, Associated Wholesale Grocers of Kansas City, Kan., handles the category management for Pratt Foods. "We take their recommendations. I listen to what they tell me, on things such as schematics, pricing and new items. AWG saves me a lot of time, and we are happy with the results," he said.
Marv Imus, president of the independent Paw Paw Shopping Center, Paw Paw, Michigan, said his main problem is all information is run through the frequent shopper program. Category management looks at volume of movement by item, and it doesn't care if the customer is a good customer or a once-a-month customer, he said. "The current systems that are out there, I have to modify myself," he told SN. As a single-store operator, he says he cannot afford a more analytical system. The bright spot is that Imus is getting a lot more help from his wholesaler, Spartan Stores, Grand Rapids, Mich., which recently put in new software.
Still, it uses warehouse withdrawal rather than actual scan data, so Imus has to look at his own historical database to see how it measures up against what his customers buy. Because it's such a tedious process, he gets to it whenever he can, like when a new product line comes in.
"As we get into special things like organics and dietary products that are outside the Spartan database, I'll have to go to third-party suppliers."
Imus makes the point that independent stores have always been close to the customer. These single stores are less technology oriented, and "that's been a curse, recently," he said, "but we were able to make decisions that became category management.
"It was ingrained in us, if Mrs. Consumer wanted this product, we would get it, and if it didn't sell, we'd get rid of it. The big chains just look at scan data. Looking at the raw data can be very misleading in some situations. The data is wonderful but you still have to slice it through the real life, 'How does consumer react to products?"' he said.
One of the issues is an evolution from focus on the category to focus on the occasion, solution or aisle. Manufacturers and retailers are broadening their scope, and that makes shoppers' lives easier, said Bob Hilarides, a partner in Cannondale Associates.
Some of new ideas are challenging for the retailer, Hilarides said. "Retailers and manufacturers have their own silos. One of the challenges is breaking down those barriers. You've got to get consumer insight, out to the field, out to retailers' stores. All that has to happen effectively in order to make a difference. It's one of the barriers to success in strong execution in category management."
Some retailers have been very successful in creating baby centers, and snack and beverage sections, for example. At the Pepsi/Quaker booth at this year's Food Marketing Institute show was a fixture for grocery stores to handle refrigerated juice as well as dry goods, like hot cereal and granola bars.
"There's some movement afoot to make shopping easier, even across departments," Hilarides said, taking this fixture as one example.
Virginia Valkenburgh, vice president of research with Cannondale Associates, said the baby aisle is an example of better managing the "New Mom" experience, stocking accessories along with feminine hygiene products, bath and body care, lotion and the like. "The more they can broaden it, the better. It not only serves their customer better and increases the transaction, but differentiates them from their competition," she said.
The growth of retailers' private-label products has forced a better management of categories, according to Wilsky of Marketing Management, which works with retailers to develop private-label lines. "It came to a point where category managers could not back-shelf or let private label manage itself anymore. It became an integral part; it affected SKU counts and SKU mix.
"It used to be nothing to see four or five SKUs of Kellogg's cornflakes," he continued. "The fallacy of that finally slapped everybody on the forehead. It was arrived at by services like IRI that provide really good up-to-date scan data, not warehouse pulls, but scan data. Private label said 'Here we are!' and suddenly two SKUs of them were outperforming four SKUs of a branded product.
"Retailers found they didn't cannibalize their branded business; instead, they were adding new customers. They were not destroying a category, but making it stronger."