Classic category management, a business process developed in the 1990s and embraced by the food retail industry, is now being reinvented with a new focus.
While retailers found category management to be an important tool in achieving optimal shelf management, they also encountered downsides to the process.
For one thing, classic category management is a labor-intensive enterprise that involves between seven and nine steps, from defining the categories themselves to developing strategies for them and, finally, to monitoring and reviewing the process.
After a few years of diligently conducting annual reviews, supermarket operators were telling consultants they couldn't afford the staff time anymore. Paul Weitzel, vice president, Bishop Consulting, Barrington, Ill., said retailers would complain, "Resources are tight. We can't execute all these plans."
Manufacturers were getting the same message, according to Mike Greene, vice president of customer marketing at Kellogg Co., Battle Creek, Mich. "What the industry is saying is, 'We used to go through a labor-intensive exercise, but shoppers are leaving my store now. I'm losing them to my competition. Rather than doing an eight-step process, uncover that one particular issue that can get them back."'
A worse problem was that even after retailers went through the considerable time and expense involved in the category management process, they would end up learning little that they didn't already know.
Weitzel observed, "After you've done it twice, how much value do those reviews have?"
Faster, More Focused
The new category management is sleek, fast and as focused as a laser. Greene described it as "more of a targeted than a shotgun approach."
Sometimes the target can be larger than a single category. Weitzel said he preferred to speak about "aisle management" instead of category management. "There's a huge interest in trying to grab five key aisles a year rather than trying to do all the categories every year," he said. "Retailers are scaling back the amount of category management work they're doing and going for the big win, the aisles with double-digit growth.
"The focus is on the big wins you can fix today."
Other times the target can be those categories that year-in, year-out, are a store's most important.
Ken Harris, partner, Cannondale Associates, Wilton, Conn., said resource-limited supermarket operators need to focus on a few key categories, usually such items as milk, snacks, soup, yogurt, pizza, ice cream and carbonated beverages. "Those are the impression categories, the bellwethers, when you're not putting your full resources into a category review of every item."
In classic category management, he noted, the process itself sometimes became the focus. "The process was painful," Harris said. People were happy when they completed a category review, "but they weren't paying attention to the result. By the time you were done with the review, you felt you had accomplished something."
The new category management also can involve gazing more deeply at the small picture. Commented Bernard Beary, assistant vice president, category management, Hy-Vee, West Des Moines, Iowa, "Probably the most significant change taking place today in category management is the movement to make category management more consumer-specific.
"Instead of just looking at categories of products, we're looking at subgroups within those categories that appeal to particular consumers."
And yes, the new category management is fast. Observed James Tenser, principal, VSN Strategies, a sales and marketing consultancy based in Tucson, Ariz.,"Velocity is the essence of this business."
Most of those interviewed for this article said classic category management is largely a thing of the past.
"The eight-step process is very, very seldom used." said Dirk van Renesse, vice president and director of category and technical management at the National Distributing Co., an Atlanta-based wine and spirits distributor.
Greene observed, "There is a lot less of the classic, eight-step approach going on."
But that does not mean it has been entirely abandoned.
Ed Gallina, executive director, category management at Associated Wholesale Grocers, Kansas City, Kan., remains a purist. "I am slanted toward pure category management," he noted. In his two years with AWG, he said he has instituted more than 90 category plans, and 80% of AWG's internal sales of grocery, dairy and frozen are now done by this standard approach.
"When those plans are executed," he observed, "they are showing good-to-exceptional results."
He admitted that creating and reviewing those plans can be labor-intensive. "To do a plan takes time," he said, "but the rewards outweigh the time spent."
Gallina also said he isn't worried that he's sacrificing speed in his quest for thoroughness. "What you're getting off point-of-sale data is information that validates if your decision was correct," he noted. He added that it was "unrealistic" to expect to make adjustments in real time. "You can't change planograms every three weeks."
In contrast, Tenser said it can be extremely useful to be able to make short-term corrections. "It may be a good idea to find out in three to six weeks if a new item is selling rather than wait six months."
At heart, what seems to distinguish Gallina from his fellow category managers is his view of shoppers.
"Customers don't change," he said. "The products they buy change."
The new category managers make no secret of their attempts to track a fickle, almost whimsical, shopper -- a target in perpetual motion.
Observed Weitzel, "The consumer is changing faster than ever. We can't let the category management process slow us down."
He said it's not a question of giving up on the process so much as a streamlining of it. "It's more a question of rebalancing of resources," he explained.
Noted Hy-Vee's Beary, "The changes in category management, like the other changes in our industry, are being driven by changing consumer demographics, lifestyles and trends. Merchandising that works for some products in a category may not work for other products in that same category.
"It's not just about what people buy. It's about why they buy it."
All those interviewed, the purists and innovators, said that focus on the why is essential.
Greene's colleague at Kellogg, Kimberly Marsh, the company's senior director of category management and human understanding, said, "Retailers are asking us more in-depth questions about consumers and how to meet consumer needs."
Role of Technology
There is also general agreement that technology can speed up the process and enable manufacturers, distributors and retailers to get closer to consumers.
Gallina said, "Technology has the ability to give you information in less time. The information has always been there, but technology has expedited the process."
Technology and speed go hand in hand, according to Beary.
"Technology is going to continue to drive category management toward a more real-time reflection of consumption demands," he said.
For the past three years, this technology has been steadily evolving, according to Alex Yakulis, vice president of business development at Crossmark, a Plano, Texas-based sales and marketing agency.
He said Crossmark now uses customized category management software that enables it "with a single key stroke" to look at 36 measures, including pricing, assortment and feature display.
"We can look at every department within retail, every category within a store, and see how that category is performing against competitive sets in the marketplace," he explained.
"What we're finding is that even with the best-laid category management plan, if it's not executed, then you're in a world of pain," Yakulis said.
CATEGORY MANAGEMENT: THEN AND NOW
CLASSIC APPROACH: Following is the classic eight-step system of category management. Category Definition and Segmentation. Categories are defined and then segmented based on an analysis of how consumers make their purchasing decisions.
Category Role. Category roles -- such as "destination driver" or "staple" -- are determined by comparing the performance of categories.
Category Assessment. Data is obtained, organized and analyzed to identify the areas of greatest opportunity for improved results.
Category Objectives. Objectives are created based on the findings from the category assessment.
Category Strategies. Strategies typically cover such areas as pricing, promotion, space, range and product supply.
Category Tactics. Store-level tactics -- the precise changes the retailer is going to make are determined based on output from the category management process.
Implementation. Strategies and tactics are implemented accurately and completely. Monitor and Review. The plan's performance is measured to ensure its objectives have been met.
NEW APPROACH: The new category management uses some classical tools in an effort to handle dynamic change.
Manage the Aisle. Instead of measuring the performance of every category, concentrate on the key aisles, those with double-digit growth, for example.
Focus on Solutions. Put the emphasis on fixing and changing the store and not simply obtaining and analyzing information.
Keep Up With the Consumers. Use data on purchasing trends to catch up to or even get ahead of shoppers as they alter their lifestyles -- and shopping habits.
Monitor in Real-Time. Employ technology to monitor performance (and make changes) in days and weeks instead of months or a year.