Born with the advent of the PC in the early 1980s, space planning systems have developed over the years to become a mainstream tool used by both retailers and manufacturers to lay out shelf sets containing the most profitable yet consumer-friendly mix of products. It's considered by some to be the "cornerstone of category management."
"Being able to provide stores with profitable assortments is the single best competitive strategy you can have," said Tom Murphy, president of Peak Tech Consulting, Colorado Springs, Colo.
But for many years, space planning systems have generated planograms that were based not on individual store needs but on companywide plans, or at best on clusters of stores. For large chains, planning store by store was too labor-intensive. The quest for store-specific planograms became the holy grail of space planners.
Based on interviews with retailers, manufacturers, consultants and software vendors, it appears that the standard practice of creating category clusters and planogramming stores according to shopper demographics is now giving way to store-specific schematics. These plans use information such as individual stores' sales, inventory and out-of-stocks, along with space designs, to lay out products in an optimal fashion.
Moreover, retailers are already looking forward to tying the planogram into replenishment as the next step in the evolution of space management.
"Today, the technology is there to pre-generate recommended assortments, category plans and planograms for each store, and to fine-tune that based on various assumptions," said Murphy. "That allows one person to do the planning for a larger base of stores than was historically possible. So, you are seeing more stores going to store-specific planograms."
K-VA-T, Abingdon, Va., is one of those retailers. For the last three years, the operator of Food City supermarkets in Kentucky, Virginia and Tennessee has been producing store-specific planograms for key categories in the grocery, dairy, frozen food, and health and beauty care departments.
"We do it for cookies, chips, soft drinks, beer and other key categories," said Richard King, K-VA-T's director of category management. "Those are store-specific. We have 86 stores, and we've got 86 planograms for each one of those categories. We're very advanced," enthused King, who years ago sold space management programs to Publix and Food Lion when he worked for Information Resources Inc., Chicago, the provider of the Apollo program. That is now the system he is employing at K-VA-T.
Meanwhile, Price Chopper Supermarkets, Schenectady, N.Y., which still planograms mostly by store clusters, is "currently looking at planograms to be more specific chainwide," reported Mona Golub, manager of public relations and consumer services for the chain of 101 stores. "We are already experimenting with [store-specific schematics], and it's going very well." Price Chopper uses a space planning system from JDA Software, Scottsdale, Ariz.
Added Golub: "Each marketing area has its own characteristics. You need to know, for example, where your young families are and how to planogram a store accordingly. In what areas do people have more pets to take care of? Where is your senior community and what size packages are they looking for? Anytime you can really hone in on what the consumer is looking for, you will succeed."
In the mass merchant arena, Kmart, Troy, Mich., working its way back from Chapter 11, is enhancing the way it plans space "at both the micro and macro levels," said Paul Boldy, divisional vice president, space planning. "We're improving our planogram process, taking into account store-specific demographics, attributes and sales patterns. Our planograms are tailored to assortments and space allocations at the item and category levels. This is of particular importance to Kmart. Store locations and customer profiles vary from market to market," he said. Kmart declined to say what brand of space management system it uses.
Before becoming a consultant, Murphy was vice president of information technology at Kroger from 1993 to 2000. He remembers space management from his early years of "space planning on a zone basis." The chain would have three or four different sets for a grouping of items and used them for over a hundred stores.
In the mid-1990s, he said Kroger, Cincinnati, began an extensive project "to capture the appropriate sales data to begin a category management program. We started out by category and tended to focus on a broad strategy basis and not on a store-specific level. Since that time, they've gotten better and better and the tools have gotten better," he said. Anheuser-Busch, St. Louis, which also uses JDA space planning tools, has found more retailers interested in store-level planograms, according to Joe Patti, vice president of retail planning and category management for the world's largest brewer. What's driving this, he said, is the need to increase shopper satisfaction and reduce out-of-stocks. "Having the proper space management process and creating schematics at the store level will help achieve those goals. Through [our] extensive wholesaler network, we're able to develop and recommend store-level schematics for retail partners," he said.
According to software vendors, the evolution from "cluster" to store-specific planograms is possible because of increased retailer expertise and familiarity with the programs, in addition to more sophisticated software.
Three years ago, space management was "an island of technology usage," said Kevin Stadler, senior vice president, Collaborative Business Solutions for JDA Software. But it's now being integrated into data structures and becoming part of a common pool of information that can be shared, he explained. This, he said, "makes store-specific easier to do."
Other retail leaders in space management include H.E. Butt Grocery, Meijer, Wal-Mart and Wegmans, according to Ken Slocum, group director of category management Energizer, the battery maker, another JDA user. He placed these retailers in a "first tier" and said there is a drop-off to those in the second tier, which includes chains using space management in a stand-alone fashion. He placed independents in a third tier and said they need help from wholesalers and suppliers.
"The tier-one people are more collaborative and consultative," he explained. "When you get down to the independents, it's different. What [manufacturers] are doing is setting up a plan and presenting it to work with the retailer."
Manufacturers such as Energizer and Anheuser-Busch often act as "category captains" that advise retailers about particular categories, including competitive products. Independents, as well as large chains with well-developed space management expertise, welcome the help.
"There's nothing wrong with having a fox in the hen house if you've got the fox on a leash," advised Murphy, the consultant. "That's the mentality that retailers use when applying the resources of manufacturers -- whether people resources or information resources. Utilize them for their knowledge, but keep a close leash on them to make sure that they are appropriately positioning products in the category. And the retailer gains by focusing on execution as opposed to strategic planning.
"In the chains I deal with, most of the categories have category captains that are led not always by the most-favored national brand, but by the national brand that has the best people and the best capability. They bring the resources that the grocer does not have," he said.
Keeping Shelves Filled
Whether it's through the help of category captains or through the retailer's own efforts, space management can result in key benefits for the category and the chain. They range from optimizing the product mix to reducing out-of-stocks.
"Product in-stock is a key issue for us," said Kmart's Brody. "Kmart is committed to planning space-efficient stores that minimize out-of-stock merchandise and reduce excess inventory levels."
While much emphasis is placed on building the planogram, Brody continued, what's often lost in most companies is optimizing the category and department space within the stores. Using an effective store-planning tool to supplement planogram software is becoming increasingly important, he said.
According to Patti of Anheuser-Busch the potential benefits in the beer category in supermarkets include: better analysis of the optimal product mix and assortment; improvements in space productivity and capital utilization; reduction of out-of-stocks and inventory costs; and an increase in sales, profits and shopper satisfaction.
While such benefits may be attainable today, space management executives are hopeful about more gains in the future as they look to connect the shelf set to the supply chain. "Now that retailers are sophisticated in other areas of the business such as replenishment, we now integrate replenishment data into [space management], and vice versa," said Bob Ferraro, vice president-region director, Retail Services Software Solutions at ACNielsen, the Schaumburg, Ill.-based provider of the Spaceman space management system.