More and more wholesalers and independent retailers are working together on category management efforts, a move that is helping the latter group level the playing field with chain retailers.
Some independents are implementing planograms based on store-specific sales data rather than warehouse withdrawals, tying category management more closely to their stores' specific product movement.
Results from these efforts can be dramatic. Certified Grocers of California, Los Angeles, said it has seen sales increases ranging from 10% to 70% from category management efforts with independent retailers, according to Richard Harwood, manager of retail services and category management at Certified. Gross margins have increased about 1% from these efforts, he added.
Supervalu, Minneapolis, said more than 1,200 of its 4,500 independent retailers are participating in category management programs and are seeing positive results.
"If we can drive sales and profit for the independent stores, that in turn will increase sales and profit for Supervalu," said Leland Dake, corporate vice president of category management at Supervalu. This mind-set is "a major change for many wholesalers."
To support category management, wholesalers are emphasizing electronic means to communicate with retailers. Spartan Stores, Grand Rapids, Mich., for example, is developing an intranet to deliver orders and invoices as well as information on deals to independent retailers, according to Marvin Imus, vice president of Paw Paw Shopping Center, Paw Paw, Mich., an independent serviced by the wholesaler. Spartan declined to comment on its category management efforts.
"This is the basis of support for category management," Imus said. "Once we have that link" between the wholesaler and the retailer, "we have the ability to uplink store-specific scan data for category management. Right now the initiative is being developed from warehouse withdrawal data."
A planogram based on warehouse withdrawals takes into account the number of cases a retailer buys. Store-specific scan data provides the amount of product actually sold, which can then be matched up with purchases to create a balance of inventory. The latter method provides more accuracy.
Ultimately, "the wholesaler actually looks like our chain headquarters," Imus said. "They'll have the personalized information on the store, and be able to run it through the superior processing and resources they have, as opposed to here at the store level. That's the leverage we're going to get as an independent operator."
Supervalu independent GJ's Stores, Minneapolis, is also a strong supporter of category management. The retailer experienced a 0.5% to 1.5% improvement in gross margins from resetting departments in its six stores over the past year and a half.
"You can't have a hodgepodge of product," said Jon Vranicar, president of GJ's Stores. "You have to have some kind of a plan. We happen to be associated with a wholesaler that is spending their money and resources to put category management programs in place, which would be extremely expensive if we tried to do them on our own."
Independent retailers like GJ's are also finding category management is very useful in understanding the shopping habits of consumers. Analyzing the ketchup category revealed a wealth of information about GJ's shoppers, said Vranicar.
"When we went through category management, we had 14-ounce, 20-, 28-, 32- and 64-ounce sizes -- every size imaginable of ketchup. So it was quite possible to cut some of them.
"I thought we would cut the small size, but we had to cut the big size," said Vranicar. "My demographics showed that 28-ounce ketchup was my No. 1 seller, but in some stores 14-ounce ketchup -- which is generally a convenience store item -- was a good seller. We also got rid of the largest size because it was too big for customers to carry, especially if they were walking, which is common at my urban stores."
Paw Paw has reset 15 to 20 categories over the past 18 months and has begun to analyze the effect of the consumer purchase behavior using a new system that allows for greater in-store analysis.
While it's still early in the process, Paw Paw did uncover insights into its best customers. The retailer found that deleting the slowest-selling item in a category is not necessarily the best decision, because that item may be purchased by a store's best customers.
"If your best customers are buying a product you're discontinuing, they are going to be looking for another store," said Paw Paw's Imus. "They may not stop shopping you for that one item but all of a sudden they're going to see a competitor that has that item, and suddenly I've lost that customer for life."
Paw Paw was also surprised at how loyal customers can be to a brand or an item.
"Your best customers frequently are the most loyal to a product and least apt to change because of price point," Imus said. "So there is a price elasticity that comes into play here and I'm trying to get a handle on that."
Associated Food Stores, Salt Lake City, also focuses on the consumer in its category management process. Category managers create a document that includes trends, consumer purchasing behaviors, space management, merchandising and assortment strategies and tactics. This same information is now available for approximately 50 different categories, including vitamins, pet foods and cereals.
This information, along with schematics created using the retailers' scan data and demographic input, is forwarded to the retailer for implementation.
Five retailers in Utah and Idaho that are serviced by Associated Food Stores have reset approximately 15 categories in their stores since beginning the process about a year ago.
To make this service more widely available, Associated is meeting with one retailer representative from each of its nine different marketing groups every other month to discuss category plans, schematic programs and stockkeeping unit rationalization, among other issues.
While retailers can receive these plans by hard copy, within six months Associated Food Stores will be able to electronically transmit this information from its mainframe systems to a retailer's computer so "retailers can pull the schematics up live," said Richard Hardy, director of category management at Associated Food Stores. Retailers will be able to print the schematics but not alter them, he noted.
In addition, Associated is in the process of setting up a data warehousing system to assist it in tracking retail and warehouse data related to its category management efforts.
Category management can also help independents contain sales slippage in categories, such as pet foods, that are targeted by "category killer" retailers, wholesalers told SN.
Several retailers are preparing to begin the category management process in pet food in order to create a super pet aisle in their stores, said Dennis Kinser, vice president for procurement at Associated Wholesale Grocers, Kansas City, Mo.
Within the first half of 1998, the wholesaler plans to make a kit available to its independent retailers on how to choose the variety, mix and decor, including signage, for such a section. Associated Wholesale Grocers also helps its independent retailers with entire store resets, usually for store openings or remodelings.
Currently, the wholesaler uses warehouse withdrawals to develop the planograms, but it is embarking on a project to merge individual store data with warehouse withdrawal data to create store plans that are more tailored to the individual stores.