Category management, which has been applied to the food side of the business for some time, is now beginning to be taken seriously in nonfood as well.
ctice. These companies are actively seeking retail partners and assuming the role of category captains.
"Category management has truly become part of the fabric of our business," said Paul Musico, manager of strategy and support at Chesebrough-Pond's, Greenwich, Conn.
"If you want to be the leader, you have to know what is happening in that category. It cost a lot of money, not only to get the information, but to sit down and analyze it," said Milan "Buzz" Purigraski, senior vice president of sales and marketing at Mead School & Office Products, Dayton, Ohio.
Panel members said they are just beginning to take their first steps in applying category management to nonfood.
Category Management Overview
SN: What's the status of category management at your companies and how is it changing your business?
WIKOFF: We believe in category management and are committed to it. Theory aside, there are only so many hours in the day and so many people we can dedicate to it. We've learned quickly in the last year that you can't let category management overwhelm you. If you haven't been into it, you can't do total category management at one time.
We've taken two or three categories and tried to go through a full category management program so our buyers will get confidence, try some things and begin trusting our partners. At the same time, we are working down to the department manager level at the store, looking at the basics of category management such as item and regular movement reports.
MUSICO: Category management has truly become part of the fabric of our business. In the early 90s, our company decided to improve the efficiency in our supply chain process and support our customers in category management. We didn't just talk the talk, but we walked the walk.
We are semipartnering with eight or 10 people. As time goes by, we will get more and more into it. We have to really get technology into place. We aren't doing real category plans, we do semiplans. But we are committed to it from our chief executive officer down.
SIGEL: Although it's logistically tough for a wholesaler, we have gone into category management. Traditionally we bought by vendor and needed to parley forward buying or truck loads or various things that were all part of that process.
Now we are asking people to develop an expertise on a particular category and are trying to figure out how to do efficient purchasing. We have the systems and technologies in place to make sure we can do it. We are going to look at the items and make decisions based on today's market penetration. We want our category managers to think, and don't want them to necessarily be driven by scan data. We want them to be aware of the markets, the demographics and our customers' needs.
It's the category manager's job to be so knowledgeable that he or she can put a category together efficiently, make it work and have it sell and really satisfy the consumers' needs.
Category management to us is much more comprehensive than just analysis of data. I think for a lot of people it's simply looking at the data that's been provided and reacting accordingly. That's part of it, but you also need the expertise and the intuition and feel for the products and the aggregate whole to really manage it.
SHOOLTZ: We are rather limited on category management in our retail stores. We are relying on the vendor, manufacturer and distributor to come in with information.
As far as planograms, they've always been out there, of course. We can't have all product varieties out, so there has to be some determination by movement, cost and what the sales are in a particular category. I'd say we are our own category management group doing very well in a smaller retail environment.
PURIGRASKI: My company is really dedicated to category management. Over a year ago we decided to get into it. It's a big commitment and cost. We've chosen only to manage the flat goods because that's where we think our expertise lies.
We have dedicated six staff people for category management. These are people we've appointed from high-powered positions within the company. We bought ACNielsen scan data. We also use their household panel data, which gives us a market basket of what consumers are buying and information about them. Market matrix demographics software also is being used to tell us about demographics. We've upgraded our planogram software to be more state-of-the art.
The biggest problem is finding the right retailer to partner with. Both have to set down objectives. Otherwise it is meaningless. It may help me tailor my line and line frame my merchandise. But as far as working with the retailer, you both need to sit down and figure out your strategy. In some cases, if your strategies aren't right, you're better off not getting involved.
The drug chains are pushing more than grocery chains in category management. Drug chains pushed us into it. Jewel Osco and Rite Aid are big into it. They're moving more rapidly than grocery. Their top management is more committed to it than grocery.
The Role of Category Captains
SN: What advantages does a category captain role offer manufacturers and retailers?
MUSICO: There are many issues involved in being a category captain. Once you assume that captain role it's really resource intensive. Those resources have to be shared. People who understand it and its value are adequately resourced on both sides.
The role needs to be defined up front. Different retailers will have different objectives and look at it differently. You don't run the same template with everybody. It's not to be looked at as a magical roadmap that when you get to the end you can assume you will make more money. That's not necessarily true.
PURIGRASKI: There has to be a lot of trust between one another. The amount of integrity has to be of the utmost. We are getting a lot of information that could put you in a precarious position with your customers if you don't handle it right. If somebody is giving me scan data, I can use it or pass it along and give it to one chain and let you know what's happening at another chain. There's just a lot of information that years ago you never would have thought would be passed on today. It causes companies to take a real responsible role.
SN: How difficult is it for a vendor who is No. 2 in the category to become a category captain, or will the category leader always win this role?
PURIGRASKI: It can be done, but the problem is the big investment involved. For us, it's an investment we don't expect to get paid back on and new business won't come from it. The only way we can afford the program is to rationalize that it is a way to better manage our line down the road. Then we'll get paid back.
As a category captain you've got to advise the retailers what product is right for them. There is tremendous cost involved. If you don't have the data from ACNielsen or Information Resources Inc. you don't know what's going on.
HIGHSMITH: It's according to how large the category is and how devoted the vendors are. Mostly No. 2 or 3 guys can't afford it.
PURIGRASKI: Then there is the investment in people.
This is just the beginning. As more people are hired as category captains, retailers will request more education from some of our people. So you have to have more dedicated expertise in managing that system in order to make it work. For us it's going to change dramatically the way we do business in future. Yet I am not sure exactly how it will evolve.
We still have to balance the fact that you have to have the right product at the right price and in the right quantity. Those three things have been true for 30 years I've been in the business. The basics haven't changed. It's just the information base applied to what we have all been doing that will make a difference.
HIGHSMITH: Although having the right product is important, you also need the right product in the right places, especially in diverse markets where ethnic sales come into play.
PURIGRASKI: That is one reason we bought the demographic software. Theoretically, it should tell me for your particular store and area what products I should put in vs. another store. At some point we'll get down to micromarketing and that is where a wholesaler will come in and really do that for the stores, if we are going to maximize our sales in your channel.
MUSICO: One of the improvements we can gain in our alliances as manufacturers, retailers and distributors is how do we execute regional and local programs efficiently. We have the data. The problem is how to get it implemented effectively store by store. How do we distribute and promote products that way? Are we going to work on pricing schemes based on how the consumer buys? This is where we may be able to work better together.
THOMPSON: There may be a problem in setting a store based on demographics in that the retailer may want to change his customer mix and compete with the guy up the street who has a different customer base. He may want to get his competitors' customers into his store. So this may or may not fit.
PURIGRASKI: That's why you've got to talk about your strategies up front, because they may or may not fit.
What I don't understand is that it seems like category management started with the grocery industry years ago. It seems like the grocery people had category management expertise on the food side. They started before the discounters, but it's not in nonfood. Now nonfood comes along and the drug stores are jumping on it and grocery is waiting to see. This kind of disconnect I'll never understand.
HIGHSMITH: Look at what percentage of your business is food.
WIKOFF: We have one category we are concentrating on in nonfood and two we are concentrating on in the grocery side. This is just to learn the process.
SHOOLTZ: Personally, I think that is grocery's attitude. Many people would say, We've been there in a less sophisticated way. Now with this sophistication, we're asking what's it going to do for me. What is this box going to do for us? That is the skepticism that has arisen.
THOMPSON: The answer may be found in the shoppers club. With all the capability of information analysis, we know who the best customers are. You may or may not have known that before. Strict category analysis will tell you how to optimize a category, but not necessarily how to optimize your store. If a person who buys my specialty cracker goes over and buys imported cheese, wine and smoked salmon, it may or may not be noticed by the guy that stocks your shelves. But it can be tabulated in the front of the store, and the next time you want to get that person you know exactly what you are going to sell them and how to merchandise it.
WIKOFF: We've also got more uniform product codes [in food]. We can get a better market analysis of what my store is doing in the snack category, for example, compared to the market. We do know for sure what products we carry compared to Schnuck's or Shop N Save and what the market category is doing. Part of it is getting uniformity in the whole nonfood category as far as coding and how we categorize it compared to the rest of the market.
HIGHSMITH: There also seems to be a lot more expertise in the grocery end too. Just the sheer volume dictates more expertise.
