Retail supermarket owners and managers are embracing the concept of category management in an effort to beat back the increasing competition they are feeling from warehouse and club stores.
Instead of focusing on individual items, store managers are looking at overall categories and even entire Center Store aisles to enhance the shopping experience, retain loyal customers and development new markets, consultants and store officials say.
Manufacturers and retailers "are obtaining strong results from category management initiatives," according to a recent study by Cannondale Associates, a leading sales and marketing firm based in Wilton, Conn., and Evanston, Ill. "Retailers attributed a 19% average dollar sales growth to category management, while manufacturers reported an average 11% sales increase from the practice," both of which outstrip overall retail sales increases, which have been held to single digits in recent years, concluded the study, titled "Category/Loyalty Management, 2001 Industry Benchmarking Study: Bridging the Gap ... Insight to Execution."
"Category management means understanding entire categories rather than just knowing which stockkeeping unit sells well and putting that item on the shelf," said Spencer Overby, general manager of merchandising services for Unified Western Grocers, based in Los Angeles, Calif. Unified Western Grocers includes more than 4,000 food outlets, including approximately 1,600 retail supermarkets in California and the Pacific Northwest.
Supermarket chains have been developing category management for the past few years and independent retailers are now becoming more immersed in the process.
"Each independent retailer is trying to develop his own niche and to do that he has to understand the customers, which is done by studying market trends, IRI and ACNielsen data and shipment records. Independent retailers do not have frequent shopper card data to rely on," Overby said. "Using pet food as an example, category management means understanding the single cat owner vs. the multiple cat owner and the big dog owner vs. the little dog owner and knowing which are your customers.
"In order to have an efficient assortment of SKUs, you have to understand the customer first and then design the category to be more attractive to that customer," added Overby, who, before becoming merchandising manager for Unified, helped a large supermarket chain develop its category management program. "Some stores are taking it a step further and designing entire aisles. For instance, they might have a pet aisle that becomes a store-within-a-store.
"This has been done in other sections of the supermarket, such as deli and produce, in the past, but it is now being adopted by the Center Store, which is where 80% to 90% of a person's shopping is done," he added.
Drawing customers back to the Center Store section of the supermarket is a goal of category management.
"The logical end result is that an efficient assortment of products engenders customer loyalty and tightens the bond between customer and retailer, making it almost personal," said Don Stuart, a partner at Cannondale. "It is like a neighborhood store of the past, but now it is electronically assisted. Supermarkets have only made a dent in leveraging the data available from frequent shopper cards into making marketing decisions.
"It could develop that individual stores within a chain would have a smaller assortment of items, but the overall chain would have a larger assortment, because each store would cater to the individual customer."
Cannondale advises retailers: "To improve retail performance, leaders in category management will identify, understand and target the most profitable consumer, determine the optimal product assortment and measure the programs to show successful results."
Category management means solution-based marketing, Stuart added. "Packaged meal solutions or integrated sales of beverages and snacks are examples. This is a concept that was called cross merchandising, but now is being taken a step further. Club stores and warehouse stores are not as savvy at this as retailers can be. It is a great opportunity for retail supermarkets."
Thriftway Food Markets Northwest in and around Seattle, Wash., take advantage of this concept, said Mike Richbaw, grocery manager for Queen Anne Thriftways in Seattle and Tacoma and an Admiral Thriftway in West Seattle.
"This is a matter of convenience. Our stores are in upscale neighborhoods so we are able to do a lot of meal solutions because people are able to pay for the convenience we can provide. We try to gear everything to gourmet tastes more than a standard grocery," Richbaw said. "We specialize in quality products and we put them together into complete solutions packages, so a customer can get an entire meal featuring swordfish or shrimp from one stop at the store. That sets us apart from other stores and makes us different from stores in middle class neighborhoods."
Tom Jackson, president and CEO of the Ohio Grocers Association, agreed that much of the motivation behind the concept of category management is to make shopping as easy as possible for busy shoppers.
"The key word for merchandising today is convenience," Jackson said. "That means destination- or solutions-based merchandising. This was a merchandising technique used at first during holidays but now it is done all year long.
"For instance, I saw a great display of soups, chili, crackers and all the ingredients to make chili right down to the spices. Others have Super Bowl displays complete with recipes for snacks," he added. "This used to be called tie-ins or cross merchandising, and the concept is still alive, but this kicks it up a notch or two. Instead of having just two related products, the retailer will have an entire grouping of items.
"We know how important it is to make shopping fun and exciting, but also convenient, for the customer," Jackson said. "The idea is: Let's take the Center Store items and market them in a convenient manner. Group everything together and make it timely -- you don't want soup displays in June.
"This is how a small store competes," he continued. "Not everyone wants to shop in a 200,000-square-foot store, but the bigger the store, the more important it is to make it convenient, so category management works for both big and small stores. And let's face it, it's the Center Store that makes the supermarket tick."
Albertson's, which has retail outlets in 37 states, is utilizing the technique to try to bring back sales to the Center Store aisles, according to spokeswoman Jenny Enochson. In addition to eliminating underselling items, the chain is focusing on improving promotions, she said.
It is an example of efforts undertaken by many stores to return the focus of the supermarket customer on the Center Store products, said Jackson. "It is necessary because of the competition of warehouses and superstores and because of the consolidation of chains. This is how a small retailer can compete, but it requires knowing your customer intimately.
"The key is to create a customer-friendly merchandising scheme," he added. "Retailers have to avoid sending consumers on a 'treasure hunt' throughout the center aisles in order to find sauce, cheese and pasta for an Italian meal."
Knowing which solutions-based merchandising will work depends on knowing the customer and that is being made possible today because of the data base that can be developed from frequent shopper cards, but retailers have to learn to make use of that information in better ways, rather than just gathering it, the consultants said.
The researchers at Cannondale agree.
"In the beginning, category management was focused on brand/category performance. Today, trading partners are taking category management shortcuts and focusing on loyalty marketing. In the future, manufacturers and retailers will obtain greater results by delivering superior execution linked to deeper consumer insights. Retailers will begin to manage occasions rather than only categories; and they will manage aisles rather than single categories," Cannondale concluded.
The Partnering Group, which studied category management for the Food Marketing Institute, also concluded that coordinated merchandising, based on decisions made using information gathered from frequent shopper cards, resulted in improved sales.
For instance, sales of hot and cold cereals, when the entire cereal category was coordinated for display and promotion, increased by 55% for cold cereal and 33% for hot cereal within a year at a select group of retailers, a Partnering Group study showed.
An estimated 90% of all retailers were expected to adopt some form of category management by the end of last year, predicted the Partnering Group, a management consulting firm designed to help suppliers and retailers maximize the use of consumer data to improve sales.
"Never before has a single industry goal -- efficiently and effectively meeting consumer demand -- required such intense knowledge" of a consumer base, the group's study concluded. The category manager must know "how to eliminate costly duplication and maximize variety [which requires] a complete customer profile."
