Category management programs have yielded strong, sometimes dramatic, results for retailers and wholesalers, reducing the number of stockkeeping units in the supermarket and promoting more effective use of retail selling space.
But many distributors are discovering that garnering these benefits requires a larger investment than they had anticipated, both for computer systems to analyze and integrate data from numerous sources, and for dedicated category management personnel.
In addition, sources told SN many category management programs still lack a crucial element -- point-of-sale movement data -- which prevents them from focusing on what items customers really want and respond to. In addition, integration of customer-loyalty program data with category management programs would allow retailers to make decisions based on the preferences of their most profitable customers.
"We need to make decisions on human levels -- not just on numbers," said Dick Rinehart, president and co-owner of Dick's IGA, River Falls, Wis.
Category management has proven more complex than Rinehart initially thought, though it has produced significant benefits for the two-store retailer. "We've been using category management for about five years -- the last two years intelligently," he said. "It's now easy for us to monitor movement of all 23,000 items in the store.
"It's amazing what you can do if [shelf] allocation is done right," Rinehart added. "We're now doing in our 25,000-square-foot store what you used to need 30,000 to 35,000 square feet to do.
"Somehow, we didn't realize that we were carrying 29 different kinds of olive oil" he added. But after implementing category management, "we noticed that only seven of them were moving. So now we carry just seven, because that's what our customers want. And it's freed up space for other items."
These strong results from category management need to be put in perspective, sources told SN. "The success varies depending upon how astute the grocer has been prior" to beginning a category management program, said Richard Harwood, manager of retail services at Certified Grocers of California, Los Angeles.
C. Gordon Wade, chief executive officer of Cincinnati Consulting, Villa Hills, Ky., noted that "retailers always thought they were doing category management.
"In reality, many retailers were and still are poorly prepared, and don't have the time or the personnel to produce a well-thought-out, well-reasoned category management plan," Wade said. "It's too lengthy a process, and they're not geared up to get out of the process what they really need. That causes many retailers to be badly stressed by category management."
Despite such shortcomings, Wade asserted that category management has been "a resounding success. It has forced everyone to focus on the consumer."
"In many cases, it's the greatest thing that's happened to the food industry in generations," said Certified's Harwood. "What I tell my members is: 'Remember everything we promised you when we introduced scanning 25 years ago? Now I can deliver it.' "
"Category management has given us tools that make it easier to make decisions on discontinuing items," said Tom Outlaw, vice president of grocery sales at Ingles Markets, Black Mountain, N.C. "With the old method, we looked up case movement every so often. Now, we can look at dollar sales, profitability and space/sales relationships."
Kirby Foods, Champaign, Ill., is new to the category management arena. "We just started last fall," said Vic Buraglio, president and co-owner, "mainly because we wanted to try to reduce SKUs."
The retailer was able to implement a category management program "because it was offered at a relatively nominal cost from our supplier, Supervalu." Buraglio, who has now implemented the process in 15 of Kirby's 18 stores, said Minneapolis-based Supervalu "told us that [category management] cut their own SKUs by 10%. In addition, they do a lot of the work. They review our data, then send us planograms for approval."
Certified Grocers of California uses an automated system to make category management recommendations. "We take the data, then generate 'Add' and 'Delete' lists," explained Harwood. "We'll recommend pulling the zero or near zero movers."
But good category management also depends upon being able to create space to introduce new items. "Our 'Add' list is based upon other data we have about what's selling in our member's [geographic] market," he said.
After Harwood sends the As with most programs, it takes time to realize the benefits of category management. Jim Dippold, vice president of global marketing for category management at ACNielsen, Schaumburg, Ill., said that a mid- to large-size retailer might require an initial outlay of about $500,000 to buy new servers, relational database software, consumer scanning data and consulting services.
Taking all costs into account, Dippold estimates that it would probably take most companies "about two to three years for payback."
In addition, not everyone sees category management as nirvana. Paula Anctil, senior vice president for sales and marketing for United Grocers, Portland, Ore., a wholesaler that supplies 450 supermarkets and 900 convenience stores, believes that "category management has had a marginally positive impact on the industry."
After using category management software for about 3 years, United Grocers abandoned it 10 months ago. "It wasn't giving us what we need," Anctil said. "The program ran off warehouse data, not customer scan data, so it just wasn't useful."
Category management has also yielded some unwanted results. Dick's IGA's Rinehart complained that the sophisticated number-crunching capabilities that identify slow-moving items "sometimes cause a slash and burn effect by our wholesalers. If an item doesn't sell 25 cases a week, it's out of there."
He added that when wholesalers have eliminated variety, "I've had to go to smaller wholesalers to get what our customers want."
had anticipated, both for computer systems to analyze and integrate data from numerous sources, and for dedicated category management personnel.
In addition, sources told SN many category management programs still lack a crucial element -- point-of-sale movement data -- which prevents them from focusing on what customers really want and respond to. Integration of customer-loyalty program data with category management programs would allow retailers to make decisions based on the preferences of their most profitable customers.
"We need to make decisions on human levels -- not just on numbers," said Dick Rinehart, president and co-owner of Dick's IGA, River Falls, Wis.
Category management has proven more complex than Rinehart initially thought, though it has produced significant benefits for the two-store retailer. "We've been using category management for about five years -- the last two years intelligently," he said. "It's now easy for us to monitor movement of all 23,000 items in the store.
"It's amazing what you can do if [shelf] allocation is done right," Rinehart added. "We're now doing in our 25,000-square-foot store what you used to need 30,000 to 35,000 square feet to do.
"Somehow, we didn't realize that we were carrying 29 different kinds of olive oil" he added. But after implementing category management, "we noticed that only seven of them were moving. So now we carry just seven, because that's what our customers want. And it's freed up space for other items."
These strong results from category management need to be put in perspective, sources told SN. "The success varies depending upon how astute the grocer has been prior" to beginning a category management program, said Richard Harwood, manager of retail services at Certified Grocers of California, Los Angeles.
C. Gordon Wade, chief executive officer of Cincinnati Consulting, Villa Hills, Ky., noted that "retailers always thought they were doing category management.
"In reality, many retailers were and still are poorly prepared, and don't have the time or the personnel to produce a well-thought-out, well-reasoned category management plan," Wade said. "It's too lengthy a process, and they're not geared up to get out of the process what they really need. That causes many retailers to be badly stressed by category management."
Wade's criticism is not limited to distributors. "Manufacturers should know what works for their product -- what kind of pricing, packaging and positioning. But they were hideously, improperly prepared to provide the needed data. The manufacturers were derelict and had a complete lack of business discipline."
Despite such shortcomings, Wade asserted that category management has been "a resounding success. It has forced everyone to focus on the consumer."
"In many cases, it's the greatest thing that's happened to the food industry in generations," said Certified's Harwood. "What I tell my members is: 'Remember everything we promised you when we introduced scanning 25 years ago? Now I can deliver it.' "
"Category management has given us tools that make it easier to make decisions on discontinuing items," said Tom Outlaw, vice president of grocery sales at Ingles Markets, Black Mountain, N.C. "With the old method, we looked up case movement every so often. Now, we can look at dollar sales, profitability and space/sales relationships."
Kirby Foods, Champaign, Ill., is new to the category management arena. "We just started last fall," said Vic Buraglio, president and co-owner, "mainly because we wanted to try to reduce SKUs."
The retailer was able to implement a category management program "because it was offered at a relatively nominal cost from our supplier, Supervalu." Buraglio, who has now implemented the process in 15 of Kirby's 18 stores, said Minneapolis-based Supervalu "told us that [category management] cut their own SKUs by 10%. In addition, they do a lot of the work. They review our data, then send us planograms for approval."
Certified Grocers of California uses an automated system to make category management recommendations. "We take the data, then generate 'Add' and 'Delete' lists," explained Harwood. "We'll recommend pulling the zero or near zero movers."
But good category management also depends upon being able to create space to introduce new items. "Our 'Add' list is based upon other data we have about what's selling in our member's [geographic] market," he said.
After Harwood sends the recommendations to the member store, "The manager will always tweak the list, because that's the nature of independents. Once we get his OK, we send in a team made up of vendor support plus our own people. The team washes, scrubs and resets every shelf in the store."
As with most programs, it takes time to realize the benefits of category management. Jim Dippold, vice president of global marketing for category management at ACNielsen, Schaumburg, Ill., said that a mid- to large-size retailer might require an initial outlay of about $500,000 to buy new servers, relational database software, consumer scanning data and consulting services. "We find that many mainframe computers used by supermarket companies are set up for transactional data processing. But raw data is not good enough for proper [category management] support," said Dippold. "The data needs to be massaged to generate the right results."
In addition, effective category management often requires retraining staff or creating new, dedicated positions. Even smaller companies may require adjustment. Buraglio said that Kirby Foods has assigned one staff member to category management, changing his existing title to "retail coordinator."
Many larger companies now have one or more category manager titles, for grocery, nonfood, produce and other product areas.
Taking all costs into account, Dippold estimates that it would probably take most companies "about two to three years for payback."
In addition, not everyone sees category management as nirvana. Paula Anctil, senior vice president for sales and marketing for United Grocers, Portland, Ore., a wholesaler that supplies 450 supermarkets and 900 convenience stores, believes that "category management has had a marginally positive impact on the industry." She sees its main benefit as "keeping us focused on what consumers need. You have to work backwards from what the consumer wants."
After using category management software for about 3 years, United Grocers abandoned it 10 months ago. "It wasn't giving us what we need," Anctil said. "The program ran off warehouse data, not customer scan data, so it just wasn't useful."
Category management has also yielded some unwanted results. Dick's IGA's Rinehart complained that the sophisticated number-crunching capabilities that identify slow-moving items "sometimes cause a slash and burn effect by our wholesalers. If an item doesn't sell 25 cases a week, it's out of there."
He added that when wholesalers have eliminated variety, "I've had to go to smaller wholesalers to get what our customers want."
Kirby's Buraglio said category management would be more effective if manufacturers took a "harder look before introducing more 'me-too' products. How many Gatorade-type drinks do you really need?"
Even with these issues, reports of the success of category management programs are likely to spur further adoption of the process, as will the introduction of new software programs that integrate data such as geographic market sales, the retailer's POS movement and customer-loyalty databases.
