Major wholesalers such as Supervalu, Minneapolis; Fleming Cos., Oklahoma City; and Associated Grocers, Seattle, are demonstrating strong commitments to category management efforts. The retailers they work with are reaping category-specific benefits including inventory reductions, sales increases and gross margin increases.
The ingredients for these success stories involve wholesalers working closely with their retailers, taking into account price, product, promotion, placement and demographics. The object is for stores to have the right products in-stock and on the floor, ready for consumers to purchase. Retail execution is also absolutely crucial to success.
"No matter what wholesalers do to educate retailers on the process, you have to have execution and then compliance at the store level to win the benefits," said Joey Ely, director of category marketing resources for Fleming, which services more than 3,000 retailers. Many wholesalers heartily agreed that without execution at the store level, category management is all for naught.
Other challenges for wholesalers doing category management include stores lacking point-of-sale data, great distances between stores and demographic differences in stores' customer bases.
But when these challenges are met, wholesaler-led category management efforts can achieve significant results.
Citing studies done this year, Fleming estimated category management efforts have resulted in stockkeeping unit reductions of 4% to 7%, inventory reductions of 3.5% to 5%, category sales increases of 3% to 10%, and gross-margin increases of 1% in specific categories in which it has worked with retailers.
"These aren't the big numbers people are looking for," said Ely, "but as I told a group of retail presidents the other day, 1% is significant to the total bottom line."
Leland Dake, vice president of category management at Supervalu, said the wholesaler is working with about 1,200 of its 4,500 stores on category management. Supervalu has experienced positive results in sales increases, SKU reduction, inventory reduction and gross margins.
For many, efficient assortment is often the first entry point to category management. Sources told SN this can be the easiest form of category management to do and can provide a big win.
Marty Hundis, merchandise manager of the marketing department for grocery and frozen food at United Grocers, Portland, Ore., said it does category evaluations and sends out suggestions when a category is "overskued." For example, Hundis plans to send a list of 80 frozen SKUs exhibiting what she calls "less than significant movement" to the retailers who account for 80% of the wholesaler's business.
Other wholesalers are taking a broader approach. Associated Grocers, Seattle, has developed a standard category management process that relies heavily, at least in its initial stages, on its category managers, who work with its retail groups.
Category managers choose the vendor partners. Selection criteria include a vendor's ability to link to product movement data from Information Resources Inc., Chicago, and ACNielsen, Stamford, Conn., as well as having space-management capabilities.
The wholesaler's managers review the category using a template that can be applied to any category, from frozen food to analgesics. The template includes information such as category definition, role, breakdown, assessment, trends, strategy/action plan and a success checklist.
This information is combined with scan data from the front end and married into the third-party company's data. This data tells the retailer about products competitors are selling successfully that might not be in the store's current product offering. This information, along with a schematic, is then presented to the retailer at group meetings.
"By using the same template, the same step-by-step process, the category management execution process is more efficient," said Bill Scully, director of sales for Associated Grocers. "And within the categories where we have applied this process, we definitely have improved the sales and profitability for the retailer."
So far 40 categories have been reviewed, with several more to be completed by year-end, said Scully.
He added that Associated is working toward store-specific schematics because of the different demographics the stores serve. To this end, the wholesaler uses software that zeros in on the different operating areas to indicate which categories have appeal, or "index high," in that area.
"We used this software for one store recently in central Washington, which indexed high in upper income and the baby category for accessories," Scully said. "And when you looked around at the location, it was populated by very young, upper income, educated people. It happened to be around Microsoft's headquarters.
"The baby category includes health and nutritional supplements and natural and organic foods and we weren't capitalizing on that," he added. "So we adapted the schematics to fit that store. We have to make our stores more like the communities we're serving."
Supervalu and Fleming also use this software as part of their category management processes to help cluster stores at the local level.
At Supervalu, wholesaler training and retail implementation of category management are in various stages in most of its seven regions.
John Grolmus, owner of a Supervalu store in Williamsburg, Iowa, said his store was among 100 in the Northern region that participated in a test of category management that began in April 1996.
"Retailers could go with a major reset or just category resets," Grolmus said. "We chose to do the whole store."
This involved Supervalu's headquarters providing printed reports of the movement on every item in the store for the 17 weeks prior to the reset. At that point, Grolmus eliminated 153 items that did not move well. Six weeks later the resets were done and 48 new items were brought in.
The same day as the reset, Grolmus replaced the store's order tags with new ones that included information such as profit in the category and weekly unit movement. The tag also had a letter designation that indicated whether the item was a high-, medium- or slow-moving item.
Grolmus said he is currently in the process of implementing monthly planograms and scrutinizing other items that could be deleted.
At the same time, the store is working with Supervalu on pricing. This involves pricing the store's top 200 grocery items very competitively for its market.
"We're the only store in a town of 2,500 people," Grolmus said. "But we've got Iowa City 30 miles from us, which is a big town of 150,000 people who can shop at Hy-Vee, Fairway and Cub Foods. We want to be competitively priced with them, and know where we can pick that gross back up in a trade-off of those top 200 items."
After two 17-week periods, Grolmus said his store saw a 15% decrease in inventory and a 7% profit increase in grocery. From April 1996 through September 1997, its bottom line profit increase was 1% to 1.2%, while labor costs dropped about 2%.
Fleming's strategy is to educate retailers about the benefits of category management and provide them with the tools to implement it.
Ely said its retail inventory management system focuses on the assortment/ordering part of category management using a shelf tag program.
The RIM II program, introduced two years ago, provides a category management foundation to manage merchandising, store design, buying, point-of-sale, automatic reorder and store time management. RIM II is a rules-based program in which the user has to define parameters.