CHICAGO -- Shifting the emphasis of Efficient Consumer Response from supply-side initiatives to demand-side applications has enabled Wegmans Food Markets to improve movement and profitability within the beverage category and to do a better job of managing all categories, Daniel Wegman said here last week.
Speaking at a workshop session during the annual Food Marketing Institute convention, Wegman, president of the Rochester, N.Y.-based chain, said his company's four-year partnership with Coca-Cola USA, Atlanta, has boosted soft-drink sales 68% in dollars and 28% in case movement since 1992 "by showing us how to focus on selling, not buying -- lessons that have applications in all categories," he said.
"Before we began partnering with Coca-Cola, we were planning soft-drink promotions based on the lowest deal price we could get today. But at Coke's urging we adopted a category management approach that focused on longer-range planning, what we're doing well and what we're not doing well, how we can achieve maximum profitability and what kinds of changes we can make to become more appealing to consumers."
He said Wegmans intends to move beyond category management to category marketing and consumer-specific targeting -- "demand-side applications of ECR."
According to Jack Stahl, president of Coca-Cola USA, "Category marketing enables you to optimize a category and get all the growth possible by matching up how the retailer positions its store with customers and how we define our position, which provides opportunities to create synergies and real store excitement to leverage the power of both brand names, Coke and Wegmans."
Wegman said he sees opportunities for customer-specific marketing through the chain's frequent-shopper program, which has 50,000 households on-line, with the possibility of ultimately expanding to include 3 million homes.
"Those are the customers we should be directing promotions at, but for years retailers and suppliers have each been spraying 10% of their promotional dollars to programs that can now be redirected at our best customers," Wegman said.
"The goal is to grow faster using less money to solidify the loyalty of our existing customer base and to build loyalty among new customers. Utilizing two-way communication to approach each customer, we can understand them better and develop a more rewarding future for both us and Coca-Cola."
In his talk, Wegman emphasized the importance of developing a strong partnership with suppliers. "But you don't want to spread yourself too thin with too many partnerships," he warned.
"You need to take a more focused approach. You don't need 50 different partners -- just enough to provide new learning that can be spread throughout your organization."
Since its partnership with Coke started, Wegman developed its own private-label line of soft drinks "with the thought that our gross margins would be higher," he said.
"But applying the principles of activity-based costing, Coca-Cola showed us where we were really making and losing money in the soft-drink category and helped us improve profitability in the entire category."
One key for Wegmans was learning it could increase sales by trying to service customers' immediate beverage needs as well as their future needs.
In response to a question from the audience, Wegman said Coke's advice "helped us understand how to meet the needs of customers looking for value as well as the type of quality- and service-oriented customers Wegmans strives to attract.
"We've learned that the beverage business goes beyond brand names to packaging, flavors and size differences. And we've learned how to use those tools to get customers who like to shop around for price as well as to appeal to customers less sensitive to price, such as the person seeking beverages for immediate consumption."
According to Stahl, Wegmans is putting more emphasis on merchandising, assortment and packaging in soft drinks to achieve greater profitability, "and we're approaching a new frontier where we're looking at consumer data in more depth to see how it might impact our message and then working toward the next step in the process, which is marketing at a higher level.