Retailers are taking greater advantage of data analysis technology to launch efficient store assortment programs and drive category profits.
By reducing item duplication and enhancing variety, a growing number of retailers are using efficient assortment to improve shelf turns, increase sales per square foot and boost their store's image in the eyes of the consumer.
Efficient assortment is one of the key components of the industry's Efficient Consumer Response initiative. ECR proponents project that an estimated $4.2 billion in operating costs can be trimmed from the distribution channel if retailers, manufacturers and distributors implement efficient assortment best practices.
To date, few retailers or wholesalers have made major strides in this area. But that is starting to change.
Among retailers taking steps to increase store shelves' profitability and variety is Schnuck Markets, St. Louis, which is working to scale back on duplication while enhancing variety, said Rick Frede, group vice president of grocery, dairy and frozen.
"We are looking at the variety in each category and determining which items are truly unique and which items are redundant. For example, in the peanut butter category, do we really need five brands and five different sizes," he said.
In addition to determining how many sizes of a given product the store needs to carry, it's also important to examine the relative value of each segment within a category, Frede said.
"Items such as sugar-free, low-fat or all-natural may not sell as well as other stockkeeping units in the category but they are more important to the consumer -- because of their uniqueness -- than having five sizes or five brands of smooth and crunchy."
While such an approach seems fairly simple, shelf allocation decisions become more difficult when products that make the cut are not the profit-drivers. Still, Frede said, retailers have to keep variety in the mix, or their customers will find the items they want someplace else.
"We would rather continue to stock the unique items and ask the consumer to change to a different size of the brand they are wanting to purchase," he said.
In studying each product category, Schnuck uses a software program to conduct "quadrant analysis" on each individual SKU. A spreadsheet program is used to determine if each SKU is contributing to the category the way it should, based on total sales, tonnage, gross profit percent and gross profit dollars compared with other items in the same category.
"And just because an item doesn't meet our category profit objectives, we won't necessarily discontinue the item. We will re-evaluate our position on the item: Should we promote more often? Change our shelf sets? Adjust the pricing?" Frede said.
"If these efforts do not improve the profitability of the item or its effect on the category, we might decide to discontinue the item," he said.
Quadrant analysis also has been an invaluable tool in assessing a product's performance within a category, Frede added. "It can also open your eyes to unproductive SKUs that you've kept around probably for all the wrong reasons. You realize that your gut feel may not be sufficient."
Gut feel alone is probably not enough to maximize efficient assortment, but it shouldn't be dismissed altogether either, said Mike Marek, director of grocery and nonfood merchandising at Seaway Food Town, Maumee, Ohio.
"The first thing you have to have is the data. Without being able to set up the right structure and operate out of the data base, you're operating [only] on a gut feel. You need to marry that gut feel with fact-based data to make the right decision," he said.
Seaway Food Town is tackling the efficient assortment challenge with technology upgrades on two fronts. A local area network of personal computers, which was installed at headquarters last month, will enable merchandisers to share data more easily. At the same time, a wide area network project now under way will provide a "real-time" communications link between the main office and all 65 stores.
Currently, two pilot stores are on-line with the WAN, with other stores in the process of being added. By next summer, the entire chain will migrate from an item-number based warehousing system to a universal product code-based retail system.
The long-term goal, said Marek, is to equip store managers with tools to analyze their own product mix and "push more decision-making into the stores."
For now, merchandisers at headquarters are monitoring product movement of the two pilot stores. "They can look right into the store and see what's being sold at the store as it happens" through the wide area communications network, Marek said.
Though Seaway Food Town is too early into its efficient assortment program to report any results, Marek said there has been some valuable learning. The two pilot stores, located in different neighborhoods of the same city, were found to require different mixes of ethnic products.
"We've always known that no two stores are alike," he added, "but it points it out more when you begin to look at the data."
Marek is optimistic the technology investment in efficient assortment will prove itself time and again. "Without the technology, I don't think retailers are going to do as good a job as they should," he said.
Bill Bishop, president of Willard Bishop Consulting, Barrington, Ill., said supermarket companies -- retailers, manufac- turers and wholesalers alike -- are making measurable strides in efficient assortment.
"As I travel around the country, I'm finding retailers who are working aggressively on efficient assortment and I'm finding wholesalers that are looking very critically at their assortments," he told SN.
One such wholesaler scrutinizing its product offering is Spartan Stores, Grand Rapids, Mich., which successfully reduced its total inventory by $20 million about two years ago.
"And now we're trying to take that to the next level: How can we reduce it even further without disrupting our ability to serve the consumer," said Jim Swoboda, manager of grocery procurement.
Spartan has accelerated efforts to reduce its inventory in recent weeks, Swoboda said. Company studies determined that about 2,500 of a total of 8,200 dry grocery products contributed only 10% of sales.
"We came to the conclusion that there are probably some things that could go away without affecting sales and probably make us more efficient by getting the consumer to trade to a different size or flavor," he said. "Recently, we've decided to get real aggressive."
Spartan's five dry grocery buyers, then, were handed the task of finding ways to reduce inventory 5% by the end of this year.
"Quite frankly, we're taking a consumer approach to this. We're going to put together our brain power and ideas and talk about them as a team to make sure there's nothing we're overlooking before we take something out of distribution," Swoboda added.
Finding innovative ways to meet retail customers' demands while reining in the wholesaler's inventory is the primary challenge before Spartan, he said.
For example, if a 15th flavor of cake mix is taken out of distribution -- yet there remains one retailer who wants that product -- Spartan must find a way to deliver it.