BABY STEPS IN SPACE MANAGEMENT

LISA SAXTON

The space age is dawning for the baby aisle. As more and more supermarket chains and independents try to integrate computerized, scan data space management programs into the center store, they're running into a particularly thorny challenge in the baby aisle -- a place where ancient laws of merchandising physics can defy the neatest computerized planogram.

The question is, can supermarkets use space management to substantially alter the profit equation for the baby aisle, home of some the most notorious loss-leader categories in the store?

While no simple answer has yet emerged, merchandisers are starting to grapple with this question as new space management programs filter through their in-house management information systems departments and category management structures.

Meanwhile, major vendors in the baby aisle have been making the rounds among their important customers, presenting space management strategies of their own in an effort to get retailers to rethink their assortments and shelf allocations, with an eye toward total category efficiency.

In interviews with SN, supermarket officials expressed doubts about whether computerized space management alone could make important, extremely competitive sections such as baby food and formula more profitable.

"When we do an evaluation of the baby food section, it shows it's a 'loss' category," said Jerry Gregory, space management manager for Associated Grocers, Seattle, echoing the frustration of other managers who have been trying to apply computerized space management principles there.

However, retailers and wholesalers said higher forms of space management can be beneficial in eliminating needless duplication, preventing out-of-stocks and making fine adjustments in the number of facings category by category in the aisle.

Associated's Gregory said he is using his space management technology tools to identify specific areas within retailers' baby sections where sales can be maximized.

"We're looking at saying, 'This item needs this many facings to not run out of stock, and we want this item in a certain location because that's where the store is making the money,' " Gregory explained.

Retailers agreed that if any center store section looks like it could use help in boosting profitability, the baby section certainly does.

"We lose more money on baby food than any other area in the store," said a medium-sized Midwestern retailer whose comments reflected the situation found at many chains across the country. Instead, chains and wholesalers are looking for ways to use the potential power of space programs to point up the baby aisle's strengths.

"Baby food is a loss leader or at least sold at cost," one retailer agreed. On the other hand, "the person that spends the most money in the store is the young mother," he said. Viewed in that light, any tools to help maximize baby food sales could only be a help, to both the section and the total store.

"We're putting a little more science into what was mostly art; we're looking at the numbers behind it," the Midwest retailer said.

However, baby aisle sales are likely to remain sensitive to issues such as price and variety, despite the growing sophistication of retailers' self-analysis.

"We're getting smarter and smarter, but the customer we're dealing with is still the same," one retailer said. Mothers will continue to look for certain baby products, whether or not they're big sellers or profit makers.

In reality, retailers said, even if the numbers indicate that a certain item should be eliminated, they often can't do away with it because there are going to be parents looking for it.

Some retailers were skeptical about how far they could go, especially in the baby food category, with the recommendations of a space management program.

"I mean, we're not going to say, 'Gee, we can't have strained pears because we only sell a few,"' said Albert Lees 3rd, vice president of Lees' Supermarket, Westport, Mass.

Lees said that where it can help in the baby aisle is getting rid of unnecessary duplication and triplication of products.

"But one-of-a-kind items -- I don't care how little they sell -- you can't get rid of them unless you're a limited-assortment format. If you're a conventional or variety-driven format, you have to have the variety for people, and you take the good with the bad."

Lees did envision a helpful role for space management in the baby food category, however. "If we happen to be overstocked in a particular item, maybe there's some solution to be found in manipulation to pick up a little additional footage, or maybe merchandising something related to it."

A space management executive for an Eastern chain agreed that computerized space programs would likely have little effect on the baby food category.

"The No. 1 market segment that you wish to own is the young marrieds with children," he said. "And the problem with baby food -- and, traditionally, diapers and formula -- is that they have to match the marketplace" in price and promotional activity, he said. And those outside forces can work quite independently of, and even counter to, in-house profit goals.

"Space management will clean up the category in terms of carrying items, but that has no effect on the gross," the Eastern retailer said. "If you're making 4% or 5% across the category, if you drop items, you're still making 4% or 5%."

Space management in the diaper section can possibly improve the bottom line, if applied to the merchandising strategy of private label, he said. If the higher-margin packer and private-label diaper facings are increased and brand manufacturers' facings decreased, for example, consumers can be steered to "swap," he said.

If there is any opportunity for space management to improve the baby food section, it would be in the products geared toward older children, such as Gerber Graduates, said retailers.

Indeed, Gerber and the other heavyweights of the baby aisle, such as Kimberly-Clark and Procter & Gamble, have been offering retailers their own versions of planogram programs to help in the merchandising of the aisle.

Retailers contacted by SN said they've been looking at vendor-generated programs and are open to the possibility of using them. But some retailers offered a few caveats.

"We'll hear anybody out," said the East Coast retailer. "But anytime a manufacturer is doing space management for a retailer, 90% of the time what they're also trying to do is what they did in the old days -- which is to gain the upper position, gain the eye level, gain the facing.

"And the retailer's level of sophistication has a lot to do with what they walk away with. Anytime you give space management work to a manufacturer, you are basically conceding the gray area -- the area where the facing could either go here or there. You can expect them to take that facing," he said.

He also noted that the relationship between a retailer and a manufacturer in space management is not that different from a sales relationship, where the results are mutually beneficial.

A space management expert at Fred Meyer Inc., Portland, Ore., said that what typically happens with manufacturers is they'll ask to propose a specific planogram on how a category can best be merchandised. It is then up to the company's buyers and merchandisers as to whether Fred Meyer will go with that planogram or another.

One Midwestern retailer said he is mindful of the temptation for manufacturers to use space management services to their own advantage. "They can give you slightly skewed figures on a planogram," he said, recommending that retailers look at what market the figures come from, and whether they match their own market. Do the figures weigh growth factors? And how realistic are the figures?

"If a man sells one [item] one year and two the next, it's a 100% increase. So it's a matter of how you use the figures," he said.

For now, retailers are starting to "use the figures," whether supplied by a vendor or generated in-house, in an attempt to help the baby aisle do a better job. Large chains are likely to invest the $50,000 or $60,000 in space management, said one retail chain source.

"We're looking at a package where we'll be able to put all the items, the interiors, the movement and so forth in the computer. And it will generate; it will help us manage our space and help us make better decisions."