CATEGORICAL IMPERATIVES

MINA WILLIAMS

SEATTLE (FNS) -- Supermarket executives working in perishables are increasingly looking for new spins on old problems in this age of technology to help grow customers, increase profits and trim all possible inefficiencies from the system. In the dairy, deli and bakery departments that means using technology to retool existing sales and marketing methods and to employ gathered data in an effort to provide the necessary decision supports.

As a result, new ways of thinking are emerging. Some operations have opted for proprietary software systems and others have turned to the models of category management, as used in grocery departments, to help identify the means to preferred profits. However, those operators who have tried to simply overlay category management templates, as used in center store, onto perishables have found several roadblocks in their quest for operational success.

"Category management is an effective tool as it is being applied to grocery," said Jim Riesenburger, Riesenburger Leenhouts & Associates, LLC, Rochester, N.Y. "But it is circumspect when applied to [perishables]."

"There is no standardized data and no benchmarking when it comes to data in the perishable departments," agreed one Midwestern operator, who requested anonymity, like others, in talking on the sensitive subject. "Coding in the deli is inadequate, market-share information is missing and competitive price indexing is not available."

A Southwestern retailer lamented that there is no clear place to start implementing at least some of the best practices promoted under the category management umbrella.

"You simply can't move forward without starting someplace," he said. "Deli people are under the gun to incorporate category management. The model is being brought in and shoved down our throats. But there are gaps, and in our rush to put something out, we have to make sure the raw data coming in is tended to correctly. Category management will happen, it will just take time."

Measuring the business has been at the root of deli, bakery and dairy executive's frustration in harnessing the power of category management. These departments are the freestylists of the supermarket world, where uniqueness is preferred over sameness; and random-weight sales are the rule.

"Because of the lack of standardized reporting, I'm missing what the market is doing and I don't know how I fit in, what products are missing and how I can get better performance of certain items," said yet another operator.

This "black hole" of archived data has proven most difficult to illuminate and has derailed most retailers' efforts when it comes to getting their arms wrapped around category management in the dairy, deli and bakery departments. However, new reporting systems are being put into place that may well prove to give perishable executives needed relief.

These range from more sophisticated, PC-based scale systems that work off the same network server as the front end; to wireless sensors that can help track product through the distribution chain, right down into the store. Nevertheless, the challenges facing the industry are many: Data warehousing is just one roadblock to taking better control of product movement. Traditional category management, on the grocery side of the business, is based on inventory turns and dollars per square foot. But in the perishables categories, management models need to take into account their primary selling points -- variety and exclusivity -- that fly in the face of traditional category management protocols, retailers told SN.

"The deli business is all about niche marketing and variety," said one retailer. "We have to deliver uniqueness. So far I have had a hard time using category management in helping me to identify a niche and learn how to manage it."

As operators grapple with category management templates, practices and tools, some industry observers point out that there is some lemonade among the pile of lemons.

"For years we have focused only on standardized codes," said Bob Bova, BB & Associates, Fayetteville, Ark. "Yet we don't have standardized products. What category management should do is help retailers sell more to current customers and lead retailers to discover ways to attract new customers. Hot deals are not the only answer and often don't build a customer base.

"Category management can be used to grow the business beyond using it to manage the product mix," he added. "When used to market to consumer needs [category management] can help draw customers into the deli. We can then begin to market solutions -- not just products."

Bova said that until category management gains a strong foothold in deli, dairy and bakery, retailers continue to be too volume-oriented and leave a lot of valuable profit-building data on the table.

"If we don't get into category management we will go back to the 1970s, losing money and losing customers," said Bova. "We have to change our ways and measure the business, and then put marketing dollars against the results."

The Madison, Wis.-based International Dairy-Deli-Bakery Association's recent study of category management identifies 27% of retailers using category management in the deli and bakery. However, the report does not specify the type, style and quality of gleaned data. Additionally, observers point out the poll's nonverbalized figure that nearly three-quarters of those questioned have yet to install fresh-focused management programs. Looking at the numbers, the experts interviewed by SN believe that retailers are actually employing a pick-and-choose approach to category management in perishables, rather than using total-category templates, while they rely on non-syndicated data to creatively turn principals into practice.

"I believe that close to 90% of grocery retailers use category management," said Kevin Burkum, director of cheese marketing, Dairy Management, Inc., Rosemont, Ill. "Category management is a perception."

Some industry observers look at fresh-foods category management programs as an inhibitor of innovation in the deli, dairy and bakery, particularly if such protocols are as strictly applied in those departments as they are in the Center Store areas. At the same time, other analysts see category management practices more simply, as a collection of best practices operators use to reevaluate their menu options and embark on an SKU rationalization process.

"I think everyone is using category management to some extent," said the Southwestern retailer. "It's a matter of how the model is molded to meet the needs of perishables. We expect category management to help us get the right items in the right stores. Where we are looking is where variety and profitability cross."

"In most cases retailers, look to their own existing data in the perishable departments," said Riesenburger. "Category management has helped on the grocery side of the business, but in perishables it is imperative to use an individual with experience in perishables to take into account all the facets and nuances."

Quadrant analysis is another method operators are using to manage perishable categories. "By looking at movement and applying that to the amount needed to keep an item, operators can delete items below the cut off," said Riesenburger. "Where the analysis comes in useful is when departments are being used to make a statement or gain foot traffic. Items in an Old World Imported Cheese Shop, for example, would look awful in a category management plan based upon movement. But should a retailer use that area to create a distinction, therein lies the benefit."

This hybrid approach to category management may well prove to be the best path for deli, bakery and dairy departments, operators agreed. These fresh areas are becoming an opportunity to apply core category management structure, but with allowances that speak to the consumers' demands for variety and selection. What these approaches to category management are offering up are new ways to evaluate ad rotation and product mix standards, retailers said.

As retailers' perishable category management projects make in-store gains, manufacturers are likewise expected to plug information holes. Category-wide, syndicated data may be easy to crunch and somewhat reliable, but such information can only go so far in an environment where specifics are the end goal. For help, retailers are looking to manufacturers to come to the table to supply not only products, but sales-related profiles. To that end, manufacturers have been using category management as a tool to improve their relationships with retailers.

"There are no true national-brand category captains," said Gregory Rotunno," DMI's director of milk marketing. "That leaves opportunity wide open."