CATEGORY CAPTAIN

Michael Garry

Over the past 15 years, category management has been a much-discussed, but not always executed, means of maximizing the profit potential of product categories. Spartan Stores is proving that a commitment to category management can pay off.

"We believe category management has played a major role in improving our performance," said David deS. Couch, vice president of information technology, Spartan Stores, Grand Rapids, Mich. "Since we run a traditional supermarket format and our stores vary in size, we must have the right product at the right time, priced appropriately. Category management is essential to make that happen."

Category management is not the only technology-based initiative Spartan has emphasized over the past few years. It has invested in a range of IT systems to support both its corporate and independent stores and its two distribution centers. All told, the company operates 54 corporate supermarkets (Family Fare and Glen's Markets) and 21 deep-discount drug stores (The Pharm) in Michigan and Ohio, while serving more than 330 independents.

Yet, category management may be the linchpin behind the strategy devised by Craig C. Sturken, who became Spartan's chairman, president and chief executive officer in March 2003. That strategy is simply to become more "consumer-centric" in a marketplace characterized by a massive amount of supercenter competition.

Sturken has described category management as "one of our strongest near-term sales and profit growth opportunities." In Spartan's 2004 annual report, Sturken wrote, "Restoring profitability in our retail operations by turning category management into a more disciplined science throughout our organization continues to be a critical objective."

Recent numbers released by publicly traded Spartan, the nation's 10th largest wholesaler, suggest that its strategy is working. For the fiscal year ending March 26, Spartan reported overall net income of $18.8 million, vs. a loss of $6.7 million in the preceding year. Sales for the year were down 0.6%, to $2.04 billion, but reflected lower sales in the drug store division and in distribution.

Category management has been used to drive major resets of Spartan's corporate stores that reflect "the overall flow of categories in a sequence," said Couch. Because Spartan's corporate stores represent a composite built from six acquisitions, the company is still working to standardize the overall category presentation across many configurations. "We have been working through this process for the last year and a half, and there is a schedule for the remaining stores," he said.

In addition, individual categories are continually reset -- both for corporate stores and independents -- through an annual category review schedule governed by seasonality and vendor activity. The category review process "is used by our category managers to evaluate and understand each category," Couch explained. "Through this process, they develop a strategy to tailor the assortment, price and promotions for the category."

Making Comparisons

How does the category review process work? First, analysts try to evaluate each category by assessing overall consumer preferences for each product, based on such measures as household penetration and frequency of purchase. Then, using a scorecard, they look at how Spartan's stores are performing in the category, vs. other retailers in the market area, region and nationally

"The process is to understand the role of the category in our market area, the region and nationally, then look at how the category is positioned in our stores," Couch noted. "Then, based on the analysis of the category, we determine how to tailor that category's position, if necessary, in our stores."

The category review process is largely driven using applications from ACNielsen, Schaumburg, Ill., such as Nitro, as well as the "category management workbench" in Spartan's data warehouse. Assortment management, including planogram generation, is based on ACNielsen's Spaceman system and ChainTracks HQ, from SofTechnics, Akron, Ohio. Price management is handled with a combination of ACNielsen's Priceman and ChainTracks HQ. The primary source of data on consumer buying habits is ACNielsen and Spectra Marketing, New York.

ACNielsen applications have been used for the last year and a half, while ChainTracks HQ was just implemented in February. ChainTracks HQ "has given us a much more sophisticated price and item management system for operation of a supermarket chain of our size and larger," said Couch.

In addition, Spartan is enhancing its data warehouse, which provides the tools for analyzing scanning data. Business intelligence software from MicroStrategy, Mclean, Va., is the primary tool used to provide reporting from the data warehouse. Brio Query, from Hyperion, Sunnyvale, Calif., is used for ad-hoc reporting from the data warehouse.

Spartan's first priority over the past 18 months has been to "get the basic [category management] tools in place to support the business," noted Couch. "Our focus going forward will be to refine the measurements, provide enhanced features, and further integrate our existing tools." In addition, he said, Spartan plans to deploy promotion planning and enhanced forecasting tools in support of category management.

Category management is an example of a technology process crafted at the corporate level, and then made available to Spartan's independents. "Anytime we invest in new technology for our corporate stores, we are always evaluating the technology in light of our independents and how we can provide added value by offering the same technology to our [retail] customers," said Couch. Spartan's independents thereby gain access to technology that is "not generally available to the smaller independent," he added.

Thus, Spartan's independents now link to planogram updates and warehouse movement in the same way as corporate stores. "As the category review process takes place, and new assortments and planograms are developed, we make them available to our independents through our business-to-business Web site," Couch explained. In addition, independents can use a third-party service employed by Spartan to implement new planograms.

One of the more tech-savvy independents supplied by Spartan is Paw Paw Shopping Center, Paw Paw, Mich. (See story, Page 43.) Marv Imus, president of the family-owned, one-store business, received SN's 2005 Technology Excellence Award in the independent category.

Imus said that for a small fee, he accesses Spartan's planograms via an intranet. He said he most recently used the third-party service to have his pasta section reset. He also accesses Spartan's warehouse withdrawal data, but factors in his store's scan data in evaluating deletions, for example. "I've got to modify it to meet my needs so I don't discontinue something my customer may want." In addition, Imus needs to factor in items sourced from other distributors.

Couch said Spartan's biggest effort recently has been to improve communications with its independent retailers through the development of its Web site, which Imus said supports almost all of his requests. "This is an area where we are continuing to focus our development efforts," Couch said. Overall, Spartan provides a wide variety of technology services for its independents, including labor management, POS scanning, receiving systems, financial systems, electronic payment systems and networking services, among others.

In-Store Plans

In other in-store initiatives that support Spartan's consumer-centric philosophy, the company has been installing kiosks for wine and spirits, health information, meal preparation advice and deli ordering. In addition, Spartan will begin implementing perpetual inventory and computer assisted ordering this year to improve ordering efficiency and in-stock conditions. "This will be a major effort that will begin with center store and move into perimeter departments over time," said Couch.

Another major IT investment was an internally developed inventory and margin management system that Spartan deployed in April 2004. "The system has given us much better tools for margin, shrink and inventory management," helping to drive accountability in retail operations, merchandising and marketing, said Couch.

Shrink control is another area identified by upper management as a strategic goal for Spartan. To that end, the company has employed a markdown management system and a "known loss" reporting system that has helped it better understand shrink in perishables categories. Additionally, this year Spartan plans to upgrade its cashier auditing system.

At the point of sale, Spartan is a longtime IBM user, installing IBM POS systems at its independents years before owning its own retail stores. Its own stores have been standardized on the IBM 4690 POS system with IBM Supermarket software.

During the last several years, Spartan has worked on expanding the services it provides independents through the POS system, as well as enhancing the detailed item information from the POS for its data warehouse and category management efforts. "Our long-term plans are to implement IBM's ACE software, but we have held off because we have been focused on supporting a number of other business initiatives," said Couch.

Recently, Spartan has worked with Excentus, Irving, Texas, to integrate fuel pump dispensers into its POS system and provide extensive cross-marketing functionality between its fuel operations and stores. The company plans to install the same technology at one of its independents late this summer.

Self-checkout is another system Spartan has deployed at both corporate stores and independents. The company selected a belt-oriented system from PSI (now owned by IBM), which Couch said "is much more effective in our environment, especially in its ability to handle orders of all sizes."

Spartan:

IT in a Nutshell

The following list includes some of Spartan Stores' major IT systems and applications:

Home-office servers:

All servers share a common large-scale Storage Area Network spread between Spatan's primary and back-up data centers.

- IBM z/OS for the distribution supply chain system

- Unix for Peoplesoft financials and HR/Payroll; data warehouse; electronic payments

- Linux for selected systems

- Intel/Windows 2003 for other functions

Data warehouse: MicroStrategy and BrioQuery

Enterprise Application Integration (EAI): webMethods

Inventory management, DSD, price optimization: SofTechnics

Inventory and margin management: internally developed

Time-and-attendance: Kronos

Labor scheduling: Timera (now JDA)

Category management: ACNielsen and SofTechnics

POS: IBM 4690

Self-checkout: PSI (now IBM)

Voice-based selection: Vocollect

Warehouse management: SSA Global

DC DOINGS

As the 10th largest U.S. wholesaler, Spartan Stores needs to invest in technology to support its two distribution centers, based in Grand Rapids and Plymouth, Mich.

To that end, the company, following many other food distributors, is installing a voice-based selection application, from Vocollect, Pittsburgh, in its warehouses this year. Spartan has also just completed implementation of the latest version of Chicago-based SSA Global's Warehouse Management 2000 system. "This was one of the last of our Sunrise 2005 /GTIN projects," said David deS. Couch, Spartan's vice president of information technology.

One of Spartan's most progressive moves on the distribution side was the opening nine months ago of a slow-moving and specialty item warehouse located within the grocery warehouse at its Grand Rapids DC.

The operation "has allowed us to significantly increase the variety of products we offer to our customers at a lower cost than our competitors," said Couch. At the same time, he added, "we have been able to reduce the costs for providing slow-moving items and generally increase the efficiency of our distribution operation."