CATEGORY MANAGEMENT 1998

David Merrefield

One of the indications we have now that category management is more than just a passing fancy is the fact that many wholesalers are figuring out how to work with independent retailers to improve efficiency.

This is a fact of great interest to those gathered this week in Las Vegas for the National Grocers Association convention and exposition, and to others too. What category management efforts involving wholesalers and retailers show is that, more and more, the supply and retail sides are starting to work as a unified system. This, of course, is just what the doctor ordered when it comes to strengthening the competitive position of independents against chain competition.

As you'll see by taking a look at the news article referenced on Page 1 of this week's SN, several wholesalers and independents are obtaining good results with their category management efforts. The news article was written by SN reporter Linda Purpura.

Let's take a quick look at what works, and what doesn't, when it comes to independent store participation in category management. The usual and simplest dynamic behind category management is to take a close look at what items sell and what items don't. The result is often to simply lop off the 10% of product on each end that doesn't sell, perhaps the smallest size and the largest.

That outlook on category management can produce results, especially in a large supermarket that is simply too full of stockkeeping units, perhaps to the point of offering such a welter of choice that shoppers are confused and have trouble making up their minds about what to buy.

In a smaller store, there has to be more consideration of who is buying what. It would be easy enough to trim a particular SKU that doesn't sell very well, only to discover that all the purchases of that slow mover were being made by one of the store's most valued customers.

That's why some wholesalers are moving beyond making product decisions on the basis of warehouse withdrawal, and taking a look at planning on the basis of scan data. The best way would be to move beyond that too and look at product purchases on the basis of frequent-shopper data.

Here's what some wholesalers and retailers have found during their journey into category management:

One retailer found it's necessary to know consumers: One independent found that category management analysis suggested that a small ketchup size should be eliminated. However, at some urban stores, the small size outsold the large size. So the SKU trimming had to be very selective.

Another retailer found out that a small group of customers demonstrated very high loyalty to a particular brand and size. That meant that the price of the SKU could be increased without reducing sales. The increased margin made it economical to keep the SKU.

A number of retailers are taking a good look at the profitability of pet food with the aim of creating an enlarged selection. This could form the basis of a fight-back strategy against the vertical pet outlets. This same method would probably make sense for several categories.

Finally, wholesalers too are seeing big dividends from category management. One wholesaler told SN that category sales have increased significantly and that gross margins have gone up a full percentage point.