CATEGORY MANAGEMENT DRIVES H-E-B'S GROWTH

BOB BAUER

CHICAGO -- Category management is paying off in a big way for the H.E. Butt Grocery Co., San Antonio, Texas, according to a chain official.

Harvey McCoy, vice president of category management for H-E-B, said growth in store sections in which category management is used is much greater than in other areas.

"We knew we were losing sales, especially in a lot of grocery nonfood categories. We were losing them to category killers and discounters. We didn't know how to stop it. We didn't know what to do," McCoy told the audience. "But after we went through a category analysis in a major category, we reduced SKUs by 40%. Since that time our growth in that category has been double-digits. It's been higher than same-store-sales growth. Before, it was a declining category. We fundamentally changed how we look at that category and made a radical SKU reduction. That made a big difference in how we went to market."

The success story continues.

"When we went back and analyzed our planograms, we found those that had gone through category analysis where we worked with a supplier are growing at twice the same-store-sales growth rate." On the other hand, those categories not analyzed are growing below the growth rate on barely on par. "Those are the ones we are continuing to manage the way we've always managed," said McCoy, speaking as a member of a panel discussion during the Food Marketing Institute's annual convention here.

Retailers on the road to category management will find fewer roadblocks and detours if they take control of the process, McCoy said.

"I've heard a lot of comments about manufacturers driving the process and that is not true," McCoy said. Though the manufacturer, is a critical and integral part of the category management process, if the retailer doesn't know what he wants to accomplish, the road to category management will be filled with potholes, he added.

"Retailers have to step up to the plate, decide where they want to be and how they're going to do it. Once they do that, then they can start looking forward to category management. That's not easy. We've been in this thing for four years, struggling in a lot of categories, deciding what we want to be and where we want to go.

"We've done some projects where we didn't know what we wanted to do, and they were total failures. I think retailers have to know what they want to do. They have to get out of the mode of thinking about the ad this week."

Instead, McCoy added, retailers must look further ahead, assess their competition, and decide what they want out of categories and category management.

Even when a retailer is driving the category management process, McCoy warned, the chain should not expect a leisurely, Sunday afternoon drive.

"If you were to ask H-E-B why we're doing this, it's not because it's fun. It's not because it's the thing to do. It's because it makes good business sense," McCoy told the audience.

"We've been fighting a competitive battle for years. This is a matter of survival; of understanding your business; understanding the consumer and moving forward. It's a revolution. Revolutions don't occur very often."

They don't occur too quickly, either. H-E-B, one of the first chains involved in category management, still has a long road ahead of it, McCoy said.

"In terms of where we are in category management, we basically look at it on a scale of 1 to 10. We're about a 2.5. We've come a long way and we've done some things. But we can't get done fast enough. We can't get the planning done that we need. We can't get all the categories done. We have a long way to go to where we see category management going."

However, the winding road H-E-B has been traveling on its category management journey is about to straighten out somewhat. McCoy told SN he envisions the company being "at the four or five level" a year from now.

"It's taking us longer than we thought it would," he said after the seminar. "First we thought it would take three years. Then we thought it was a five-year process. Now we're thinking it will probably be 10 years before it's all in place and being done."

In less than half of that time, a massive change in personnel has occurred. McCoy said the company started out with 20 buyers across all departments. Only seven of those people made the transition into category management.

"Today we have 39 category managers, as we continue to narrow their focus and they continue to grow deeper and deeper into the business. That was a big change in terms of people."

One thing that hasn't changed is management's commitment to category management, McCoy said.

"The person who started this in our organization was not just anybody. The [chief operating officer] made a personal commitment to change. He was the one who said we needed to move forward. 'We don't know what we're going; we don't know how we're going to do it; but let's go out and find out some of the best processes are,' he said. If you don't have the [chief operating officer] or the CEO or somebody like that standing up and saying that, it's going to be a lot harder to move in that direction."

Although top management embraced the idea of category management from the get-go, investments into the concept were made cautiously.

The organization said, 'we'll fund you a little bit. Let's see what you can do.' As we began to show some results, they began to invest some more," McCoy said. "It was a very big payback from that standpoint. But it was also a big risk to stand up to the plate and say, 'Hey, we'll look forward.' "