CATEGORY MANAGEMENT PAYS OFF, AWG FINDS

CHRIS O'LEARY

MEMPHIS, Tenn. -- The shift to a category management structure led to a $3 million sales increase last year at Associated Wholesale Grocers, Kansas City, Kan.

In three high-volume categories, the wholesaler's Springfield, Mo., division was able to cut dozens of stagnant stockkeeping units and drive category unit sales dramatically, said Jerry Garland, vice president of merchandising and marketing for the Springfield division.

The product categories that benefited most from the switch to category management were juice, paper and dry dog food. The largest increase came in juice, with Associated eliminating 34 SKUs while increasing case sales by nearly 127,000 units and dollar sales by $1.575 million, Garland said.

In paper, 35 SKUs were eliminated and replaced with 20 faster-turning items, increasing sales by $1.001 million. In dry dog food, the wholesaler saw another million-dollar sales increase while slashing 30 SKUs, he added.

"The goals are simple: increase sales on fewer but more profitable items," Garland said. "By having a clearly defined buying strategy you can avoid duplication and eliminate cost by reinforcing that velocity consistently throughout the process."

Garland outlined the benefits of Associated's shift to category management at the Food Industry Productivity Conference here late last month. He spoke at a workshop titled "Category Management."

He credited much of the success to the cooperation category managers received from the rest of the division staff. "In reality, it takes senior management, information services, distribution, accounting [and others] to maximize the full potential of category management."

Data from Associated's distribution branch, for example,

helped category managers determine that the most efficient way to distribute paper products was to send them directly from manufacturer to retailer. The wholesaler has gained $750,000 in transportation and warehousing savings this year from using the new process, Garland said.

Category managers need full cooperation with retailers to ensure Associated has the most up-to-date information about product movement and competitor actions, he added. "A category manager in a wholesale environment must truly represent the objectives of retailers and think of pricing and promotional approaches at the retail level," Garland said.

Associated's managers create marketing strategies with an emphasis on how the products will play at the retail level. Categories are often grouped by volume, sales potential and profitability.

To ensure the success of the program, managers need to clearly define which products fall into what categories, an issue that is often the subject of some controversy among distributors.

"[Retailers] have some interesting turf battles as to where an item falls within a particular category," Garland said. "It's important that you get that out of the way early on so you can draw comparisons down the road on how well your program is working, or how well it's not working."

For simplicity, Associated uses the category guidelines set up by Nielsen North America, Northbrook, Ill. "We did that so we could have a market analysis to compare with ours on a direct basis instead of having to do additional work."

Information technology is essential as well. "Too many category managers today are spending too much time accumulating data and too little time in evaluation strategy," he said. "Managers need timely retrieval and use of accurate retailer market data. Often all the data is on the mainframe somewhere; the trick is how to get to it on a routine and friendly basis."

The success the wholesaler has seen over the last year came after a period where the category manager role was being defined. "We made organizational changes back in 1991 but soon after implementation we found the process of category management was much more complicated than we first imagined," Garland said.