MANAGING CATEGORY SAID TO BE NO CAKEWALK

JACK ROBERTIELLO

CHICAGO -- To some of those in charge of executing supermarket bakery category management, the issue can be as elusive as that perfect cheesecake recipe.

"Finding a definition for category management is as hard as finding one for home-meal replacement," admitted Bill Mihu, director of bakery operations at Schnuck Markets, St. Louis, at the Retailer's Bakery Association conference here.

For others, category management takes on a harder edge.

"Our new products are costed out by labor, ingredients and other items," said Carol Kimmel, assistant plant manager for bakery at Ukrop's Super Markets, Richmond, Va. "If we can't get a return on each one, we're not going to produce it."

Mihu and Kimmel discussed their approaches at an RBA category management session, along with two bakery owners, during last month's convention.

While Mihu said bakery category management was an evolving process, he did offer concrete information about the evolution of his chain's bakery category management.

Category management at Schnuck -- which supplies 120 frozen and 150 fresh items from its central commissary to about 90 stores, enough product to fill 17 truck trailers each night -- means a variety of things, Mihu said.

For top management, it means focusing on the role they expect bakeries to play in their stores, and reexamining frequently what that role is. For Mihu, it means discussing the bakery's role with the chain's president and chairman annually, and making evaluations of the business at least quarterly.

Category management also pushes executives to review each bakery item by sales volume and profit, and by each item's strength and weakness, especially versus local competition, Mihu said.

For instance, when club stores entered Schnuck's trading area, operators were "depressed because we couldn't compete on price," he said. While they briefly tried competing with their own club packs, Schnuck's executives soon realized their strengths lay in product variety and in service.

"It's a never ending process," he said. "We determine the category we want to address, figure out its purpose and set up a goal for that category."

The pitfalls of category management relate to the quality of information available to decision makers, he said. Compiling in-store and marketwide sales data is difficult, he said, especially when such self-serve products as doughnuts and danishes are simply scanned as bakery.

To Schnuck, the ideal category management plan involves vendor input and cooperation, an analysis of consumer needs, with the goal of maximizing revenue and putting "a long-term overlay on a poorly managed, ad-driven business," Mihu said.

The company undertook bakery category management around 1988 when it decided to get away from a buyer orientation, Mihu said.

While at one time Schnuck's buyers negotiated with vendors and followed up on the quality of goods, category managers first must decide what role each item plays in the bakery. They then develop strategies and tactics to support a business plan for each item, manage information about them, and negotiate with vendors, Mihu said.

Schnuck's officials run two bakery categories -- fresh baked, which includes both in-store baked and plant baked; and commercial, which includes private label, which is delivered daily to stores through cross docking with fresh baked, and direct-store-delivery.

Mihu discussed three category management projects.

To start, officials developed a sales baseline for each item and projected sales and profitability through a sales plan.

Then came the strategy. For private-label breads, Schnuck's officials needed to reverse a one-year sales decline of 47%.

In the short term, they focused on boosting private-label sales by 24%, an increase that would be partially achieved through the acquisition of new stores. Eventually, through a move to automatic ordering and a reset at each store, the company exceeded its goal, he said.

Two other plans are now in effect, focusing on the private label Nancy Ann Healthy Living, a line that didn't meet company objectives when first introduced. In the healthy line's reintroduction last winter, Schnuck's hoped it would develop an umbrella brand for healthy products through the fresh-baked, low-fat, sugar-free items.

In the short term, it focused on the creation of the core of healthy, quality products. The long-term goal was to expand the line and grow the category by 10%.

At first, gross sales were down 10%, but the category's gross margin was up and gross units were up by more than double, he said.

For Schnuck's hearth-baked bread, officials developed a plan to create a line that capitalized on current consumer trends. The short-term plan involved in-store production and promotion, and the development of supportive ads and signs.

Over the long term, it intended first to increase sales 52% over baseline projections, and hike them 37% over three years.

Results after the first quarter showed gross margin was down, but sales, dollars and gross dollars were up.

Finally, Mihu said that how to decide which category needs managing, depends on how well the category is performing. "Category management may not mean big dollars, but without it, the company may lose image and profits."

According to Kimmel, category management is a way of life for Ukrop's product teams, although that was not the case as recently as five years ago.

Ukrop's supplies its stores from a central bakery, where, as a result of stringent category management procedures, "everyone is now keenly aware of the cost of labor for each new product," she said. Labor for each item is costed to include the time it takes to assemble ingredients until the time needed for cleanup. The retail stores then add on their own costs. "As a wholesale bakery, we don't look to make money, but we do want to break even and let retail get a good gross margin," she said.

Kimmel meets each week with category managers to share detailed information about products and their expenses. At least monthly, the category managers, production manager and a Ukrop's financial official meet as well.

Kimmel said she collects information from frequent-shopper cards, but, as with Schnuck, gets incomplete information about items that are rung only as "bakery."

About 10 years ago, she said, Ukrop's sold a very profitable bread line that eventually grew so popular that the company turned to 24-hour production, which wore down the aging bakery equipment.

The production overtime and cost of repairs became prohibitively expensive, and the company was forced to choose between replacing the equipment or outsourcing the bread. It decided to outsource the bread, which gave rise to some consumer complaints, but now, Ukrop's makes more profit with a bread it finds satisfactory, she said.

Decorated cakes compose 35% of the business at the company's bakery comissary in Richmond, Va., she said, with 400 to 500 produced on an average Monday and up to 1,500 on a Friday.

For the last two years company officials have taken "an extreme hard look at revamping the cake program," she said.

As a result, she now knows how long it takes to border, ice and decorate a cake where formerly, cost projections were based on guesses about the price of cake production. Now, the 130 special order decorated cakes are priced in three categories depending on time needed to design and create each.

She said Ukrop's has scrutinized its cupcake program in the same fashion.

Previously, cupcakes would be removed from the line for each decorating step, with each extra movement adding labor and cost to the item. Now, all decorating is done on the line in sequence. With a plant overhead of about 40%, successful category management on items like cupcakes is critical, she said.

Both programs now have two teams for decorating, one that ices and boxes the cakes and another team of more skilled decorators paid at a higher rate.

Ukrop's officials have tried to standardize cake decorating using a computer catalog, and at the RBA convention company representatives were searching for a packaging line that would allow them to pack cakes in the facility, so store-level staff could focus on sales and merchandising, she said.

Kimmel also described how applying category management techniques helped unravel a problem with Easter egg cakes.

Ukrop's bakers make three varieties of the decorated and egg-shaped Easter specialty confection: a large egg made with chocolate and butter creme, a large marzipan-filled European-style egg and a smaller version, dipped in European chocolate.

After investigating the labor and ingredient costs for each egg, Ukrop's officials decided the smaller egg, with expensive ingredients and an equal amount of labor needed for decoration, should have been priced higher, and promoted as a quality, marzipan-filled item. Once an educational sales program began, previously sluggish sales jumped, she said.