PRICE CHOPPER REVIEWS PERFORMANCE-PAY PLAN

MARC MILLSTEIN

CHICAGO -- The shift to category management at Price Chopper Supermarkets could lead to a fundamental change in how category managers, and eventually other supervisors, are evaluated and compensated at the chain.

A plan to reward category managers based on total system performance, rather than just gross margin and sales results, as is common today, is in the early stages of review, said Wayne Barton, director of category management at Price Chopper Supermarkets, Schenectady, N.Y.

"Do you get paid for performing well, or do you get paid on gross margins and sales? The truth is we still get paid on gross margins and sales," Barton said. He made his remarks at a seminar on category management here sponsored by the Grocery Manufacturers of America, Washington.

The revised system, if enacted, would take into account a wide range of variables -- from warehousing, distribution and handling costs to sales and net profit results -- to form the basis for the category manager's compensation, he said.

"We are currently looking at a new performance system that will support bringing the category manager's awareness back in the supply chain to taking costs out of the warehouse system," Barton said.

It will also move the "category manager's responsibility forward in the chain to getting credit for saving store labor with a better case," for instance, or increasing net profits in the category in some other manner, he said.

Following his talk, Barton told SN that the plan was only in the initial stages of review and, at the earliest, would take effect during the company's 1995 fiscal year. "I would like to see compensation based on total system performance,

not just for category managers but for everyone. It makes sense."

During his talk, Barton stressed that the strategic role of category managers must include taking into account all variables involved in a category's performance and profit results.

"Category management involves more than selling. Traditionally, [category] buyers were responsible only for buying or selling or merchandising, not for all the different assets that the company put forward under their control," Barton said.

"We are now expanding that role upstream to the manufacturer and downstream to the store. We are putting category managers in charge of the three key assets they control -- space, inventory and labor," he said.

In addition to requiring fundamental shifts in management organization, successfully switching to category management also involves a much more dynamic role for technology and information.

But it is just in this area that some surprising gaps remain to be bridged before the full potential of category management can take hold, Barton said.

"I am surprised at how little data we have down to the specific stockkeeping unit, down to the category, down to the category manager, and in some cases even down to the department," Barton said.

"I want to know how floral is doing, how pet food is doing, how canned goods is doing. Within canned goods, how is fruit doing? Within fruit, how is light fruit vs. fruit in heavy syrup doing? This data is not currently available in an easy-to-extract form," he said.

Moreover, the very definition of that data must be expanded to include more than just sales and gross margin figures. "That is only the numerator, only what shows above the surface, only the tip of the iceberg. The denominator is the assets the category manager is responsible for and the sales and gross margins are built on," Barton said.

"If you call this a fraction, and the numerator is sales and gross profits, and the denominator is assets such as space, inventory and labor, then you come up with equations like gross margin return on inventory, gross margin return on square feet, and sales and profit per square foot. Now you are talking productivity," he said.

"We are no longer dealing in an arena of straight sales and gross margin. It is how productive am I making the assets I am in charge of? How productive am I making the inventory, the space, the labor? It is activity-based costing. Right now the challenge is getting the data available at the department level to the category manager level. We are working through that right now," he added.