PRUDENT PRUNING

JAMES TENSER

Brand marketers are stepping up to help their customers manage variety and duplication, in some cases recommending delistings of their own items. Hard decisions, but the alternative may be to see items pruned for them without the benefit of sound analyses.

Simultaneously, some manufacturers are making strategic cuts in their internal assortments, eliminating nonproductive packages, case sizes -- even entire lines -- pre-emptively, based on category management and consumer knowledge.

When Reynolds Metals' consumer products division discontinued its Sure-Seal line of plastic food storage bags late last year, it based this difficult decision on an unblinking assessment of the products' value to the wraps and bags category.

"We were making a profit on the business, but it wasn't adding value for the consumer or the retailer," says Wayne Albrecht, director of trade marketing for Reynolds.

"As we made internal changes to focus more on the category as a whole, it became more evident we could not speak to category management and [avoid] this issue," he adds.

At Del Monte Foods, says Chuck Aldredge, director of category management, strict adherence to category management methods frequently results in recommendations to the company's retail customers that they delist items from the canned vegetable and fruit aisle.

"It is easy for a manufacturer to say they are in category management and efficient item assortment when he can delist a competitor's item," he says. "The proof is when you are willing to delist your own item."

No brand marketer has been more willing to apply the knife to its assortments than Procter & Gamble. Its macroscale activities -- killing off tertiary detergent brands and merging competing lines in bathroom tissue, cleaners and throat lozenges -- have made headlines. P&G has reported an overall reduction of roughly 17% in line items as a result of activities of this kind, yet it continues to maintain or grow market share in many categories.

Cost-savings from the elimination of slow-moving or redundant stockkeeping units are often mentioned among the "low-hanging fruit" of Efficient Consumer Response. At the crudest level, the process involves ranking the products in a category by their rates of sales and eliminating items from the bottom of the list.

Savings accrue from the reduced handling, warehousing, tracking and accounting costs, while improved turnover of remaining SKUs contributes to a better return on inventory investment.

The discipline needed to accomplish this is rooted in category management, say the experts.

"Manufacturers who are doing it have rolled it into a part of their category management programs where they help retailers improve category performance," says Dan Raftery, vice president of Willard Bishop Consulting, who helped author last year's Food Marketing Institute report, "Variety and Duplication."

He adds, "Many manufacturers are talking with retailers one category at a time about performance, using category management tools like Spaceman, Apollo and others for pricing and promotion. "Now they are adding variety management to the picture. So are retailers. If manufacturers don't participate, decisions will be made for them."

Del Monte's Aldredge agrees. "It is going to happen, it is a train coming at you," he says. "The industry is going to reduce item count, that's a foregone conclusion and a wise one. The manufacturer who fights them on that is guaranteed to lose."

An executive with a major full-line spice supplier reports it is routinely applying the techniques of variety management to its line, which numbers in excess of 170 mostly slow-turning SKUs.

"The way we try to proactively look at the category is by simply evaluating on a quarterly basis our movement figures companywide and ranking our products," the executive says.

"Those that rank further down on the list are those we look at as potential targets."

But the spice company recognizes there are also qualitative issues that have to go into the decisions. In the spice section there are items that may not sell well on the national front but sell very well locally.

For example, in the New York metro area people buy a lot of charcoal seasoning, not something that sells equally well elsewhere. Eliminating charcoal seasoning from a significant New York-area account might have adverse consequences.

"It would be wrong to eliminate some items. One, it may force the consumer to turn to one of our competitors, and two, it may be a problem for our account since their customer may have to go to another store," says the executive.

As they seek the cost-reductions promised by ECR, many retailers are embarking on their own variety management activities, frequently following the model laid out in the FMI report.

Doug Adams, president of ECR and retail applications at Nielsen North America, was also a contributor to that study while he was an executive with Frito-Lay. He says many supermarkets are moving to trim assortments based on item movement information and their marketing strategies.

"I am beginning to see it from a number of retailers," he says. "Assortment is no doubt an area where you can get started. It starts with a category strategy, sure, but duplicate line items which are obviously not needed can be cut even without a strategy."

There are roughly 125 to 130 SKUs in a typical wraps and bags section, according to Reynolds' Albrecht. "You could cut pretty quickly about 10% without loss of category volume and gain increased turns on ones you do keep."

The classic category management model calls for each retailer to define a role for each category in the store -- traffic-builder, image/service enhancer, profit generator -- based upon knowledge of its consumers.

Del Monte combines this information with its own broad knowledge of the canned fruits and vegetable category to develop what Aldredge referred to as "hierarchical decision-trees" to guide assortment decisions based on a disciplined, periodic evaluation process.

Aldredge advocates establishing exacting criteria for adding or delisting. "Then hold to it religiously on all items, regardless if they are your own or your competitor's."

Such decision rules usually begin with a division of the category into segments based on consumer usage. In canned vegetables, for example, corn and green beans may each require separate assortment analysis. Foil wraps and plastic bags similarly need separate consideration.

To miss this step, says Aldredge, is to risk eliminating items that may turn slowly but have no substitute. Canned okra may sell slowly in the Northeast, but eliminating it leaves out the consumer with gumbo on her menu.

For Reynolds, says Albrecht, this may mean providing a variety like freezer paper, or oven cooking bags, "which may not make the normal threshold on a day-in, day-out basis."

As the spice company executive observes, "Not only can you lose a sale, but you can also irritate your account, by forcing his consumer to go to his competitor."

Clearly, observes Adams, "Such unique items may need to be preserved. You must work then on, 'How do I stimulate demand?' "

At the other end of the equation are segments where too many sizes, flavors or brands are on the shelves. Says Aldredge, "Consumers want a brand selection, but not any particular brand, and they want a private-label selection. We have learned that when it comes to branded canned corn, maybe two or three lines is all a retailer needs. "We have run across some retailers which have as many as 12 brands. It is not unusual for a retailer to have five branded lines and two private-label lines of corn, beans and peas."

He adds, "It is very expensive for retailers to carry this assortment. It is even tougher on the wholesalers since they have to carry the assortments for all their customers. Sometimes we have to recommend elimination of whole brands. We have to be bold enough to discuss our logic with the retailer."

Similarly, Reynolds Metals is working to weed out underperforming items. "We try to take a different approach from simply ranking and chopping off the bottom ones," says Albrecht. "We are trying to look at how to make the whole category as easy as possible for a customer to shop."

He adds, "We look at our category segment by segment, and we see some patterns. Even when volume numbers seem high enough, it may be just divvying up the pie."

It was such an observation that led to the elimination of the Sure-Seal plastic bag line last year, he explains. After three years in the market, the line was making money for Reynolds, but it was not distinct in its positioning from its more successful competition.

After the company made the decision to discontinue the line in the second half of last year, it had to explain the move to the trade and go through an educational process internally.

"It was very difficult to pull this away from our sales people, who made money on the product," Albrecht says. "Our people learned a lot about category management from this experience."

Assortment issues are also being scrutinized internally at Del Monte, says Aldredge. "We recently have been going through an item rationalization process within our company. We are now in the process of eliminating SKUs that don't make sense ECR-wise. Decisions have already been made."

The elimination of slight variations in pack size, labeling or other configurations of otherwise similar products can yield significant savings for the manufacturer, he says.

Frequently, such duplication is due to history. "We have had separate inventories for virtually the same items across the country, in some cases with only slight changes for particular customers. The consumer doesn't notice the variety loss."

Observes Raftery of Willard Bishop, "In the manufacturing environment there are overhead costs associated with more items. From one market to the next, some manufacturers have small variations in weight on products. Each is a different package and universal product code. A whole layer of administrative costs goes into just the bookkeeping."

He continues, "Then there are the promotional packages, the cents off labels. In soap powder there may be 15-cents, 20-cents, 35-cents, 50-cents-off labels, or 2 ounces free, 35% free of the same product.

"To the consumer that's the same stuff. To manufacturers that's eight different items, printings, tracking, bookkeeping, warehouse bins."

He adds, "Efficient assortment blends into efficient promotion here."

At Reynolds, efficient assortment learning is affecting new product introduction strategies as well, adds Albrecht. "We are planning a new item launch now. We are looking internally within our own group to determine if there is an item this should replace, while maintaining shelf space. Right now we think we will eliminate an item when this new item comes in."

When sound consumer research is layered on to the category management discipline, says the spice company executive, "There are advantages in eliminating redundancies. We have put out close to 30 or 35 new SKUs over the last 18 months that have better consumer preference profiles than some that are slower moving.

"We have seen fit to cut those to make room for blends, and other value-added spice products. They fit current cooking preferences for ethnic flavors, quicker, spicier. Our new formulations have tried to satisfy those interests."

Variety management, says Raftery, "is not just about removing items. The real secret is where to add items. This routine helps also highlight areas where you are underassorted."