TOP-TO-TOP 1994-10-17

Kenneth A. Harris

Category management is the hot topic of the day. Retail organizations are restructuring their buying staffs. Manufacturers are developing category-specific programs. Item optimization programs are cleaning up duplication in the dry grocery sections. Sounds like Utopia, right? Well, for many manufacturers and retailers, this process has already begun, but it is only one step of the way. The most progressive retailers in the United States (H-E-B, Wegmans, etc.) have been aggressive in embracing category management. As with most progressive companies, however, they are now focused 18 months ahead of the industry.

We have seen the future, but it's not what you think. It is represented by a store called "City Market" in Austin, Texas. Run by H-E-B, the store is 85% perishable products and 15% dry grocery! The concept is Total Store Management -- using a store format as a tactical weapon in a given market geography to gain competitive advantage. Why would any retailer add so much square footage and emphasize perishables? Perishables are the most profitable area of the store, and a primary reason consumers shop at one supermarket vs. another. As one retailer commented, "If I could sell nothing but perishables at the margins I make, I wouldn't stock any dry grocery products."

What implications does the focus on perishables have for consumer products in the future? Dry grocery products will continue to play a major role, but the concept of positioning a category within the context of the larger store becomes critical. Two studies released over the last three years -- one by Pepsi-Cola in the soft drink category and another by Frito Lay in salty snacks -- place these categories within the context of the total store. Both studies examine the "true cost" of competing in their respective categories and isolate the benefits of supporting these categories for total store profitability. Focus on perishables will create the new supermarket mantra: ready to eat (full-service food courts), ready to heat (precooked meals) and ready to prepare (ingredients with emphasis on fresh). Companies like Hormel Foods, General Mils and Kraft General Foods are hard at work developing products that satisfy the consumer's desire to cook like homemade without starting from scratch. Precooked entrees prepared at the factory and shipped directly to the store and meal kits will increase ticket ring, drive total consumer purchases in supermarkets and capture more consumer dollars vs. cooking from scratch or restaurants. So how can manufacturers capitalize on these trends? First, category management emphasis must shift from focusing on category development to the role of the category within the total store. Second, a greater understanding of a category's role with regard to meal preparation and usage occasions must be communicated to the retailer. Third, manufacturers need to develop partially prepared and/or meal preparation products using dry grocery items as ingredients. Simply stated, in managing grocery product portfolios, manufacturers must understand how to think more like retailers and appeal to their interests in ready-to-eat, ready-to-heat and ready-to-prepare foods to be successful. As one supermarket executive put it: "All retailers are not created equal. I want all my stores to be the most profitable units in the market. Every item, every category, every section must be focused toward this goal. This way, I will be the most efficient and effective operator in the market."

Smart words to live by.

Kenneth Harris is a partner at Cannondale Associates, a marketing consulting firm based in Wilton, Conn., and Evanston, Ill.