SPACE COWBOYS

LUCIA MOSES

The year was 1996. With independent retailers in the western United States struggling to hold their own against Albertsons and Kroger, their suppliers at Associated Food Stores realized something had to change.

"We weren't really meeting the consumer's needs," recalled Neal Berube, chief operating officer and chief financial officer for the Salt Lake City-based wholesaler. "We were all over the place. Even though we had far more [stockkeeping units] than the competition, we were viewed as lacking variety."

A new distribution center and warehouse management system helped Associated improve on-time deliveries and reduce mispicks and damaged goods, among other benefits. At the store level, Associated began using software designed to help ensure the right items were on the right shelf in the right place.

The timing was fortuitous. Since 2000, Wal-Mart Stores, Bentonville, Ark., has stampeded westward, opening 12 supercenters in Utah and five in Idaho, Associated's core markets, and leaving conventional retailers in its dust.

"As Wal-Mart gathered market share, they took it from everyone," Berube said.

Associated executives said use of space and assortment planning has muted Wal-Mart's impact on its customers, which number more than 480, including 23 corporate-owned stores in eight Western states. "We've lost some market share, but Kroger and Albertsons lost more," Berube said. Without space planning, he added, "things would be much, much worse."

In the past, shelf management was done by brokers, who tended to favor their own products.

Today, retailers can avail themselves of 1,600 planograms based on scan, warehouse and consumption data that Associated created using JDA Software Group's Space, Category and Assortment management applications.

The result is assortments that better reflect customers' wants, speedy integration of new products into sets and a shelf replenishment process that has reduced out-of-stocks, according to the distributor.

"When we release a new item, we know what size section, and what number of stores it's going to," said Ray Nesslage, space management team leader for Associated. "Previous to that, it was a guess. When a new product was ordered, we could run the warehouse out in a hurry."

A "Code Red" system alerts retailers electronically of new items, while reset times have been shortened. "Instead of six days to set a store from the ground up," said Nesslage, "we can normally do it in three to four days."

Total SKUs are down an estimated 8% in the past five years, yet because assortments are better, customers perceive variety as greater, said David Rice, Associated's director of category management.

Associated client Carl Day, a co-owner of Day's Market Place in Heber City, Utah, said the planograms help him keep up with such tasks as resetting aisles in his two stores, working in new products and keeping profitable items at eye level. As a small independent, he said, "it's impossible for us to stay on top of category management."

Since implementing the planograms at one of the stores last summer, he said, grocery sales that were previously flat are growing at a clip of 3% to 5%, even with a smaller grocery footprint.

"There's almost always a great flow in every aisle," he said. "Customers love the flow of our store, from section to section, even within categories."

That may be because assortments take into account manufacturer-provided information about consumers' buying decisions.

Breakfast cereal is grouped by brand, and within the brand, by subcategories like adult nutritional and sweetened, for example. Private label may be placed next to the national brand, all together, or by flavors, depending on how a given category is shopped.

Stores no longer separate their authentic Mexican and "gringo" sets. After studying successful Hispanic formats in California, Arizona and Texas, and learning that shoppers aren't exclusive to either set, Associated decided to put them next to each other.

"We realized that by putting them adjacent or together, they feed a lot off each other," Nesslage said.

Associated squeezed more sales and profits from jarred juice by moving heavy -- and higher-ticket -- glass bottles from bottom to eye-level shelves, Nesslage said.

Elsewhere, Associated is taking nontraditional approaches to placement.

At the beginning of the year, Associated put four-door freezers full of Atkins Nutritionals and Stouffer's Lean Cuisine meals in Center Store dietetic sections. The result: Year-over-year sales of frozen diet meals grew 36% through October.

With help from Purina, Hershey Foods and Mars, Associated is testing themed snack, pet food and beverage "centers" that group like products together. Shoppers who normally would circle the store looking for bottled water, juice and soda can find them all in one place, for example.

Peter Charness, senior vice president of global marketing and chief product officer for Scottsdale, Ariz.-based JDA, said the planning process using JDA's tools is part art, part science.

First, category goals, market demographic information, scan data and store attributes are analyzed to determine the universe of products that are best candidates for the store.

Other data, such as past and forecasted sales and product size, help determine how much to stock and how to place it on the shelf, whether it be a regular aisle, endcap or irregularly shaped seasonal display. The planner can add a host of other factors to the mix to determine ideal product placement, such as item color, esthetics and individual store needs.

JDA touts its software's ability to let users easily view many planograms from a single file, and its latest version's ability to create three-dimensional planograms. "It's probably this that gives you the closest facsimile to what the customer sees when they walk in the store," Charness said.

Other space-planning programs share many of JDA's characteristics. However, Richard Bode, director of analytics for Cannondale Associates, Wilton, Conn., who uses JDA's and competing space-planning tools for retailer and manufacturer clients, noted JDA's ease of use. He said it's easy to pull data from shelf plans, which gives it "a huge advantage" over competitors. He also likes its schematics' ability to be easily converted to other space-planning programs.

Speed was important to Berube, too. JDA's Web-based system lets Associated get shelf plans to retailers fast, he said. Its newest version, which Associated is implementing, will quicken the process of changing multiple planograms at once. "To be able to get those quicker to them and through the Web is something we're very excited about," he said. "Frankly, that's been one of the weaknesses of the independent market is they're sometimes last to shelf."

Next year, Associated plans to test a couple of new stores that were built using JDA's floor-planning program, which is designed to link product layout and total store design, thereby facilitating a holistic approach to category management -- or as Berube put it, "pretty cool."

Associated believes independents that can differentiate in this way will have a stronger chance of surviving in today's multi-channel environment. Today, its sets are based on client store size, which ranges from 8,000 to 35,000 square feet. In the future, though, they'll be based on a group of six to eight stores clustered according to shopper demographics.

Kurt Bracken, grocery manager for Kohler's Food Stores in Lehi, Utah, said he believes Associated's schematics have already helped his two-store company stand out from the Wal-Mart supercenter there. Grouping breakfast cereals by brand, for example, "makes it easier to find things on the shelf," he said. "Shoppers know what they're looking for when they come in, and I think they're more apt to come back if they find what they're looking for."