OUTSIDE THE LABOR POOL

LIZA CASABONA

More supermarkets are engaging in direct relationships with third-party service companies to provide the labor resources needed for category resets, new item cut-ins, new store openings, store remodels and item mix adjustments, said executives with merchandising service organizations.

Retailers are moving beyond traditional service merchandiser relationships, which were often mediated through suppliers. Now, they are turning more toward dedicated teams that are often referred to as "home store programs."

"There appears to be an increasing amount of programs that engage third-party services as the preferred providers or primary providers. In the past, the costs for these services were funded entirely by the supplier community," said Jim Hall, chief executive officer, Advanced Retail Merchandising, Lakeland, Fla., and a former chairman of the National Association for Retail Marketing Services, Plover, Wis. ARM is a merchandising service organization that works with supermarkets and manufacturers.

"However, today we are seeing an increasing number of retailers that are engaging in direct relationships with third-party service companies to provide the labor resources for these responsibilities," Hall noted.

By contracting with service organizations directly, retailers get more control over their merchandising programs. Initially, retailers relied on manufacturers and brokers to establish these relationships. Recently, the trend has shifted toward a model that is close to the vest. These retailer-directed home store programs give wall-to-wall merchandising responsibility for set groups of stores to merchandisers. More retailers are seeking this type of in-house control over the objectives of in-store merchandising.

"We are currently examining opportunities to convert the few remaining outsourcing services we use in-house so as to have better control over these processes," said a source with a Northeastern regional retailer who requested anonymity. He declined to offer more details.

Reflecting today's sensitivity on the topic of labor issues, many grocery retailers -- including Kroger, Albertsons and Safeway -- either declined to comment or did not return calls for this story.

Merchandising executives point to Albertsons, Kroger and Safeway as leading the move toward internalized control of merchandising services in organized home store programs. However, mid-sized chains and independents are not far behind.

Home store programs are primarily about category resets, explained Jim Rice, spokesman for Crossmark, a Plano, Texas-based food broker and provider of merchandising and marketing services to manufacturers and retailers. Rice estimated there are now about 36 retailers implementing home store programs.

With an increasing amount of category information at their fingertips, retailers call for more resets. Manufacturers may or may not agree with the retailer schedule, leaving the retailer with a gap to fill. If retailers are not getting the support they want, they sometimes decide to manage those resets themselves, Rice said.

"No one in the industry is self-sufficient and does all of the in-store labor, merchandising, etc. I don't believe that anyone does this 100% solely on their own," said an executive with a retail chain who spoke on condition of anonymity.

In addition to resets, retailers are expanding the number of categories in which they use outside merchandisers. Historically, outside parties have provided additional in-store labor in video and magazines, sources pointed out. Increasingly, HBC categories are in need of labor for extensive, complicated category resets because of the large number of stockkeeping units involved.

Any category with a lot of SKUs requiring extensive maintenance is often handed to a merchandising service organization, said Gary Ebben, president, NARMS. NARMS is the national organization representing merchandising and marketing service providers.

Grocery stores have to fit many SKUs into a small space, said Ken Drish, vice president, business development, Spar, Tarrytown, N.Y. At one store he recently visited, Drish estimated there were at least 250 lotion and facial cream SKUs in eight feet of space.

"They are very labor-intensive resets, and stores typically reset them at least once a year, sometimes two or three times now," he said.

Drish pointed to antiperspirant/deodorant, lotion, and oral care as resets that take a particularly long time because of the many SKUs. Other SKU-intensive categories singled out by service providers are over-the-counter cough and cold remedies, other medicines, and cosmetics. These products are seasonal, and have a high level of new item introductions annually.

To cope with labor-intensive resets, third parties can offer assistance, but the issues have become extremely complicated. Home store teams, for example, are organized into groups based on merchandising a particular set of stores, not on a particular category model. This means a merchandising company could find itself responsible for resetting a category of products it doesn't have a stake in via any of its manufacturer partnerships, Rice pointed out.

This problem is illustrated by the overlap within stores when a new product is launched. Potentially, a broker or merchandising company could have three completely different teams working on the same item launch in the same stores. There are teams that work for a group of many manufacturers, teams that work exclusively for one manufacturer and, increasingly, teams that work for specific retailers. All are involved in cutting in new items at the same stores, but each has a responsibility to a different party. These situations can lead to confusion, according to merchandising participants.

While many companies that provide merchandising services said they are still primarily engaged by manufacturers, they are often looking to supermarkets as future revenue sources, too.

"Part of Spar's focus is to go after retailer business as well as manufacturer business because there is a trend where more of them are willing to create their own programs, and pay a third party direct," said Drish. Manufacturers account for a larger share of the business. For the past five or six years, however, retailers have been the companies' largest accounts. Spar is currently doing a program for Marsh, Indianapolis, providing new item cut-ins and maintenance services, Drish said. The company also works with Eckerd and CVS in the drug channel.

For Prism Retail Services, Itaska, Ill., retailer-directed programs are already 75% of its business, said Tom Dennis, senior vice president of national accounts for the merchandising services company. That number continued to increase with Prism doing more home store programs, he added. For example, the company now manages a home store program for Supervalu, Eden Prairie, Minn.

"We manage a home store program at Supervalu which is very efficient for them.... We manage the complete program. So whether the broker or the manufacturer is doing the work, Prism is responsible for managing the execution."

Prism's relationship with Supervalu represents just one type of home store program: management is delegated to Prism, while the labor is assigned to brokers or manufacturers. Every retailer, every program and every project can vary, Dennis stressed. Prism manages a variety of merchandising initiatives in addition to Supervalu's that include programs for Albertsons, C&S Wholesale Grocers and Bozzuto's. Prism is also involved with other retailers like Safeway through manufacturer-directed merchandising efforts, Dennis said.

"Retailers are discovering that there is another source of qualified people out there, and that third-party companies can supply a gamut of services, including retail execution, to meet their needs. Those needs are clearly growing day by day," said Charlie Fanning, vice president of sales and operations, Northeast Support Services, Reading, Mass., a partner company of the Alliance Marketing Group, Memphis, Tenn. Northeast Support Services has worked with Stop & Shop, Hannaford Bros., Pathmark and Shaw's on various in-store programs, Fanning said.

The need for the "retail detail" that merchandising service companies offer extends across all channels, said Ebben. NARMS member organizations provide a pool of experienced merchandisers and marketers, he stated.

"Not only do our members represent an outsourced labor pool, we're an outsourced labor pool trained in merchandising and marketing," Ebben emphasized. "If you think about the turnover that the supermarket endures, our members' pool of people have a level of knowledge and longevity that is greater than that of the average supermarket employee." The NARMS membership, which includes service companies doing everything from category resets and item cut-ins to sign and fixture installations, has experienced a 20% growth in recent years, Ebben said.

Executives in the merchandising field said turnover compounds merchandising issues for supermarkets, making trained labor harder to come by. Unfortunately, it is not the only issue complicating the merchandising relationship for retailers. The details of each individual contract between suppliers, retailers, merchandisers and other service entities tend to differ.

''Because we haven't really been able to get a consensus as an industry on the best way to approach this issue, there has clearly been a drop-off of performance levels at the store," acknowledged Mark Baum, executive vice president, Grocery Manufacturers Association, Washington.

In the absence of solutions, Baum said, retailers, through home store programs, have taken matters into their own hands. The programs can be categorized with varying levels of success, he added. Nevertheless, all parties agreed there is a need to improve in-store conditions, which requires an improvement in execution at the store level.