Efficient Communication Needed
To Improve Trade Collaboration
By Lynne Cooke
Independent grocery retailers want to work closer with trading partners to enhance their use of category management and category business planning, says a new study. But while the opportunities appear good, more efficient forms of communications are needed at a time when face-to-face meetings are becoming impractical.
“We've all accepted that face-to-face sales calls will go by the wayside,” said Ron Rehkopf, president/CEO, Rehkopf Family Food Stores. “But we're in danger of losing relationships without having that interaction. It's a challenge we have to address.”
Rehkopf spoke on barriers to trading partner relationships as part of a panel discussion at the annual convention of the National Grocers Association (NGA) recently in Las Vegas. Other panelists included Steve Sholtes, manager of industry affairs for Procter & Gamble Co.; Steve Heggelke, senior vice president of merchandising/procurement at Bozzutos; and Mark Boyer, president of consulting firm PMG, LLC. The session was moderated by Al McClain, Chairman/CEO of RetailWire.com. The basis for the discussion was a research study that PMS conducted for the association.
According to the findings, six of ten (61%) independent retailers practice category management and category business planning in grocery or across all store departments. In today’s fading era of
one-on-one meetings with trading partners, nearly nine of ten (86%) of independents have a high interest in receiving category management feedback relating to their stores via enhanced electronic communications such as the Internet.
Meanwhile, nine of ten wholesalers (85%) and seven of ten (70%) of manufacturers feel the same way when it comes to providing category management feedback to independents via the Internet.
Retailers have traditionally been reluctant to share with POS (point of sale) data with trading partners in a collaborative spirit. But the survey results suggest a change of attitude. Only 14% of independents were less than interested in sharing POS data with one or more key supplier partners for the purpose of evaluating and improving category performance.
At the same time, only one of ten (10%) of manufacturers had a below-average interest in receiving the POS data for the same purpose. Three of ten (28%) of wholesalers felt the same way.
Other survey results that impact category management:
- Twenty-five percent of retailers admit their speed to shelf for new items is below average or poor.
- Thirty-six percent of retailers now receive syndicated data/market information via e-mail.
- Fifty-seven percent of retailers prefer to receive syndicated data/market information via e-mail.
During the panel discussion, Boyer of PMG advised retailers to let wholesalers and manufacturers know that e-mail is becoming the preferred method of transmitting information. Even so, Sholtes of P&G said trading partners need to explore other methods such as the Internet and webcasts.
“Eighty-nine percent of retailers are interested in receiving selling information via electronic communications tools such as the Internet and 88% are interested in getting category management feedback via the Internet,” according to key findings of the research study. “The burden is now on the retailers to upgrade their systems to a point where wholesalers and manufacturers can send them information directly over the Internet, either through a portal site or email communication.”
P&G Extends its Leadership
In Consumer Marketing at Retail
By Lynne Cooke
Procter & Gamble is the top manufacturer for consumer/shopper insights and category management expertise. In fact, the Cincinnati-based consumer goods giant has extended its leadership in the eyes of retail customers, says a new study.
“P&G is willing to partner with us and work within our company in initiatives and goals. They understand our consumer, their loyalty, our competition, and they design programs for growth,” said one
club retailer.
Meanwhile, Wal-Mart, Kroger and Target were identified by their trading partners as the leading retailers for category management expertise.
Those were among the many findings presented by Cannondale Associates in its recent 2007 Category Management Benchmarking Study. The report identifies emerging best practices, explores changes, and shares opportunities for manufacturer and retailer improvement in the practice of category management. Nearly 300 individuals from all levels of management took part in the study, including a broad representation of food, HBC and general merchandise manufacturers, as well as food, drug, mass, and convenience retailers.
“Over the last five years, we have highlighted the evolution of category management as it has shifted to Consumer Marketing at Retail (CMAR), with a focus on shopper insights and retail execution,” said Don Stuart, managing director of the consulting firm based in Wilton, Conn.”
P&G was the runaway leader in CMAR expertise, according to 57.1% of the respondents to the survey. Its tally was 7.3 points higher vs. 2005. The next two CPGs were Kraft with 30.8%, a decline of 7.7 points; Pepsico also at 30.8%, but with a gain of
7.4 points vs. 2005; and General Mills at 20.9% and a decline of
3.6 points.
“Pepsi has a deep understanding of consumer needs and emerging trends and is able to translate this understanding into execution at the shelf,” said a grocery retailer.
Other CPGs with double-digit rankings were, in order, Nestle at 15.4% (+2.9 points), Unilever at 14.3% (+2.9), and Kimberly-Clark
at 12.1% (+7.3).
Wal-Mart at 45.1% maintained its position as the top retailer in CMAR/category management best practices while its 8.8-point decline narrowed its lead over Kroger at 5.9% and Target at 32.0%. The latter two posted increases of 9.5 and 6.9 points respectively.
“Wal-Mart continues to be among the most disciplined, yet fast-acting retailers regarding CMAR/Category Management,” said a food and beverage manufacturer. “They are laser-focused on the consumer and challenge innovation that is not consumer-centric. They act quickly to test and roll meaningful initiatives and collaborate with suppliers closely.”
Another food and beverage maker praised the runner-up retailer for its work. “Kroger truly collaborates on the categories we measure and manage and we share a joint scorecard. They are willing to test new programs and are focused on winning with their most valuable suppliers closely.”
Other retailers with double-digit rankings were, in order, H-E-B at 28.4% (-4.4 points), Wegmans (27.5% (+3.8), Safeway at 26.8% (+6.7), Publix at 20.2% (-1.3), and Costco at 10.3% (+2.3).
For the last ten years, approximately three-fourths of manufacturer and retailer respondents to the Cannondale study have rated CMAR/Category Management as highly important. The latest category management benchmarking effort found that a wide range of retail channels other than grocery is now embracing the discipline, and they are posting strong returns as a result.
“There are clear opportunities, especially in dollar and drug stores, for manufacturers and retailers to improve their performance via CMAR,” says Bob Hilarides, a Managing Director at Cannondale.
(Editor’s Note: See other coverage of the Cannondale study in the Private Label section).
FEBRUARY 2007
Consumer-Driven Category Assortment
Will Optimize Conventional Shelf Sets
By Paul Thompson
Consumer-driven category assortment is an “outside-in” view of categories and products that is aligned the way that consumers use and purchase products. A critical component is a behaviorally defined market structure that provides direction for key purchase drivers. This structure defines occasion usage as well loyalty and substitutability for other products and brands. This approach allows retailers to organize and allocate space based on how consumers shop that category and optimize products based on the importance of product attributes and substitutability.
Why is consumer-driven product assortment more important than other methods of assortment? Why should retailers be quizzing their category captains to make sure they are getting a consumer-centric view versus a straight line volumetric view? What are the elements of good assortment and how should it be measured?
In the current environment, the data for category segments may not be aligned the way the consumer organizes or shops the category. A category purchase structure derived from both consumer usage and purchase patterns is required to align segments with consumer shopping behavior An example of this is analgesics which are aligned by ingredients like ibuprofen and acetaminophen. But consumers purchase analgesics based on ailments like headaches and body aches, not based on ingredients.
There is also a common misconception that new items are better items. For retailers to understand the effect of new items requires a working knowledge of the purchase decision hierarchy. In an effort to grow volume, manufacturers often innovate with new flavors and forms that end up cannibalizing their own portfolio. In some cases, they may trade off substituting higher velocity items for lower velocity items. The result of these redundant sizes and forms is that the volume tends to be cannibalistic instead of incremental to the category. They create clutter on the shelf, drive inefficiency, and result in consumers who are confused and sometimes frustrated.
Consumer-driven assortment looks at where the volume flows in the category when an item is added or removed. Does the volume stay within a given brand set, flow to a competitive brand set, or leave the category all together? Consumer-driven assortment also identifies where the segments of growth are emerging or creating new partitions in that structure that provide an incremental source of business that did not exist before. An example of a new partition in the structure would be the emergence of a convenience product that adds a benefit to the category, such as Campbell’s Soup at Hand.
The risk of not doing consumer-driven category assortment is that some lower velocity items that may be critical to specific consumer segments but not the highest velocity can get delisted. If that item is delisted, its volume simply leaves the category, or the consumer goes to another store to fulfill that need.
We were able to help a client save a dinner kit product at Wal-Mart by sharing the distinct consumer segments with the buyer and demonstrating that, while this item was not the highest velocity in the category, it was the number one item in this mainstream box dinner segment. Removing this dinner kit product would have resulted lost volume for the category or -- worse -- lost customers.
True consumer-driven category assortment captures the systematic and comprehensive volume flows to other items in the category and the impact of marketing support like trade promotion, media, and consumer promotion. Consumer-driven category assortment captures the importance of consumer preferences along with an understanding of consumer segment usage and purchase behavior. This consumer insight and organization also helps inform shelf layout and product adjacencies. Consumer-based shelf layout looks at the interaction indices between segments to understand how related they are.
One might assume that wet and dry dog foods are very separate segments. However, when retailers understand that wet dog food is often used as a mix with dry, one could argue that a brand block with wet dog food directly above its dry counterpart could increase sales based on how it is used.
Most current approaches to assortment rely primarily on a straight line volume and share trend of items with generic projections of product substitutability. Good consumer-based assortment consists of tools that:
- Build optimal retail assortment based on the integration of consumer preference/ switching information and considering how the segments are structured aligned with corresponding POS data.
- Optimize SKUs across key segments of the consumer purchase structure based on velocities, profitability and product loyalty.
- Incorporate consumers’ actual switching behavior to track volume flow from new or deleted items.
- Produce asset management (ROI and GMROI) reports for both manufacturers and retailers.
The goals of consumer-based category assortment are to maximize available shelf space to improve gross margin return on inventory investment (GMROII), reduce out of stocks on the shelf, and provide focus to the segments of growth within the category. For the manufacturer, rationalizing SKUs within consumer segments will improve GMROII and improve Return on Assets (ROA). There are often many internal production and supply chain efficiencies available by continually evaluating low performing or redundant SKUs within the manufacturer’s own portfolio. The key is to know where the volume flows when that item goes away. Does it stay within the brand set or flow to a competitor?
As consumer-based assortment moves to the next level, it informs assortment decisions within geographic clusters based on demographics and ethnic diversity still using that outside consumer view. Conducting consumer-based category assortment requires a usage and purchase-driven market structure that defines how the category is organized and a logic-based analytical tool that captures switching behavior and consumer preferences. The benefits are that retailers will get the most productive items on the shelf, space will be allocated based on each consumer segments contribution, and the layout will be consistent with how consumers shop that category.
Paul Thompson is a partner in the Dallas office of Henry Rak Consulting Partners, a Chicago-based consultancy. To learn more about HRCP and its services, visit www.hrcpinsights.com.
