CPGs Look to Improve
By Al Heller
Major CPGs, realizing it’s time to improve operational disciplines at the shelf and become far more effective merchandisers, have participated in a high-powered industry share group to develop a new study, In-Store Implementation: Current Status and Future Solutions.
Anheuser-Busch, General Mills, Nestle Purina, Pepsico and Procter & Gamble spent more than a year examining the multidisciplinary steps it will take to close the black hole of category management—store execution—with share group members that include retailers Giant Eagle and Schnuck’s, consultants The Partnering Group and VSN Strategies, technology firm Retail Tactics, and merchandising services firm Driveline.
The dollars at stake are enormous. Ineffective implementation costs the consumer products industry between $10 billion and $15 billion a year, or about 1% of gross product sales through U.S. food, drug and mass channels, the study estimates.
“We’re addressing major problems CPG has in managing the complexities of the next generation of category management,” Dr. Brian Harris, founder and co-chairman, The Partnering Group, told CPGmatters. The Cincinnati-based firm is the chief facilitator of the current In-Store Implementation (ISI) share group, and the recognized principal architect of category management principles that helped to refine retail practice over the past two decades.
For Dr. Harris, the current initiative also firms up one of the final but crucial steps in the traditional eight-step category management process—store execution. This step drew less attention when the marketplace first began to absorb and follow category management principles in the late-1980s. Yet operations are far more complex today because many more stores routinely host hundreds of category planograms. These vary not only with store size and location, but with powerful data analysis not available before, which enables retailers to tailor shelf sets for stores based on local consumer demand and purchase patterns at specific sites.
“New consumer insights reveal the need for more detailed store-level targeting,” said Dr. Harris. “The result is an unprecedented level of planning intricacy—more planograms and more targeted promotions. Without effective, accurate implementation practices, those plans cannot deliver.”
The share group believes its study will motivate CPG, retailers and third-party merchandising firms and brokers to play collaborative roles in improving execution, chip away at the massive underperformance, and adopt new sets of Best Practices that more effectively meet day-to-day and promotional executional needs. The report urges these parties to “cultivate an industry-wide culture of compliance, in which performance levels of the past are no longer deemed sufficient and the industry adopts and attains greater expectations” in five primary areas: planogram compliance, assortment rationalization, center-store space allocation, display and promotional compliance, and new item speed to shelf.
Future improvement targets should include shelf pricing and price optimization, shopper media delivery, and retail activities that hinge on accurate demand signals to function optimally.
The report calls the store the focal point for solutions that would better connect local consumer demand and the overall supply chain. It identifies a need to implement better practices that would ensure product visibility is not lost at the back door after items are checked in and moved around the store. Everyday store change requirements make planning and tracking of in-store conditions harder, which detracts from the shopping experience. Also, compliance at the shelf remains largely unmeasured.
These contribute to costly performance gaps, according to
- Out-of-stocks are an intractable problem—8.3% on average and 10% or higher on the fastest moving items. Nearly three-quarters of these are a direct result of retail store practices, and cost the typical retailer approximately 4% of net sales, it said, citing a 2002 GMA report. “Out-of-stocks on new product introductions can be two to three times that rate, and can give an incorrect read of the effectiveness of CPG marketing messages,” said James Tenser of VSN Strategies, principal author of the study, in an interview.
- Overstocks throughout food stores co-exist with the out-of-stocks. A whopping 86% of merchandise in a food store is in excess of 7 days of supply. That represents $46 billion in stagnant capital industry-wide.
- Approximately 50% of authorized retail promotional displays aren’t erected or are erected late, amounting to an estimated $25 billion of ineffective spending annually by CPG manufacturers, share group members estimated.
- Speed to shelf remains inadequate for many new items.
- In-store support is insufficient to meet merchandising commitments.
- Stores are slow to implement resets.
- In-store support is insufficient to meet shopper marketing/media commitments.
Relief could come, the share group believes, once the industry adopts best practices, beginning in two key areas:
- Improved processes and standards for shelf management, from the data-driven planning of physical tasks at the shelf to their day-to-day execution.
- Store capacity-based planning, which is based on two components, the physical space available in a store, and the amount of labor resources that can be applied either by retailers, manufacturers or third-parties, which is constantly in flux.
Al Heller is co-author of Consumer-Centric Category Management (Nielsen/Wiley, 2006) and president, Distinct Communications, LLC.
More Insights, Simpler Process
Will Increase Effectiveness
By John Karolefski
What is needed the most to increase the effectiveness of category management?
“Using more shopper insights,” said one of three respondents (32%) to an Instant Poll on the home page of the March edition of CPGmatters. One of four (26%) opted for making the process less complicated.
Others want more collaboration with trading partners (22%), more sophisticated analytics (14%), and assorted methods (5%).
“Shopper insights is the future of category management,” enthused one of the executives in the Comments section of the poll. Another looks for “creating retailer solutions based on shopper insights.”
The importance of shopper insights to category management is no surprise to consultant Paul Thompson who believes that consumer-driven assortments will optimize conventional shelf sets. “But the data for category segments may not be aligned the way the consumer organizes or shops the category,” cautioned Thompson, managing director of Chicago-based Henry Rak Consulting Partners.
“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,” says Thompson, writing in the current issue of The Rak Report, a quarterly newsletter (to subscribe, click here).
In support of “deploying more sophisticated analytics,” a respondent wrote, “Retailers and manufacturers must become more sophisticated in the analytics as well as in the execution of what the analyses are ultimately saying.”
Write-in comments by survey respondents offered assorted other ways to enhance the category management process. They included:
- Promotion and planogram compliance in the stores
- Need to move from being an “efficiency” tool to becoming an “effectiveness” one
- Buy-in from top-level executives
- Empowerment of category managers to implement tactics based on their findings.
The most controversial write-in comment about what is needed the most to increase the effectiveness of category management was: “Until proper space management is established in a metric that benefits the retailer, all analysis is based on corrupted data created by flawed category management practices.”
Consultant Thompson also sees flaws in the traditional approaches to assortment because they rely primarily on straight-line trending of item volume and share. The data employed has nothing to do with how consumers actually choose and use the product, or what they are substituting an item for.
On the other hand, “consumer-driven category assortment is an ‘outside-in’ view of categories and products that is aligned with how consumers use and purchase products,” he said, supporting the notion of more shopper insights to enhance the process.
“A critical component is a behaviorally-defined market structure that provides direction for key purchase drivers. This market structure shows why and how products satisfy consumer purchase and usage occasions; why and how consumer preferences dictate loyalty and substitutability; and how these factors affect net volume flows across SKUs within a segment or category,” he said.