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With some 20 perishables category captains recognized in this issue of Progressive Grocer, the casual observer might surmise that category management practitioners in the perishables domain have finally bridged the gap long separating them from their center store peers.
But a closer look reveals plenty of ground yet to cover. Fresh experts say both retailers and vendors in the perishables world are often still stuck in old patterns and mindsets when it comes to category management. Only a small elite is using category management as a powerful weapon in the strategic arsenal, and it's had the greatest impact on moving the needle forward. Others are holding progress back by their insistence that the fresh market still functions only according to the traditional dynamics of relationships and low prices.
The influx of vastly improved, more affordable data across the fresh departments has helped both grocers and suppliers in recent years. Still, Steve Lutz, e.v.p. of the Chicago-based Perishables Group, suggests the landscape of fresh food category management today is carved up in a "10/45/45 split," with the 10 percent group representing true category leaders that wield marketing as a critical point of differentiation.
Inhabiting the middle 45 percent of the split, are what Lutz calls the "'check in the box' suppliers -- organizations that collect a little bit of data and make it available only if a retailer asks them to step up and provide it."
The biggest drawback of operating in this segment is "the lack of real commitment and intimate knowledge of what genuine category leadership entails," says Lutz. It's a reactive group that functions by "answering the need of the day," which he reiterates "is fundamentally different from those that thoroughly understand their business and are in a position to seize opportunities" as they arise.
In the second 45 percent group, says Lutz, "are organizations that view retail as a commodity sale, with a central approach in everything they do, revolving around reducing costs and limiting expenditures." This group, he adds, is especially fond of clinging to a traditional belief that "their business has been built on relationship and price -- and that's how it will stay."
Lutz also attributes the lack of consensus among fresh category management practitioners to mixed messages from the retail community. "Very often a perishable supplier's strategy is driven by their perception of how to satisfy a retailer, which plays a huge role in the equation," he explains. "There are still a number of retailers out there who continue to view the perimeter departments as commodity offerings with not a lot of differentiation among individual suppliers. And if that's the attitude of the retailer, it's reflected in how they source product, how they treat suppliers, and what they expect from suppliers."
The evolution of category management, concludes Lutz, "will ultimately be driven by the expectations of retailers."
Tech turns the tide
The path of progression for category management in the fresh departments over the past decade started as "an unmarked trail, scattered with limited data availability that was fairly expensive to do," observes Lutz. "But the road has since been paved with readily available data at higher quality and lower cost."
The single most important development of the past 12 to 18 months, he adds, has been "increased complexity that has moved from large macro-categories to more targeted, segmented marketing." As evidence, he points to the steady expansion of pack sizes, variety, and assortment, as well as an onslaught of ready-to-cook/ready-to-eat packaged products that heretofore were the sole province of the center store.
The latest convenience-oriented products "really add an element of complexity, but the upside is that they command premium prices and high margins," a scenario that Lutz says also yields outstanding opportunities for grocers and suppliers.
Gone are the days of a one-size-fits-all merchandising approach. The complexity of the fresh departments continues to rise, as does the chorus of calls for "understanding who the consumer target is, and the shopping behavior of those consumers on a store-by-store basis," explains Lutz. As such, the challenge before suppliers is "not getting products into distribution and on the shelf; it's getting them off the shelf, in the form of consumer purchases."
Michael Uetz, principal of Chicago-based Midan Marketing, concurs that the category management spotlight is narrowing. "We will see less total-store category management and more individual-store management. The meat department in an inner-city Chicago store is shopped differently than is a suburban store; therefore, retailers will begin using the data to most effectively meet the needs of both shoppers in both locations, instead of shooting for the average.
"Branding will continue to play a bigger role in the future as well," adds Uetz.
Consider the whole meat case
At the department level, strategic thinking also needs to adjust. When it comes to the meat case, for example, "retailers need to get away from thinking about it in terms of managing protein categories, and instead manage the meat case in its entirety," says Uetz, which "will allow them to operate more in line with their customers' shopping habits, rather than how meat executives have traditionally set cases."
Uetz pegs advances in technology as the defining moment for second-generation meat case category management. "Trading partners are now able to operate much more efficiently and effectively, due to advances in fresh meat product identification and synchronization of systems for ordering, delivering, and replenishment," he explains. This enables grocers to respond more quickly when consumers change their buying behavior.
"It's the same technology that also allows retailers to get a much better grasp of their true shrink, and consequently their margins. Technology has made all of this more efficient, by creating a quick time environment and reducing paperwork flowing between partners."
While retailers have access to more data than ever before, that's just half the solution, however. "Most are not doing anything but skimming the top of reports, and consequently are not able to reap the benefits that could be gained," laments Uetz. "Many retailers are using data for whole-company planning purposes, and are not taking the time to look at performance on an individual-store or zone basis."
That "very generic" approach, he adds, "does not allow retailers to anticipate their customers' needs. Instead they're still in a reactionary mode of decision-making. By investing in understanding and using data, retailers will be able to better meet their customers' needs by stocking their meat cases with products their customers want to purchase."
Many retailers are also still missing the boat when it comes to tapping loyalty card marketing insights for, say, the meat department.
"Loyalty card data allows the retailer to marry demographics with purchase behavior," notes Uetz. This can truly have a positive impact on meat department sales. "The key is devoting resources to first understanding, and then continually mining, the data" not only to spot trends quickly, but, more importantly, also to react to them appropriately.
Uetz cites Charlotte, N.C.-based Harris Teeter as an example of a retailer that does an outstanding job on this front, with a customized weekly features e-mail.
"The e-mail lands in customers' in-boxes, highlighting only the items that are for sale that week that are part of their normal purchase pattern," observes Uetz. "Customers see this as a way Harris Teeter is helping them quickly and conveniently determine why they should shop at Harris Teeter that week."
That's not just category management, but also department management and customer relationship management, all of which build loyalty and sales.