CATEGORY MANAGEMENT: The search for insight
Category management definitely isn't what it used to be. The increasingly valuable retailing tool has evolved from a focus on filling in templates and data tables to a quest for what the industry refers to as "actionable insights." In other words, putting observations to work for the betterment of the category. The focus is on consumers, with new product development and promotions at an all-time high, and a flurry of demographic data at managers' fingertips.
Yet few would agree that category management has reached its full potential. Execution remains a huge challenge, and many feel that consumer insights need to be deeper, with strategies focused on the entire store rather than just on individual categories.
Progressive Grocer asked retailers, suppliers, and consultants to weigh in on the current state of category management and, perhaps more important, what they expect to see happening to the discipline over the next five years.
While some of the participants' viewpoints underscore the intense competition of the marketplace and the unique challenges embedded in their respective classes of trade, the most striking aspect of this "virtual roundtable" is the number of common themes raised by the participants, particularly when it comes to how category management could be done better.
Taking part in the roundtable were:
•Bill Bishop, president, Willard Bishop Consulting, Ltd.
•Ron Dennis, president & c.o.o., Farm Fresh Markets
•Michelle Gloeckler, v.p., customer/category development, Hershey Foods Corp.
•Chris Hogan, v.p., sales information & technology, Kraft Foods North America
•Shan Kumar, v.p., category marketing and planning, Albertsons
•Phill Schneider, v.p., center store, Big Y Foods, Inc.
•Jeff Smith, global managing partner in the Retail & Consumer Goods practice of Accenture
•Steve Sprinkle, v.p. of global chains, E.&J. Gallo Winery
•Don Stuart, founding partner, Cannondale Associates
•Ted Taft, partner, Euro RSCG Meridian
Progressive Grocer: Has category management changed much—enough—since its introduction? How might category management be done better?
Don Stuart: We've been involved with category management since its inception in the late '80s. Has it changed? You bet. The advent of templates in the mid-'90s changed it from a brand-oriented perspective to a vast accounting exercise. Was this good? It certainly brought focus to the category, but I really don't think it brought focus to the consumer. Category management has evolved again. It is now Consumer Marketing at Retail (CMAR), and understanding the consumer foundation is paramount in importance. Most retailers and manufacturers haven't even scratched the surface of understanding consumer insights.
Ted Taft: Category management with most organizations has changed in a more evolutionary way than revolutionary. As new data capabilities become available, many have developed the ability to look at store-level data, shopper demographics, etc. But overall, much of what is still done is looking at history, meaning it's very focused on scan data and what sold in stores yesterday, last week, or last month. To really be able to focus on creating growth, a rearview-mirror approach won't be enough.
Michelle Gloeckler: It's become less about the templates, more about the insights and actions, and that's a good thing. As for how it might be done better, objectivity, actions that can be easily implemented, and compelling consumer insights that cause action, occasion-based needs, and usage are needed.
Bill Bishop: Today many practice a more pragmatic form of category management, i.e., focusing more attention on the areas where there's a known opportunity rather than looking across the entire "waterfront" for opportunities, and paring the process to improve the return on time and effort invested. In addition, those doing category management increasingly recognize that gross profit is sometimes not an adequate measure of profitability and that there's a need to move to a true profit, i.e., gross profit plus other payments, less the activity-based cost of handling the product.
True profitability is proving to be particularly valuable in making assortment decisions, since it's a lot easier to delete an item when you know it's truly losing money. The key thing that would make category management better is to find a way to ensure that the category plans are more broadly implemented at the shelf. Unfortunately, retail execution has been held back by a lack of agreement on who will pay the cost for implementation.
PG: What is the No. 1 challenge for today's category captains? Will this continue to be the leading concern, or do you expect the emphasis to shift?
Shan Kumar: Getting a return on resource commitment has to be the No. 1 challenge. Retailers often do not completely execute on the business plans. This will continue to be a leading concern.
Stuart: For the captains, the biggest challenge is execution. For everyone else, it's insight. Execution continues to rank at the very top of category management result drivers, as well as overall industry issue importance. A retailer recently mentioned to us, "The greatest consumer insight is meaningless if it isn't translated to effective execution at the point of purchase."
Chris Hogan: We need to uncover insights far beyond what is happening in the category to get a deeper understanding of what is driving consumer behavior. We also need to know why it is happening to ensure execution of an action plan that incorporates the most insightful learning.
Ron Dennis: Keeping up with the available data is a big challenge. Our new systems capture significantly more data than previously; however, having the time and getting qualified people to manage the data are increasingly important opportunities.
Taft: For the last decade or so, industry platforms like ECR have driven category management thinking. The whole focus was on cutting billions of dollars in costs out of the system for efficient assortment, efficient promotion, etc. But a huge shift is underway. On both the manufacturer and retailer side, the focus is shifting from cutting costs to creating growth. This may sound like a simple change, but it requires very different tools and skill sets, and a broader understanding of different business models.
PG: Do you expect the concept of category management to broaden to include aisle management, day-part management, and/or occasion management?
Dennis: No. Item management is difficult enough to keep pace with. Broadening the concept to aisle management will further reduce the opportunity to merchandise to the demographic needs of the store.
Kumar: Until retailers are able to connect the dots across the store and provide a total shopping experience for customers, they are not likely to be able to compete successfully in today's environment. Aisle optimization and occasion management are positive steps in this direction.
Hogan: We think category management is evolving to go beyond categories to include the broader universe of aisles and occasions. It's important to understand how shoppers buy multiple categories and how the categories relate to one another, because in the minds of consumers, food solutions involve the intersection of categories and occasions.
Bishop: Given the need that most retailers have to improve ROI, we expect much more focus on aisle management in the future. Day-part merchandising makes huge sense, particularly when it comes to convenience/immediate-consumption items. In fact, the convenience class of trade has capitalized on this approach for years. Today the only thing that's holding back supermarkets is the cost of implementation. Occasion-based category management will eventually grow as supermarkets implement merchandising strategies focused on specific sets of consumer needs.
Steve Sprinkle: As the focus on adding consumer value increases across the industry, the standard operating practice of category management has no choice but to evolve into a broader spectrum beyond a single category. It's already evolving in this area, but in many cases by accident. The key to more wide-scale expansion of category management into aisle management, day-part management, and occasion management will be the ability of retailers and manufacturers to eliminate silos and begin to look at the entire box. Categories cannot be looked at in a vacuum, and those categories that have the most potential to grow the shopping basket need additional focus and opportunities.
PG: Do retailers have enough influence in the process? Will their influence increase?
Stuart: Most definitely. Why wouldn't their influence increase? They have great data, they're getting bigger than Goliath—some already are bigger than Goliath—and their marketing prowess continues to escalate. But they can't do it alone, and the best of them will rely on a partnership with leading manufacturers who can bring them cutting-edge consumer insights on how they can grow their overall category and aisle sales and profitability. Essentially it comes down to driving total store growth.
Gloeckler: They set the expectation based on what the best are bringing them. With their increasing size come power and influence.
Jeff Smith: Manufacturers continue to have significant influence. We do, however, see progressive retailers increase their impact and role. For example, retailers like H-E-B and Meijer recruited senior talent from CPG companies to bring skills and experience in category management and consumer insight onto their teams. My observation is that retailers take as much control as they want; the issue is that many retailers do not focus on consumers, but instead on product and vendor management.
Taft: Interesting question, because most retailers probably think they have a great deal of influence, and in certain respects they do as manufacturers vie for a category captain position. But since most retailers don't pay for category management, they tend to get very similar approaches to others. In our work with certain retailers, there's increasingly a recognition that when it comes to truly thinking ahead and identifying solutions that can increase differentiation, you get what you pay for.
PG: How is the growing emphasis among retailers on private label affecting category management in areas where house brands play an important role?
Smith: Private label is a good example of category management that works well. Retailers, through their knowledge of consumer preferences, identify a need for a product that is different from what is available through national brand manufacturers, and then create products to fill that gap. The message to manufacturers is to work with retail customers to collect, analyze, and use information to better define gaps in assortments, so that new products can be introduced to fill those gaps before a house brand does.
Phill Schneider: Private label has always been a very important part of our category plans. We insist on a Big Y brands team member's being part of each category plan. Still, private label commitment has to start from the top. We have to walk the walk, not only talk the talk.
Bishop: The growing emphasis on private label does throw somewhat of a fly in the ointment of category management, because now category plans need to reinforce the role of private label. In the past, all too often no one advocated their private label in the category process, and the result was predictable.
Needless to say, it's not as simple as just deciding to do it, because category managers may have incentives that don't support driving a private label. And this will have to change. Also, private label can't be expected to ride free in the category-planning process, i.e., it needs to bring along some of its own resources to the table.
Kumar: The real issue here is the extent of commitment to meeting consumer needs and driving total category sales and profits. Private label often has a strategic role to play beyond the category, and as long as it is positioned appropriately, this has not proven to be a negative issue. Brands with strong consumer franchises, whether they are national brands or company brands, come out ahead in the category management process.
PG: Are category captains effectively addressing store-specific merchandising?
Sprinkle: The leaders are. All parties continue to struggle on how to do store-specific merchandising, assortment, and planograms cost-effectively. It will be critical for all parties involved to put in place scorecards with measurable metrics that will track the ROI in this evolving area.
Smith: No, but not because they don't want to. A number of progressive manufacturers are ready to do the store-level analytics, but have a problem finding a retail counterpart to work with them on that level. Retailers have generally not developed store-level strategies and have difficulty executing against store-specific differences. Chainwide average still governs many retailers' business practices. This remains an obstacle to store-specific success.
Dennis: No. We have central control of all merchandising and assign the store merchandising by category manager. There is a great deal of pressure by national companies to influence the placement of products based on the companies' sales plan vs. the stores'.
Kumar: The industry in general has not been very effective in addressing store-specific issues. Albertsons has developed an internal organization that focuses sharply on store-specific merchandising and very successfully overlays neighborhood marketing by individual store. The process is applied to each of our more than 2,300 stores.
PG: How much of a concern are anticompetitive issues? Do manufacturers other than category captains get their fair chance?
Taft: In principle the answer is yes, because retailers want the benefit of additional points of view, and checks and balances. But for other manufacturers to get their "fair chance," they need to be able to provide value in an incremental way, vs. what the category captain or other vendors are already providing. Anyone can analyze scan data, and most can fill in decision hierarchies, etc. But the burden of proof, particularly for someone who does not currently have a voice with the retailer but wants one, is to bring meaningful new thinking beyond just the basics.
Smith: The "deal" or "shelf space rental" mentality still drives many retailers regarding assortment management. The challenge for niche manufacturers is to create the consumer franchise that compels the retailer to stock their products. That is the sustainable success factor they can count on and control.
Sprinkle: Certainly this is something we are very cognizant of as a manufacturer, and we encourage our retail customers to validate our recommendations through whatever means they deem appropriate, internally or via another vendor. Ultimately the consumer should guide the direction of the category, and the strength of certain brands is clearly illustrated by the sales data. As a result all manufacturers are on an even playing field and get a "fair chance."
Schneider: It all depends on how the category captains are chosen. If an open interview is held with each manufacturer, then expectations and resources are known upfront. We approach the category captain as the expert in that category. From the informational and manufacturer side, our category managers are still the "owners" of the plan, and the final decision of plan components is theirs.
Stuart: No one is going to hand you an opportunity on a silver platter. You have to earn it. If you bring valuable insight, key consumer understanding, and solutions to help retailers grow their overall sales and profitability, you'll have access. You may not be the captain, but you'll have the data to help make informed recommendations to drive overall category sales and profitability with your retailer partners.
Yet few would agree that category management has reached its full potential. Execution remains a huge challenge, and many feel that consumer insights need to be deeper, with strategies focused on the entire store rather than just on individual categories.
Progressive Grocer asked retailers, suppliers, and consultants to weigh in on the current state of category management and, perhaps more important, what they expect to see happening to the discipline over the next five years.
While some of the participants' viewpoints underscore the intense competition of the marketplace and the unique challenges embedded in their respective classes of trade, the most striking aspect of this "virtual roundtable" is the number of common themes raised by the participants, particularly when it comes to how category management could be done better.
Taking part in the roundtable were:
•Bill Bishop, president, Willard Bishop Consulting, Ltd.
•Ron Dennis, president & c.o.o., Farm Fresh Markets
•Michelle Gloeckler, v.p., customer/category development, Hershey Foods Corp.
•Chris Hogan, v.p., sales information & technology, Kraft Foods North America
•Shan Kumar, v.p., category marketing and planning, Albertsons
•Phill Schneider, v.p., center store, Big Y Foods, Inc.
•Jeff Smith, global managing partner in the Retail & Consumer Goods practice of Accenture
•Steve Sprinkle, v.p. of global chains, E.&J. Gallo Winery
•Don Stuart, founding partner, Cannondale Associates
•Ted Taft, partner, Euro RSCG Meridian
Progressive Grocer: Has category management changed much—enough—since its introduction? How might category management be done better?
Don Stuart: We've been involved with category management since its inception in the late '80s. Has it changed? You bet. The advent of templates in the mid-'90s changed it from a brand-oriented perspective to a vast accounting exercise. Was this good? It certainly brought focus to the category, but I really don't think it brought focus to the consumer. Category management has evolved again. It is now Consumer Marketing at Retail (CMAR), and understanding the consumer foundation is paramount in importance. Most retailers and manufacturers haven't even scratched the surface of understanding consumer insights.
Ted Taft: Category management with most organizations has changed in a more evolutionary way than revolutionary. As new data capabilities become available, many have developed the ability to look at store-level data, shopper demographics, etc. But overall, much of what is still done is looking at history, meaning it's very focused on scan data and what sold in stores yesterday, last week, or last month. To really be able to focus on creating growth, a rearview-mirror approach won't be enough.
Michelle Gloeckler: It's become less about the templates, more about the insights and actions, and that's a good thing. As for how it might be done better, objectivity, actions that can be easily implemented, and compelling consumer insights that cause action, occasion-based needs, and usage are needed.
Bill Bishop: Today many practice a more pragmatic form of category management, i.e., focusing more attention on the areas where there's a known opportunity rather than looking across the entire "waterfront" for opportunities, and paring the process to improve the return on time and effort invested. In addition, those doing category management increasingly recognize that gross profit is sometimes not an adequate measure of profitability and that there's a need to move to a true profit, i.e., gross profit plus other payments, less the activity-based cost of handling the product.
True profitability is proving to be particularly valuable in making assortment decisions, since it's a lot easier to delete an item when you know it's truly losing money. The key thing that would make category management better is to find a way to ensure that the category plans are more broadly implemented at the shelf. Unfortunately, retail execution has been held back by a lack of agreement on who will pay the cost for implementation.
PG: What is the No. 1 challenge for today's category captains? Will this continue to be the leading concern, or do you expect the emphasis to shift?
Shan Kumar: Getting a return on resource commitment has to be the No. 1 challenge. Retailers often do not completely execute on the business plans. This will continue to be a leading concern.
Stuart: For the captains, the biggest challenge is execution. For everyone else, it's insight. Execution continues to rank at the very top of category management result drivers, as well as overall industry issue importance. A retailer recently mentioned to us, "The greatest consumer insight is meaningless if it isn't translated to effective execution at the point of purchase."
Chris Hogan: We need to uncover insights far beyond what is happening in the category to get a deeper understanding of what is driving consumer behavior. We also need to know why it is happening to ensure execution of an action plan that incorporates the most insightful learning.
Ron Dennis: Keeping up with the available data is a big challenge. Our new systems capture significantly more data than previously; however, having the time and getting qualified people to manage the data are increasingly important opportunities.
Taft: For the last decade or so, industry platforms like ECR have driven category management thinking. The whole focus was on cutting billions of dollars in costs out of the system for efficient assortment, efficient promotion, etc. But a huge shift is underway. On both the manufacturer and retailer side, the focus is shifting from cutting costs to creating growth. This may sound like a simple change, but it requires very different tools and skill sets, and a broader understanding of different business models.
PG: Do you expect the concept of category management to broaden to include aisle management, day-part management, and/or occasion management?
Dennis: No. Item management is difficult enough to keep pace with. Broadening the concept to aisle management will further reduce the opportunity to merchandise to the demographic needs of the store.
Kumar: Until retailers are able to connect the dots across the store and provide a total shopping experience for customers, they are not likely to be able to compete successfully in today's environment. Aisle optimization and occasion management are positive steps in this direction.
Hogan: We think category management is evolving to go beyond categories to include the broader universe of aisles and occasions. It's important to understand how shoppers buy multiple categories and how the categories relate to one another, because in the minds of consumers, food solutions involve the intersection of categories and occasions.
Bishop: Given the need that most retailers have to improve ROI, we expect much more focus on aisle management in the future. Day-part merchandising makes huge sense, particularly when it comes to convenience/immediate-consumption items. In fact, the convenience class of trade has capitalized on this approach for years. Today the only thing that's holding back supermarkets is the cost of implementation. Occasion-based category management will eventually grow as supermarkets implement merchandising strategies focused on specific sets of consumer needs.
Steve Sprinkle: As the focus on adding consumer value increases across the industry, the standard operating practice of category management has no choice but to evolve into a broader spectrum beyond a single category. It's already evolving in this area, but in many cases by accident. The key to more wide-scale expansion of category management into aisle management, day-part management, and occasion management will be the ability of retailers and manufacturers to eliminate silos and begin to look at the entire box. Categories cannot be looked at in a vacuum, and those categories that have the most potential to grow the shopping basket need additional focus and opportunities.
PG: Do retailers have enough influence in the process? Will their influence increase?
Stuart: Most definitely. Why wouldn't their influence increase? They have great data, they're getting bigger than Goliath—some already are bigger than Goliath—and their marketing prowess continues to escalate. But they can't do it alone, and the best of them will rely on a partnership with leading manufacturers who can bring them cutting-edge consumer insights on how they can grow their overall category and aisle sales and profitability. Essentially it comes down to driving total store growth.
Gloeckler: They set the expectation based on what the best are bringing them. With their increasing size come power and influence.
Jeff Smith: Manufacturers continue to have significant influence. We do, however, see progressive retailers increase their impact and role. For example, retailers like H-E-B and Meijer recruited senior talent from CPG companies to bring skills and experience in category management and consumer insight onto their teams. My observation is that retailers take as much control as they want; the issue is that many retailers do not focus on consumers, but instead on product and vendor management.
Taft: Interesting question, because most retailers probably think they have a great deal of influence, and in certain respects they do as manufacturers vie for a category captain position. But since most retailers don't pay for category management, they tend to get very similar approaches to others. In our work with certain retailers, there's increasingly a recognition that when it comes to truly thinking ahead and identifying solutions that can increase differentiation, you get what you pay for.
PG: How is the growing emphasis among retailers on private label affecting category management in areas where house brands play an important role?
Smith: Private label is a good example of category management that works well. Retailers, through their knowledge of consumer preferences, identify a need for a product that is different from what is available through national brand manufacturers, and then create products to fill that gap. The message to manufacturers is to work with retail customers to collect, analyze, and use information to better define gaps in assortments, so that new products can be introduced to fill those gaps before a house brand does.
Phill Schneider: Private label has always been a very important part of our category plans. We insist on a Big Y brands team member's being part of each category plan. Still, private label commitment has to start from the top. We have to walk the walk, not only talk the talk.
Bishop: The growing emphasis on private label does throw somewhat of a fly in the ointment of category management, because now category plans need to reinforce the role of private label. In the past, all too often no one advocated their private label in the category process, and the result was predictable.
Needless to say, it's not as simple as just deciding to do it, because category managers may have incentives that don't support driving a private label. And this will have to change. Also, private label can't be expected to ride free in the category-planning process, i.e., it needs to bring along some of its own resources to the table.
Kumar: The real issue here is the extent of commitment to meeting consumer needs and driving total category sales and profits. Private label often has a strategic role to play beyond the category, and as long as it is positioned appropriately, this has not proven to be a negative issue. Brands with strong consumer franchises, whether they are national brands or company brands, come out ahead in the category management process.
PG: Are category captains effectively addressing store-specific merchandising?
Sprinkle: The leaders are. All parties continue to struggle on how to do store-specific merchandising, assortment, and planograms cost-effectively. It will be critical for all parties involved to put in place scorecards with measurable metrics that will track the ROI in this evolving area.
Smith: No, but not because they don't want to. A number of progressive manufacturers are ready to do the store-level analytics, but have a problem finding a retail counterpart to work with them on that level. Retailers have generally not developed store-level strategies and have difficulty executing against store-specific differences. Chainwide average still governs many retailers' business practices. This remains an obstacle to store-specific success.
Dennis: No. We have central control of all merchandising and assign the store merchandising by category manager. There is a great deal of pressure by national companies to influence the placement of products based on the companies' sales plan vs. the stores'.
Kumar: The industry in general has not been very effective in addressing store-specific issues. Albertsons has developed an internal organization that focuses sharply on store-specific merchandising and very successfully overlays neighborhood marketing by individual store. The process is applied to each of our more than 2,300 stores.
PG: How much of a concern are anticompetitive issues? Do manufacturers other than category captains get their fair chance?
Taft: In principle the answer is yes, because retailers want the benefit of additional points of view, and checks and balances. But for other manufacturers to get their "fair chance," they need to be able to provide value in an incremental way, vs. what the category captain or other vendors are already providing. Anyone can analyze scan data, and most can fill in decision hierarchies, etc. But the burden of proof, particularly for someone who does not currently have a voice with the retailer but wants one, is to bring meaningful new thinking beyond just the basics.
Smith: The "deal" or "shelf space rental" mentality still drives many retailers regarding assortment management. The challenge for niche manufacturers is to create the consumer franchise that compels the retailer to stock their products. That is the sustainable success factor they can count on and control.
Sprinkle: Certainly this is something we are very cognizant of as a manufacturer, and we encourage our retail customers to validate our recommendations through whatever means they deem appropriate, internally or via another vendor. Ultimately the consumer should guide the direction of the category, and the strength of certain brands is clearly illustrated by the sales data. As a result all manufacturers are on an even playing field and get a "fair chance."
Schneider: It all depends on how the category captains are chosen. If an open interview is held with each manufacturer, then expectations and resources are known upfront. We approach the category captain as the expert in that category. From the informational and manufacturer side, our category managers are still the "owners" of the plan, and the final decision of plan components is theirs.
Stuart: No one is going to hand you an opportunity on a silver platter. You have to earn it. If you bring valuable insight, key consumer understanding, and solutions to help retailers grow their overall sales and profitability, you'll have access. You may not be the captain, but you'll have the data to help make informed recommendations to drive overall category sales and profitability with your retailer partners.