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    COVER STORY: Experts' Roundtable: Blueprints for change

    Progressive Grocer asked a panel of experts to assess the current state of category management and suggest how it could be improved. Their answers point the way to the next step in the practice's evolution.

    This is no time for category management to come up short. More than ever, the pressures of modern retailing cry out for supermarket operators and their suppliers to work closely together to find mutual growth. Yet the practice of category management, which was developed with that goal in mind, is arguably becoming obsolete in a world where shopping occasions, consumer needs -- and even product categories -- continue to blur.

    Rapid rates of new product development and the search for quality data and analysis are just a few of the variables at play. At the heart of the matter for all progressive grocers is the question, how do you achieve differentiation in such a highly developed retail landscape? Is category management resilient enough as a strategy to give the industry what it needs?

    It's a hot debate that Progressive Grocer explores in depth on the following pages, by picking the brains of a panel of supermarket execs, CPG strategists, and well-versed consultants all intimately involved with the current evolution of category management. While their views differ on some accounts, these experts reach consensus on the idea that the definition -- and certainly the practice -- of category management must be finessed to maintain relevancy in coming years.

    The members of this think tank are:

    -Bill Bishop, president, Willard Bishop Consulting, Ltd., Barrington, Ill. (along with David Bishop, director, Willard Bishop Consulting, and Jerry Friedler, industry consultant)

    -Bobbi Gosselin, v.p. of category development, Daymon Worldwide, Stamford, Conn.

    -Kevin Hade, v.p. of sales and operations, Ukrop's Super Markets, Inc., Richmond, Va.

    -Nancy Krawczyk, director of category strategies, Campbell Soup Co., Camden, N.J.

    -Kimberly Senter, director of category management, Unilever U.S.

    -Roger Soman, principal, Raiseyoursales.com, Coral Gables, Fla.

    -Donald J. Stuart, managing director, Cannondale Associates, Inc., Wilton, Conn.

    -Ted Taft, managing director, Meridian Consulting, Westport, Conn.

    -Mike Terpkosh, director, category management development, Supervalu, Inc., Minneapolis

    PG: Is category management, as it's being applied today, helping retailers create growth? If not, what's wrong?

    Mike Terpkosh: Category management is a driver to help retailers grow their business and remain competitive. Retailers that I know, including Supervalu, see great value in using category management across the store to drive their business.

    But the category management process at Supervalu today is vastly different from the one we had five years ago. We have refined and fine-tuned it to be more nimble, and we have integrated principles and practices into our day-to-day merchandising work. This allows us to more quickly write category strategies, complete category tactics, and execute these tactics at retail for the independent retailers in our category management program.

    Kevin Hade: For the small number of retailers that really have their hands around this area and fully understand the principles of category management, I believe they're achieving success. I still think a vast majority of companies lack a complete understanding of all the elements of an effective category management system, however.

    Bill Bishop: It's driving growth where the retailer has moved the definition of category management beyond the process of plan writing. These retailers are emphasizing efficient assortment, focusing on micro-merchandising, and integrating loyalty card and market basket data into the process.

    Donald J. Stuart: Manufacturers and retailers agree that category management is important to their organizations, according to Cannondale's annual study. If importance could be a proxy for growth, then category management would be achieving its objective. However, I think we all realize the competitive quandary that grocery retailers are facing. Category management alone cannot create growth. However, category management can be a catalyst for growth throughout the store, and it must [also] serve as a primary catalyst for differentiation.

    Kimberly Senter: It depends on both the retailer and the manufacturer, but across the board there's room for improvement. Progressive companies are utilizing the principles of traditional category management as a foundation, but are incorporating relevant and actionable insights on shoppers more frequently than in the past. The key to retailers' long-term success in this new environment lies in their ability to establish a clear brand image in the minds of their shoppers, which leads to increased loyalty. Category management today can be used to help do this.

    Roger Soman: Most companies are trying hard to make fact-based decisions that hopefully will increase profitable sales. Unfortunately for the CPG industry, to get your hands on good usable data and then creatively analyze it, you need to make an investment. For the bigger manufacturers, price is less of an issue, but for smaller companies, who often come to market offering the most innovative and leading-edge products, price can be a hurdle.

    PG: What do you consider to be the most significant developments in category management in the past 12 to 18 months?

    Ted Taft: The biggest development is the shift of emphasis, in the corner office and on Wall Street, from mergers and cost cutting to top-line growth. This has enormous implications for how organizations go to market. As has been noted by the Food Marketing Institute, we need to learn how to grow again. It requires a broader set of skills, including expertise beyond your category and channels, applications beyond just the Four Ps, and more.

    Terpkosh: There has been a definite trend to reduce the amount of heavy analysis and data needed to complete category reviews. Many retailers have realized they can greatly reduce the amount of data crunching they do, and so can their vendor partners. This has allowed many retailers to get more category strategies/tactics executed in the retail store.

    There's also a move with some retailers, including Supervalu, to go beyond category management into store aisle management. We're starting to see that it's necessary to group categories together in aisles to improve the shopability of the store for the consumer.

    Senter: Overall, category management today requires a more sophisticated use of various sources of information, with a focus on solutions. First, there's the management of the entire aisle vs. simply the category; adjacencies are important. Second, manufacturers must deliver fact-based, actionable solutions to retailers, instead of "data dumps," as we did in the past. Third, manufacturers must understand the retailer's strategy in order to deliver the most appropriate and effective solutions, and this requires a more intimate relationship between the two business partners. Fourth, the use of information and technology in the category management process has improved drastically to include more reliable and retailer-specific sources such as loyalty cards, shopper behavior, and retailer POS data, vs. traditional syndicated information providers such as ACNielsen and IRI.

    Nancy Krawczyk: At Campbell Soup, consumer behavior is leading us to redefine our categories more broadly, to be more solutions-oriented. Channel blurring continues to erode the grocery retail trip, and many retailers are clustering stores and building distinctive loyalty programs to maintain their most valuable shoppers. In addition, technology and software continue to change the game of category management, by providing field sales with tools that customize presentations and quantify business opportunities at their retailers with a click of a button.

    Bishop: The other major change that's taking place in a small number of retailers involves the retailer taking greater control of the category management process, i.e., they themselves are becoming category captains, and then bringing key suppliers in to contribute in ways that support the retailer's unique strategies.

    We see this change as a major shift that'll ultimately increase the productivity of category management and its impact on retailer growth and business success.

    PG: In light of the amount of time, talent, and capital investments required to achieve category captaincy status, do you feel it's a worthwhile return on investment for manufacturers? How about the companies that can't afford it?

    Bobbi Gosselin: Ah, the mask is finally being removed! Branded manufacturers that have long competed to become the category captains have clearly done so with the intent to protect and/or improve their positions in-store. Because retailers have deployed the category management task to manufacturers as a way to save funds, they've left the fox guarding the henhouse. Today we can see, in many cases, the outcomes of those who have left their fate in the hands of others without the discipline to challenge category planning.

    Senter: Manufacturers must make a decision based on their organization's strategic objectives and priorities before committing to a category captaincy -- asking challenging but necessary questions about the role of the retailer and the category in achieving their specific business goals. While it's an honor to be selected category captain, it requires a tremendous investment, human and financial, and companies should apply a standard approach and methodology when determining how category management teams will participate in these programs.

    Stuart: The results speak for themselves. Manufacturers are driving 6 percent to 13 percent gains due to category management, and retailers are averaging double-digit gains from category management. That's significant top-line growth! And perhaps the refocusing of category management to top-line growth vs. a more ECR cost-savings approach has generated these types of results.

    Is the investment in time, talent, and capital worth it? In most cases, without a doubt. In terms of companies that can't afford it, there are always validator roles. Too often a captain may bring a self-serving perspective, which is an invitation for dismissal.

    Terpkosh: Today so much of category management practices and processes are ingrained into day-to-day business throughout the industry that category management has become a cost of doing business, to be successful. Manufacturers who become category captains/partners do see a great return on their investment, because they help retailers to be successful in the store. This equates to increasing sales that benefit the retailer and the manufacturer.

    For companies that can't afford to buy the data and the systems necessary to become category captains/partners, I suggest they bring what consumer insights they have to the retailer and offer to help out during a category review. At Supervalu we have vendor partners, and we also have validators. The role of a validator allows manufacturers who are not the partner in a category to participate in our category review process by providing consumer and category insights.

    Soman: Category management is worth every penny if it's used properly, but there are some prerequisites. You need management buy-in, a willing sales force, and solid data and analysis. You also need a little luck that the person you're presenting to will be receptive and open-minded. Category captaincy is no different.

    Where it begins to get a little iffy is when there's a disconnect through a warped message from the supplier, or an unwillingness to listen by the retailer, but these are becoming less common.

    We talked about the money issue earlier; this stuff is expensive, especially when we've graduated to the captaincy level. Wouldn't it be great if retailers assigned a co-captain status to a smaller manufacturer that exhibits cutting-edge innovation? That point person should have specific quantifiable responsibilities that would breathe new life into the category management process, which would generate new excitement in the in-store efforts.

    PG: Are companies working with appropriate data? Are they finding ways to predict future trends, vs. predominantly relying on what's happened in the past? Are they employing loyalty card data?

    Gosselin: Very few retailers understand and effectively tap into the gold mine that is their loyalty card data. Kroger and Tesco have set a new standard with their partnerships with Dunnhumby. Traditionally retailers tend to look to historical data to make decisions and are not very good at predicting the future. As retailers look to limit risk, they actually increase their risk of becoming redundant to the consumer. Those who effectively utilize the loyalty card data are able to assess such areas as brand switching and make educated brand/SKU rationalization decisions. The result is deletion of underperforming products, and, ultimately, greater overall profitability, without losing the consumer to competitors.

    Bishop: Manufacturers and retailers are both broadening the types of data they use in category management, with most of the current emphasis on the shopper, not consumer, insights. Shopper insights are being created from transaction analyses of market data and from in-depth analysis of loyalty card information. Kroger's initiative with Dunnhumby is probably the current high watermark in this area.

    The primary challenge we see today is that the process of developing impactful shopper insights can be very time- and labor-intensive. As a result it's absorbing a lot of resources in many companies, and, as a practical matter, this can't continue, because it just doesn't make good business sense.

    Hade: I think data mining is getting better. Continued improvements in this area are enabling CMs to improve their performance. Time will always be an issue, but I'm beginning to see light at the end of the tunnel.

    Most of the data we're still using today is based on recent spending history. At Ukrop's we have been in the loyalty card business for nearly 20 years, and have found this information to be invaluable in product mix decisions. If you have a customer who spends $200 per week in your store and they like a particular type of cereal that otherwise may not justify the space, you need to know that information before you cut the item out of your mix.

    Stuart: Most companies aren't digging deep enough. There's an overreliance on syndicated data. Better understanding of shopper behaviors and attitudes, and linking these to understand the gaps between the two, is essential. Tapping into loyalty card data is one solution. Understanding shopper segments, mission/trips, and customer segments or channels is ideal.

    Taft: The problem isn't keeping up with new types of data. The problem is developing the applications that data, in turn, can help drive. Many companies use loyalty card or other data, but find the incremental learning to be insufficient. What's important is to develop a framework for growth that considers the full set of key drivers on your business, and then to assemble the data and metrics which will allow you to measure progress and ROI, and to make course corrections as needed.

    Terpkosh: Predicting future trends is tricky. For us and other retailers to stay ahead of the trends, we need the proper data to try to predict what's coming in trends, to satisfy the needs of the consumer and capture sales from those trends. If we don't recognize trends early, we miss the sales opportunity with the consumer, who will buy elsewhere.

    Loyalty cards are part of the answer for some retailers. However, I don't think any of us can rely on one source of data to give us an adequate prediction of future trends. A category manager has to be looking at many sources of information and keep their eyes and ears open for developing trends.

    PG: Is the enormous number of new product introductions a help or a hindrance? Is SKU optimization the answer?

    Krawczyk: SKU assortment is the answer! It's a critical element of the category management plan, as it allows retailers to customize their offerings, based on the unique needs of their shoppers. In addition, inventory management can drive efficiencies, optimize assets, and reduce unsaleables. Nonetheless, manufacturers need to have more discipline in both their new product and line extension activities. New products have to meet unmet needs, address new users, and create new occasions to drive incremental category growth.

    Hade: I can understand the pressures that face our suppliers and their need to grow their business. However, we're seeing an increasing number of new products each year, and a corresponding increase in new item failures.

    I think we need to swing the pendulum back a bit in this area. We would welcome a trend to fewer/better product launches in the future. Besides, most retailers are already overproliferated and in need of SKU rationalization efforts to reduce the number of items that they currently offer to their consumers.

    Terpkosh: I believe we're reaching the point in some categories where there's a backlash from retailers not to accept many new SKUs. We've had difficulty in the past getting our retailers to accept very large-scale SKU changes just because manufacturers want to redesign packaging, add scents or flavors, or just try to gain shelf space. Since we conduct category management on behalf of our retailers, we have to be very diligent to recognize great new SKUs we need to get to retail with speed to shelf, and separate those from other SKUs that don't add real value to the category.

    Stuart: Turning again to Cannondale's CMAR/Category Management study, which surveyed over 300 manufacturers and retailers, we find new products remain the lifeblood of the industry from both a retailer and manufacturer perspective, coming in at No. 3, with 93 percent of manufacturers rating them very/extremely important, and No. 2 with 91 percent of retailers. Are they delivering? Definitely not. Both areas had significant gaps of expectation vs. reality. How they can deliver is the key issue.

    Efficient product assortment remains an opportunity for most retailers and manufacturers. Too often a line is drawn in the sand in terms of optimizing mix without a thorough understanding of the appropriate consumer segmentation and transferability of demand.

    Soman: New products are essential to keep the retail environment fresh and to keep the consumer coming back. A store's shelf can only hold so much stuff, however, so as you add new items, we need to weed out the poorest performers. Unfortunately the evaluation criteria used to isolate a poor performer will change over time to fit the needs of the presenter. As we evolve, I see a more flexible schematic that will expand and contract over time, giving product segments needed space during key selling periods.

    PG: How is private label affecting the way category management is being done?

    Gosselin: We believe that private label is central to the revolution in category management. Smart retailers are now learning to use the same tools the brands have been using to define and drive their own brands. As retailers become more focused on defining their stores for the future, we'll continue to see major changes in how traditional category management is executed.

    Terpkosh: Private label needs to be part of the category management process, and category managers need to understand the strategy that private label plays in the category and for the retailer. At Supervalu we have tried very hard to integrate our private label team into the category management strategy and tactics creation process.

    I know some manufacturers don't like to include analysis and discussions about private label in their category management work, but it is critical to understand how the consumer reacts to all brands, including private label. A good category captain/partner recognizes the need for private label in the analysis, in the category, and on the shelf.

    Krawczyk: Private label products that reflect a retailer's image can be a powerful tool to build shopper loyalty. Name brands from manufacturers have a role to play: They advertise to drive category consumption and promote to drive traffic, while quality private label offerings can enhance the store's image.

    Stuart: Private label is often recognized as a sacred cow. Is research being done from a consumer or shopper perspective on private label? Definitely not to the same degree as branded research. Not even close.

    Bishop: Private label is impacting the way category management is done, because it's changing where retailers are placing their focus. Private label is the one brand that a retailer can develop, market, and manage in ways that are aligned with and help drive its own unique marketing strategies.

    For this reason, the growing importance of private label is causing some retailers to protect private label in the category management process, and assume greater control over the category management process so that they can ensure that it better serves their overall merchandising/marketing strategy.

    We anticipate that over the next few years, there will be a growing retailer emphasis on private label and their own unique marketing strategies, which will trigger a change in the way manufacturers approach category management.

    PG: How might category management need to change in the next five years to ensure that retailers continue to achieve growth?

    Soman: Wow, that's a good one...more granular-level data to take advantage of store-level insights, RFID expansion to cut down out-of-stocks, less adherence on a predisposed category definition. Better and less expensive technology to analyze the results, and an equitably shared labor pool to implement retail programs as warranted.

    Hade: Technology will continue to help reduce the time investment and increase the quality of the data for the CM process. As we experience these changes, retailers will constantly need to examine work practices and drive out "non-value-added" work behaviors.

    Certain behaviors that seem critical in today's world may be obsolete in the coming years. Organizations that embrace this type of change will be the winners.

    Senter: Category management in the next few years will require further integration of several functional departments for successful execution of the Four Ps at retail. There are many questions on shoppers' minds that category management professionals will have to consider, including: Does the retailer carry the brands I want? Are they priced competitively? Are they easy to find? How easy, thus enjoyable, is the shopping trip at this particular retailer?

    Category management is no longer about what happens within a particular category, but encompasses everything that happens from the point of store entry to the point of sale on a shopping trip, and retailers and manufacturers must manage all categories within a store for total shopping satisfaction.

    Stuart: It needs to focus on differentiation driven by consumer and shopper insights. Differentiation could be at the consumer segment level, the trip level, or the store cluster level. Differentiation must also recognize the appropriate competitive set. Target may not compete one-on-one with Wal-Mart on many occasions. Instead it may be competing with Whole Foods or Wegmans. Wal-Mart may be competing with dollar stores. It depends on the shopper segment, the trip mission or occasion, and the channel segmentation.

    Taft: Category management needs to become "business management." It must evolve to address higher-level business needs of retailers, beyond just your category. It must also consider new applications -- for example, not just products and promotions, but also consumer services, retailtainment, technology, and more. Finally, it must become more dynamic. Templates have become the poster child for standardized, repetitive programs in many businesses. Business management must place greater emphasis on reinvention and bringing "what's next" to the marketplace.

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