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"Your retail execution sucks." That was the rather blunt, but accurate, assessment Mike Terpkosh, director of category management development and retail pricing for Minneapolis-based Supervalu, received from a representative of Procter & Gamble back in 1998, after the rep had witnessed firsthand how badly the wholesaler was mismanaging its category management efforts where the rubber meets the road: at retail.
"He told me, 'Mike, I'm going to drag you kicking and screaming to the stores to show you how bad it is,'" Terpkosh recalls. "It was terrible. We had people running around everywhere -- we didn't know what to do."
This revelation eventually sent Supervalu down the path to effective retail execution, says Terpkosh, who told of the company's catharsis and corrective measures at the National Association for Retail Marketing Services' Annual Meeting and Conference in April. "We were spending all this money, we had all these retailers on category management programs, but nothing was getting done well in these stores."
In a follow-up interview last month, Terpkosh made it clear that SuperValu had fallen into the rut of running on too much theory and not enough action. The principle of category management -- developed out of the ECR movement in the late 1990s, along with a slew of other types of consumer-driven programs -- was all well and good, but when it came down to actually putting the goods on the shelves, the retail industry was at a loss.
But for a company with the size and complexity of Supervalu, being "at a loss" was putting it mildly.
Back then, as now, Supervalu plotted category management and merchandising strategy at its six regional locations and its corporate office in Minneapolis. Each category manager had approximately 10 to 12 categories, which totaled more than 5,000 SKUs, and saw more than 100 new SKUs each year in his or her category. Each category manager also saw approximately 200 promotions every week and handled assortment, pricing, and space management work, with a focus on strategy and tactics.
"The problem was, we buried everybody," says Terpkosh. "We were spending about 90 percent of our time collecting and analyzing data, and 10 percent of our time interpreting this data and figuring out what needed to be done, but at the end of the day we didn't get anything done at retail."
In essence, Supervalu expected its retailers to do it. The retailers expected Supervalu to do it. Manufacturers expected both to do it. Consumers didn't care who did it, but demanded -- through their dollars, or lack thereof -- that it be done.
Things have changed dramatically since that P&G rep's bombshell. Now 30 percent of Terpkosh's development budget and 30 percent of his merchandising time are applied to execution at the store level. While these programs are completely voluntary for Supervalu's retailers, those that actually execute at retail through Supervalu's program have average sales growth that's three times greater than that of the stores that don't.
One crucial element of retail execution, according to Terpkosh, is shared responsibility between all trading partners. "It's the manufacturer, it's the broker, it's us as the wholesaler, it's our retailer -- it's our responsibility as an industry to say that we have to get this stuff done in the stores."
Supervalu went through three steps with its category management revamp to achieve the dramatic changes it did in so short a time period. They were:
-Partnering with a knowledgeable, dedicated retail marketing services company that can take over all retail execution.
-Seeking the intervention of vendor partners to raise the level of concern about retail execution from "We don't care" to "It has to be top priority."
-Spending time, effort, and money to refine how things are done internally, and spending some money on technology to make processes more efficient.
Call in the experts
The first thing Terpkosh did was hand retail execution over to marketing services organizations (MSOs), including NARMS members, that specialize in the field. "I have learned over the past 10 years that nobody does retail execution work better than marketing service organizations," says Terpkosh. "They do it better than manufacturers, better than brokers, better than our own retail store people, because they have the expertise and experience."
Supervalu outsources its retail execution to Prism Retail Services in Itasca, Ill. The MSO has two people in-house at Supervalu's corporate headquarters in Minneapolis, plus in-house employees across the six regional offices where the company does most of its category management and merchandising work. Supervalu's category managers develop the strategy and the look of what they want in the stores, and Prism coordinates the work of making it happen.
Prism works with Supervalu's manufacturer partners on a "fair share" basis, which means that either the manufacturer hires Prism to do its retail execution in the store, or it has to send its own representatives in and do its own execution. In what's called a "homestore" setup, Prism assigns dedicated representatives to each location. A rep will visit each store once every two weeks, showing up on the same day of the week during the same shift each time, to build a rapport with the staff and develop a familiarity with the store.
During the past three years, much of the paperwork involving retail execution has been moved online to a resource developed by Supervalu through the help of its manufacturer trading partners, brokers, and Prism. For a new item cut-in, for example, a packet of information, which the execution team can download ahead of time, is posted on the Web. Retailers can access their planograms from the site, as well.
The vendor connection
While the Procter & Gamble incident mentioned above was not typical of the usual dialogue that takes place during a retailer/supplier meeting, it illustrates an important point about the vendors' place in a retailer's overall execution strategy. "In being proactive and honest, P&G was very helpful, and they brought to us a lot of the best practices they have seen across the industry, and cutting-edge suggestions," notes Terpkosh.
Another dividend of Supervalu's close relationships with its vendors is a planned move toward aisle management, where the category managers will have full control of an aisle or one side of an aisle, rather than only selected categories within the aisle.
Using category management, the merchandisers are limited to the linear feet assigned to the category. However, that's not always the most effective means of laying out product on the shelves. "As categories change, we have locked ourselves into these sizes, and it is very difficult to reset and change how that looks, since you don't have control of the other categories," observes Terpkosh.
"With aisle management, managers will have the entire aisle to work with, so if they need to, they can find four extra feet in the aisle from other segments of the business that are declining, and cut in the additional space where needed."
To accomplish his goal of better retail execution, Terpkosh realized that an investment in technology would be necessary. In addition to investing in its homestore program on the Web, three years ago Supervalu began collaborating with ACNielsen, employing ACNielsen Answers, a Web-based product used to assist in category management work The partnership has dramatically increased the wholelsaler's efficiencies at category management.
"We are able to cut 50 percent to 75 percent of our time from what we do internally to figure out what we want to do in the stores," says Terpkosh. "This means we can get this information out to the stores faster and can do more inside them. In December of last year, for example, Unilever told us they were rolling out about 20 low-carb items in two weeks. Two weeks later the items were in the stores."
Supervalu also looked into methods of using the Internet to assist with its new-item process. "As a wholesaler with independents, we were terrible at getting new items out to the stores," admits Terpkosh. "We conducted a study to measure this, and the results were embarrassing. It took us twice as long to build new items at our stores than it does for a retail chain."
To address this problem, Supervalu created a new Internet-based program, through which manufacturers and brokers submitted new items online. This pushed the item data through the company's internal systems -- and to the stores -- much faster.
Terpkosh also created an auto-distribution program, so that the new items were immediately delivered to the stores and were available to be cut in as soon as possible. "Our No. 1 problem with new item cut-ins was that the execution team would show up to do the work, but the items weren't there," he says. "But since we were telling them what they should have in their stores anyway, we just sent the products right over."
The newest IT-related project, which is on a larger scale than the other Internet-based programs, is Supervalu's SV Harbor portal. Supervalu is moving its manufacturer/brokers to the Internet for every activity the trading partners do together, including submitting new items and promotions, and viewing items such as deduction details, inventory, and booked quantities.
In the stores, methods of reporting back when retail execution jobs are accomplished are also going high-tech. Many MSOs use interactive voice response (IVR) technology, but the more technology-savvy MSOs are beginning to employ newer technologies, such as handhelds or laptops.
Terpkosh's prediction, however, is that IVR will be the technology of choice for reporting back in the future -- with one addition. "If you get a new camera-enabled cell phone, you can take a picture of a set when it is completed, and then fill out the rest of the information with the keypad," he says. "I think that's where it will end up going, and this will make the things happening at retail very quick and nimble, both for MSOs telling their folks what they are doing and for reporting back to the retailers, as well."
Supervalu is heading toward a world where category managers can transmit a category management strategy plan from anywhere in the world, confident that technology and the retail execution team can handle the rest -- and then have this confidence validated by a photo of a beautiful shelf set viewed via cell phone during the cab ride home from the airport.
Now that really wouldn't suck.