Prac­ti­cal so­lu­tions

Gro­cers and CPG com­pa­nies find suc­cess as they em­brace the evo­lu­tion of cat­e­gory man­age­ment.

Progressive Grocer (India) - - Contents - By Jim Dudlicek

Re­tail­ers aren’t sell­ing cat­e­gories, they’re sell­ing so­lu­tions — that’s a phrase we’re hear­ing more of­ten th­ese days. “Main­tain­ing rel­e­vance today means sim­pli­fy­ing the shop­per’s trip — not by in­un­dat­ing them with more cat­e­gory choices, but by pre­sent­ing dis­parate prod­ucts as the holis­tic an­swer to an im­me­di­ate need. En­ter so­lu­tions man­age­ment,” Wendy Lieb­mann, CEO of WSL Strate­gic Re­tail, wrote in a re­cent edi­tion of the New York-based mar­ket­ing con­sul­tant’s WSL Weekly High­lights. With that, Lieb­mann de­clared cat­e­gory man­age­ment as we’ve known it dead, urg­ing that a so­lu­tion-based ap­proach rise from its ashes. She’s ab­so­lutely right. It’s not enough just to sell stuff any­more, not with the fierce com­pe­ti­tion tra­di­tional gro­cery re­tail­ers face from phys­i­cal and dig­i­tal chan­nels. To com­pete, tra­di­tional re­tail­ers need to sell the “why” in­stead of the “what,” be­cause there’s so many places to get things. That’s likely why Cyr­iac Roed­ing, co-founder of dig­i­tal shop­ping app Shop­kick, based in Red­wood City, Calif., thinks that, while “the fu­ture of re­tail looks re­ally bright, the fu­ture of phys­i­cal re­tail­ers looks re­ally dark.” Even tra­di­tional re­tail­ers ac­knowl­edge this chal­lenge. Steve Henig, VP of dig­i­tal for Keas­bey, N.j.-based Wake­fern Food Corp., speak­ing at Nielsen Conex­tions with Roed­ing, pre­dicted that within a decade, some cen­ter store cat­e­gories like health and beauty care will be sold ex­clu­sively on­line.

Cre­at­ing ex­pe­ri­en­tial des­ti­na­tions will be key, and many re­tail­ers are do­ing so, for HBC and other cat­e­gories, to give peo­ple a rea­son to go to the store.

“Con­sumers buy more than just food, they buy what it de­liv­ers and rep­re­sents,” re­marks An­drew Mandzy, di­rec­tor of strate­gic in­sights for health and well­ness growth and strat­egy at Schaum­burg, Ill.based Nielsen — ex­actly why re­tail­ers need to free them­selves from the shack­les of out­dated cat­e­gory man­age­ment prac­tices and em­brace the idea of shop­per-cen­tric so­lu­tion man­age­ment.

Shop­per So­lu­tions Plan­ning

In early 2015, Food Mar­ket­ing In­sti­tute (FMI) asked Win­ston Weber & As­so­ciates Inc. (WWA), sup­ported by Deloitte Con­sult­ing LLP, to study the fu­ture role of cat­e­gory man­age­ment. The study in­cluded more than 70 re­tail­ers and man­u­fac­tur­ers, in­sights from global ex­perts, and the col­lec­tive ex­pe­ri­ence of FMI, WWA and Deloitte in ad­dress­ing mer­chan­dis­ing chal­lenges in the food, drug and mass-mer­chan­dis­ing sec­tor. This led to the re­port “From Cat­e­gory Man­age­ment to Shop­per­centric Re­tail­ing.”

“The gro­cery in­dus­try is ex­pe­ri­enc­ing the most dy­namic change in years, with ex­pand­ing food lifestyles, dig­i­tal con­nect­ed­ness, a so­lu­tions fo­cus, Mil­len­ni­als and more,” says Win Weber, CEO of Tampa, Fla.-based WWA. “In this en­vi­ron­ment, cat­e­gory man­age­ment has too many lim­i­ta­tions to pro­duce the de­sired re­sults.”

Weber notes that cur­rent cat­e­gory man­age­ment pro­cesses fo­cus nar­rowly on in­di­vid­ual prod­ucts or cat­e­gories, rather than broader so­lu­tions. As a re­sult, seg­ra­ga­tion of­ten cre­ates bar­ri­ers to op­ti­miz­ing com­ple­men­tary mer­chan­dis­ing and cre­at­ing so­lu­tions de­signed to en­hance the shop­ping ex­pe­ri­ence.

As such, Weber as­serts that “re­tail­ers have no choice” but to move to­ward a shop­per-cen­tric model, “if they are to re­main dis­tinct and rel­e­vant in the mar­ket­place.”

By shift­ing the re­tailer-sup­plier col­lab­o­ra­tive fo­cus to the shop­per and shop­ping ex­pe­ri­ence, he says, “the end re­sult is im­proved sales and prof­its.”

As de­fined by its au­thors, the shop­per­centric ap­proach is driven by con­sumer in­sights. En­com­pass­ing the whole store rather than in­di­vid­ual cat­e­gories, it shifts the fo­cus to con­sumer needs, de­ter­min­ing how best to group re­lated goods to­gether to de­liver on th­ese needs. The process is de­signed to be adapt­able to chang­ing trends and shifts in con­sumer de­mands.

Im­ple­ment­ing the ap­proach re­quires the cre­ation of a shop­per so­lu­tions team struc­ture ad­min­is­tered by ex­ec­u­tive and store-level man­agers who col­lab­o­rate closely with sup­pli­ers on how best to de­liver on con­sumer needs.

Among re­tail­ers adopt­ing the shop­per-fo­cused model is Wil­liamsville, N.y.-based Tops Mar­kets LLC.

“Shifts in the types of food that peo­ple are look­ing for and large changes in mar­ket im­por­tance of the younger gen­er­a­tional co­horts have put pres­sure on tra­di­tional re­tail­ers to meet the chang­ing needs of buy­ing con­sumers,” says John Per­sons, Tops’ pres­i­dent and COO. “As a re­sult, new com­peti­tors have have arisen, ap­ply­ing even more pres­sure. It’s a ne­ces­sity for our in­dus­try to get to know its con­sumers in or­der to adapt.”

In Tops’ move­ment to­ward the new model, “we started by align­ing be­hind the sim­ple no­tion that we wanted to have data drive our de­ci­sions,” Per­sons ex­plains. “We have an in­cred­i­bly ro­bust data­base of cus­tomers and their shop­ping history that we hadn’t re­ally tapped into.”

Then Tops looked at its in­fra­struc­ture and de­cided to pull to­gether all of the an­a­lyt­i­cal func­tions in the com­pany un­der one um­brella. “Like most tra­di­tional re­tail­ers, all of our func­tional ar­eas had their own an­a­lyt­ics team: Mar­ket­ing had con­sumer in­sights, mer­chan­dis­ing had prod­uct data anal­y­sis, space plan­ning and pric­ing weren’t linked in tightly, fi­nance han­dled mar­gin anal­y­sis, and so on,” Per­sons says.

Shifts in the types of food that peo­ple are look­ing for and large changes in mar­ket im­por­tance of the younger gen­er­a­tional co­horts have put pres­sure on tra­di­tional re­tail­ers to meet the chang­ing needs of buy­ing con­sumers. — John Per­sons Tops Mar­kets LLC

So the re­tailer cre­ated a “de­ci­sion sup­port” depart­ment that now ser­vices the en­tire or­ga­ni­za­tion. “It sounds easy, but the ac­tual im­ple­men­ta­tion took a year for the com­pany to uti­lize the func­tions up to the po­ten­tial,” Per­sons says.

A key ele­ment of this new ca­pa­bil­ity, he notes, is align­ing con­sis­tent mea­sure­ments: “For in­stance, It’s no longer mean­ing­ful to sim­ply look at lift of an item on pro­mo­tion. Now we need to know house­hold pen­e­tra­tion, what de­mo­graphic or gen­er­a­tional co­horts en­gaged in the pro­mo­tion, and what were the im­por­tant affin­ity items. Our re­port cards look the same re­gard­less of what we are mea­sur­ing, and we now have a com­pre­hen­sive view of our business.”

With its mer­chants, Tops stripped away all ad­min­is­tra­tive func­tions that would dis­tract from their fo­cus on their prod­uct cat­e­gories.

On the im­ple­men­ta­tion side, Tops added key lead­er­ship po­si­tions that bridge the gap be­tween mer­chan­dis­ing and store op­er­a­tions. “They en­sure seam­less ex­e­cu­tion of the so­lu­tion plan­ning,” Per­sons ex­plains. “Added to that, we cre­ated key pro­mo­tion­s­plan­ning roles that now ef­fec­tively pull to­gether in­put from the mer­chants and de­velop key events.”

Tops is also col­lab­o­rat­ing more closely with ven­dors. “In gen­eral, our goals are aligned and we now share data, in­sights and ideas at a higher level than in the past,” Per­sons says.

“The man­ner in which Tops has set up our sup­port struc­ture will al­low us to have a com­pre­hen­sive view of our cus­tomers’ be­hav­ior as well as im­prove our align­ment with our man­u­fac­turer part­ners,” he adds. “Both of th­ese el­e­ments will im­prove our flex­i­bil­ity and re­spon­sive­ness to con­sumers.”

Cat­man 2.0

The Cat­e­gory Man­age­ment As­so­ci­a­tion (CMA) has been rolling out the over­haul of its quar­ter-cen­tu­ry­old guide­lines to tap the reams of shop­per in­sights that tech­no­log­i­cal ad­vance­ments have made easy to ac­cess. This new it­er­a­tion, known as Cat­man 2.0, has been cov­ered at length by Pro­gres­sive Gro­cer, most re­cently in its 2017 Cat­e­gory Man­age­ment Hand­book, avail­able on­line at http://magazine. pro­gres­sive­gro­cer.com/i/758946-2017-cat­e­go­ry­man­age­ment-hand­book.

Cat­man 2.0 and Shop­per So­lu­tions Plan­ning are sim­i­lar in that they’re in­sights-driven and break away from old prod­uct-fo­cused pro­cesses to de­velop ways to ful­fill con­sumer need states. The ideas have as­pects that are com­ple­men­tary; re­tail­ers can em­ploy tac­tics from each that best help meet their goals.

Minneapolis-based CMA has been part­ner­ing with CPG com­pa­nies to help them lever­age Cat­man 2.0 prin­ci­ples to de­velop cus­tom­ized so­lu­tions for their re­tailer part­ners. One of th­ese part­ner­ships has been with St. Louis-based brewer An­heuser-busch.

A-B’S lat­est ini­tia­tive, in col­lab­o­ra­tion with CMA and Chicago-based mar­ket re­searcher IRI, has yielded a process to iden­tify the best as­sort­ment for re­tail­ers, based on lo­cal con­sumer de­mands.

“A-B and IRI have for the first time com­bined all the new ex­ter­nal syn­di­cated data with their in­ter­nal pro­pri­etary data and break­through an­a­lyt­i­cal mod­els to de­velop this core as­sort­ment pre­sen­ta­tion,” says Gor­don Wade, di­rec­tor of the Cat­man 2.0 ini­tia­tive for CMA. “It is gold stan­dard.”

Ac­cord­ing to Wade, A-B pre­sented a prime op­por­tu­nity to em­ploy Cat­man 2.0’s best-prac­tice process, be­cause the com­pany pos­sesses high-value data and in­ter­nal an­a­lyt­i­cal re­sources.

“This A-B work is the finest work I have ever seen, es­pe­cially in an in­cred­i­bly com­plex cat­e­gory with hun­dreds of lo­cal craft beers, a grow­ing im­port business and con­strained cooler space, all of which varies by shop­per and store clus­ters,” he says. “What the new IRI data and the new Cat­man 2.0 process en­able is re­mark­able. What’s re­ally new here is the con­flu­ence of the process, re­mark­able data from IRI, and a well-led, de­ter­mined and ca­pa­ble or­ga­ni­za­tion.”

A-B’S Bal­anced Port­fo­lio Ap­proach, an over­ar­ch­ing strat­egy to drive growth by lever­ag­ing all seg­ments within the cat­e­gory, evolved into Your Bal­anced Port­fo­lio Ap­proach, which was the frame­work to iden­tify the win­ning el­e­ments that top-per­form­ing re­tail­ers were de­ploy­ing, ex­plains Adam Byrne, the brewer’s VP of cat­e­gory lead­er­ship.

“The core as­sort­ment study is es­sen­tially the way to ap­ply the Bal­anced Port­fo­lio Ap­proach,

By de­ploy­ing the core as­sort­ment prin­ci­ples, re­tail­ers can en­sure they are max­i­miz­ing their reach with as­sort­ment and sat­is­fy­ing a large por­tion of de­mand from shop­pers. — Adam Byrne An­heuser-busch

and evolves even fur­ther to iden­tify the items in the cat­e­gory with the high­est rate of sale and unique de­mand,” Byrne says. “By de­ploy­ing the core as­sort­ment prin­ci­ples, re­tail­ers can en­sure they are max­i­miz­ing their reach with as­sort­ment and sat­is­fy­ing a large por­tion of de­mand from shop­pers.”

The core as­sort­ment project en­com­passes many as­pects of Cat­man 2.0 to ad­dress “why” and “how” shop­pers are pur­chas­ing beer in the store. “The in­clu­sion of the be­hav­iors, at­ti­tudes and per­cep­tions of shop­pers in the project helps en­sure growth for the en­tire beer cat­e­gory,” Byrne notes.

Work­ing with CMA and IRI, A-B iden­ti­fied four unique store clus­ters with com­mon shop­per de­mand pat­terns: value, pre­mium, im­port and craft.

Lever­ag­ing shop­per data and Cat­man 2.0 guide­lines, A-B helps its re­tailer cus­tomers op­ti­mize their beer as­sort­ments in ev­ery store by iden­ti­fy­ing their “must-have” core items avail­able na­tion­ally. On this foun­da­tion, re­tail­ers add crit­i­cal re­gion­ally rel­e­vant and purely lo­cal items that pro­vide in­cre­men­tal sales and va­ri­ety for an op­ti­mal as­sort­ment, store by store.

This ap­proach op­ti­mizes the re­tailer’s align­ment be­tween the beer cat­e­gory and store strat­egy, ul­ti­mately driv­ing to­tal beer cat­e­gory per­for­mance across the gro­cery chan­nel.

“As re­tail­ers are faced with ex­pand­ing cat­e­gories, it is im­por­tant for them to un­der­stand the im­pact of ex­pand­ing item counts within cat­e­gories, and the im­pact on to­tal cat­e­gory ef­fi­ciency,” Byrne says. “By un­der­stand­ing the core as­sort­ment phi­los­o­phy, re­tail­ers can bet­ter plan as­sort­ment by fo­cus­ing on the items with the high­est ve­loc­ity and unique de­mand, while of­fer­ing a bal­anced as­sort­ment to meet the vary­ing needs of all their shop­pers.”

The Cat­e­gory Man­age­ment As­so­ci­a­tion (CMA) has been rolling out the over­haul of its quar­ter-cen­tu­ry­old guide­lines to tap the reams of shop­per in­sights that tech­no­log­i­cal ad­vance­ments have made easy to ac­cess.

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