Category Advisor: Deli Meats: Kraft Foods

This year, Kraft Foods took category management to the next level at a major Midwest Grocery chain by using the company’s “CAFÉ” cash flow excellence model, previously only used by Kraft’s supply chain for internal SKU review and analysis, to reassess the cold cut category.

By combining shelf analysis with an examination of total systems costs and ordering patterns, CAFÉ can point to opportunities to reduce waste, inventory and out-or-stocks -- thereby further increasing revenue, lowering costs and freeing up working capital. Beyond ensuring an optimal financial profile for a new shelf set, CAFÉ suggests modified promotional ordering patterns for even top SKUs to further fine-tune their contribution level to the business.

A CAFE analysis for the chain’s cold cut category revealed a “long tail” of low-contribution SKUs. Kraft applied activity-based costing (ABC) analysis, which revealed 48 items that contribute less than 1 percent of the category’s margin. Just above these “tail” items sat “C” level items that performed only slightly better, representing 35 percent of shelf presence but only 5 percent of sales and 6 percent of direct margin. The “C” items, however, account for 23 percent of throwaways.

This multifaceted analysis uncovered three opportunities that the chain’s cold cut category was able to capitalize on:

• Creation of a more efficient assortment via a 3.3 percent reduction in total SKUs and the replacement of 25 underperforming products with new, on-trend items
• A net reduction in days of supply by 296 days via elimination of all nonregional items not moving at least 12 units/store/week, increased space for pickles and value cold cuts, and reallocation of facings to higher-velocity segments and items
• Improved organization and shopability, thanks to a new value cold cut section and horizontal merchandising of the meal combination segment

Year-to-date results behind this more efficient set have also produced improved sales results, with the category growing 6 percent overall and 4 percent in its unpromoted baseline. Consistent with an improved assortment from both a retailer and shopper perspective, all major cold cut manufacturers have seen 2011 year-to-date growth in total and/or baseline performance. Beyond cold cuts, refrigerated pickles responded dramatically well to the reset as well, with Claussen demonstrating exceptionally strong double-digit increases since the start of the year.