FEATURE: Investing in success
Not all that long ago, perishables category management was a subject that was discussed only among an elite sector of food retailers, suppliers, and consultants. Today, of course--given its appreciable value in the center store, HBC, and nonfoods categories, and the important role perishables now play--the topic has become an integral part of almost every conversation held by retailers, wholesalers, growers, shippers, commodity boards, and bakery and deli suppliers.
Like a genie released from its bottle, or toothpaste from the tube, perishables category management is here to stay. But like any major initiative that requires significant change to achieve its goal, the devil is in the details.
In a nutshell, substantive progress on the perishables category management front has been hampered by several contributing factors, paramount among them the lack of universal product codes for a variety of random-weight perishables categories, and the resulting void of quality data necessary to track their performance.
Further, the vast differences between the data-rich, analytically sophisticated CPG vendors and their perishables supplier counterparts have also muddied the waters, says Mark Boyer, a perishables category management specialist and partner with PMG, LLC.
"Because the perishables departments' cases and shelves tend to be more dynamic in their need to shrink and expand, depending on what's being merchandised in any given week, not to mention the sheer perishability of the products," Boyer says there's no great mystery about the deliberate pace of perishables category management adoption.
"Unlike the grocery aisles, where endcaps or floor displays are often used to provide the additional room to merchandise a sale item, perishable items, particularly those requiring refrigeration, are more limited in where to put an item that will experience a four- to sevenfold sales increase vs. a normal week," Boyer says.
However, with nearly every traditional U.S. food retailer now using the perimeter departments as the indispensable bait to court and keep customers, category management is critical, according to Boyer.
Weighing in from the Perishables Group, a national consultancy that specializes in perishables marketing strategies, president and c.e.o. Bruce Axtman says, "Most major retailers, be they large chains or strong regional players, have come to the realization that perishables are becoming more and more important to their current success and likelihood of future success."
Another category management expert, Jim Hertel, s.v.p. of Barrington, Ill.-based Willard Bishop Consulting, concurs. "Mention the critical strategic importance of perishables to the supermarket industry's future vitality, and heads will nod," he says. "But ask about the availability of proven approaches to developing sound, fact-based, measurable perishables business plans, and blank stares are often the response."
Although things are getting better, much work remains to be done. "While more retailers are now on the bandwagon by having made major investments, doing better reporting, and, in many cases, working much more proactively with their key suppliers, not many are at the point of having their arms firmly around it," Axtman says.
Why is that? Boyer offers his take: "The immediate focus is on opportunities created by category management, and the inherent problems of applying this knowledge in data-poor variable-weight environments." However, Boyer continues, one of the biggest obstacles with perishables category management is inertia.
"Because category management is newer to perishables, a lot of the supplier companies aren't stepping forward to assume category captaincies. They haven't budgeted for the data needs or hired for the category management positions that are required. Yet those that have are enjoying a competitive advantage," says Boyer, adding: "Who would you rather have manage your category? You or a competitor?"
Consistency of execution
Despite the protracted pace of widespread perishables category management adoption, Boyer says current practitioners are yielding "huge gains in key scorecard measures," with the biggest wins netted in pricing management and promotion analysis. "Once the retailer understands how to promote, there's an immediate effect on bottom-line numbers," Boyer notes.
Before one can achieve such success, however, Axtman says proper execution and implementation are necessary. "One of the biggest challenges relating to perishables category management is ascertaining that the rubber's hitting the road on an everyday basis by having consistency of execution across stores. In a perishables environment, the job is made even more challenging than in grocery" when it comes to planogram, availability, and seasonality considerations.
Within the total perishables universe, Axtman says produce is typically considered to be in the best position because of the standardization of PLU codes, "which has allowed considerable progress to be made with quality of and access to data. Plus, produce doesn't have as much of a production slant as do the bakery and deli departments, where factors abound that contribute to the complexity of applying the concept."
Foreseeing continued category management momentum for produce, Axtman says, "We're also getting down to that level in other areas, too. But the difference is a more specific focus on individual retailers working with key suppliers to manage the business from a supply-chain and operational point of view, as opposed to the traditional strategic category management process that we might think about for grocery."
In contrast, Axtman says, the industry's efforts in perishables are more about "digging into details and, at the same time, using programs, processes, and information not only to fine-tune against the competition, but also to figure out how to do other very important things, like managing shrink and developing and segmenting categories toward a goal of developing, rather than just managing, a category. And that's where the really big rewards are."
For his part, Hertel likens the early lead given to produce to picking a winner at the one-mile mark during the Chicago Marathon. "There's an awful lot to do before someone should feel good or bad that they're ahead or behind, because there's a lot of the race yet to be run."
The consumer angle
Up to now, one of the biggest voids in perishables category management has been the lack of consumer involvement in the process, according to Axtman. "Traditionally retailers and suppliers have had very little information about the end consumer relating to how they buy, what they really want, and how they're really using products, all of which are now becoming much more prevalent in process for the large CPG companies that know their consumers up and down."
When it comes to segmenting, targeting, and new product positioning strategies for perishables, however, Axtman says the industry "has been poorly equipped to do that. But now that we've got lots more value-added products, new packaging, branding, and better data, we've got to look at the categories from the consumers' perspective and understand how our products can fit and how to bring them to the party in meaningful ways, and that's a big change in what's beginning to happen."
Senior leadership support
Looking ahead, Axtman says the consumer will factor considerably more heavily into perishables category management discussions. "As we get better tools, the need to bring consumers into the process is at the fore."
How so? In many cases, Axtman says, retailers and suppliers will be required to continue changing the way they do business, "based on how programs are designed and executed with the use of different sets of resources, shared responsibilities, and collaborating in the true sense to ensure it's working."
Though the opportunities for perishables category management are indeed promising, the inherent risk of "category managing" certain specialty items off the shelf needs to be carefully considered, according to Hertel, who notes the practice's traditional underpinnings that emphasize profit and volume, and diminish the consumer and an individual marketplace.
In very competitive markets, he says, retailers need to carefully weigh common sense against the numbers to avoid eliminating niche products that otherwise give particular stores an edge—in spite of an apparent need to go when cross-referenced against the traditional category management playbook.
Hertel says a retailer not only needs to look at the numbers, but also market regionally as well as on a store-by-store basis while continually adjusting the product mix to maximize sales and space allocation.
To be truly successful, Hertel notes, any new perishables management framework must demonstrate to retailers how they can more effectively use the space they already have. "Perishables offer the opportunity for real differentiation. As a supermarket, you can be known as the 'go-to' place in town for certain items." Further, with perishables frequently the centerpiece of stock-up trips, Hertel says there's great potential to increase ring.
While the industry is making real improvements in perishables management, Hertel says the next phase will require senior leadership support. "Unlike the category management initiative of the '90s, much of the impetus and the resources must come from retailers. With the importance that perishables represent to supermarkets' future, the investment is mandatory."
According to PMG's Boyer, "The bulk of our energies is being geared to help retailers understand the true economics in their perishables departments, inclusive of overhead, labor, and shrink. We're also embarking on a project to determine optimal levels of shrink and out-of-stocks. Everyone thinks reducing these numbers is the answer. I think they're probably going to be right most of the time, but we're going to try and quantify what the optimal numbers should be."
Going forward, there will be considerable benefits gained from past experiences that emphasized process rather than results, according to Hertel. In light of the growing understanding of business facts and analytical capabilities that he says didn't exist prior to the revolution, Hertel says there are three essentials necessary to enable supermarkets to remain a vital force from a food retailing point of view."It all comes down to how perishables suppliers can help their retail customers become consumer-preferred destinations, how they can grow volume profitably, and how they can leverage that success from a market-basket perspective."
Like a genie released from its bottle, or toothpaste from the tube, perishables category management is here to stay. But like any major initiative that requires significant change to achieve its goal, the devil is in the details.
In a nutshell, substantive progress on the perishables category management front has been hampered by several contributing factors, paramount among them the lack of universal product codes for a variety of random-weight perishables categories, and the resulting void of quality data necessary to track their performance.
Further, the vast differences between the data-rich, analytically sophisticated CPG vendors and their perishables supplier counterparts have also muddied the waters, says Mark Boyer, a perishables category management specialist and partner with PMG, LLC.
"Because the perishables departments' cases and shelves tend to be more dynamic in their need to shrink and expand, depending on what's being merchandised in any given week, not to mention the sheer perishability of the products," Boyer says there's no great mystery about the deliberate pace of perishables category management adoption.
"Unlike the grocery aisles, where endcaps or floor displays are often used to provide the additional room to merchandise a sale item, perishable items, particularly those requiring refrigeration, are more limited in where to put an item that will experience a four- to sevenfold sales increase vs. a normal week," Boyer says.
However, with nearly every traditional U.S. food retailer now using the perimeter departments as the indispensable bait to court and keep customers, category management is critical, according to Boyer.
Weighing in from the Perishables Group, a national consultancy that specializes in perishables marketing strategies, president and c.e.o. Bruce Axtman says, "Most major retailers, be they large chains or strong regional players, have come to the realization that perishables are becoming more and more important to their current success and likelihood of future success."
Another category management expert, Jim Hertel, s.v.p. of Barrington, Ill.-based Willard Bishop Consulting, concurs. "Mention the critical strategic importance of perishables to the supermarket industry's future vitality, and heads will nod," he says. "But ask about the availability of proven approaches to developing sound, fact-based, measurable perishables business plans, and blank stares are often the response."
Although things are getting better, much work remains to be done. "While more retailers are now on the bandwagon by having made major investments, doing better reporting, and, in many cases, working much more proactively with their key suppliers, not many are at the point of having their arms firmly around it," Axtman says.
Why is that? Boyer offers his take: "The immediate focus is on opportunities created by category management, and the inherent problems of applying this knowledge in data-poor variable-weight environments." However, Boyer continues, one of the biggest obstacles with perishables category management is inertia.
"Because category management is newer to perishables, a lot of the supplier companies aren't stepping forward to assume category captaincies. They haven't budgeted for the data needs or hired for the category management positions that are required. Yet those that have are enjoying a competitive advantage," says Boyer, adding: "Who would you rather have manage your category? You or a competitor?"
Consistency of execution
Despite the protracted pace of widespread perishables category management adoption, Boyer says current practitioners are yielding "huge gains in key scorecard measures," with the biggest wins netted in pricing management and promotion analysis. "Once the retailer understands how to promote, there's an immediate effect on bottom-line numbers," Boyer notes.
Before one can achieve such success, however, Axtman says proper execution and implementation are necessary. "One of the biggest challenges relating to perishables category management is ascertaining that the rubber's hitting the road on an everyday basis by having consistency of execution across stores. In a perishables environment, the job is made even more challenging than in grocery" when it comes to planogram, availability, and seasonality considerations.
Within the total perishables universe, Axtman says produce is typically considered to be in the best position because of the standardization of PLU codes, "which has allowed considerable progress to be made with quality of and access to data. Plus, produce doesn't have as much of a production slant as do the bakery and deli departments, where factors abound that contribute to the complexity of applying the concept."
Foreseeing continued category management momentum for produce, Axtman says, "We're also getting down to that level in other areas, too. But the difference is a more specific focus on individual retailers working with key suppliers to manage the business from a supply-chain and operational point of view, as opposed to the traditional strategic category management process that we might think about for grocery."
In contrast, Axtman says, the industry's efforts in perishables are more about "digging into details and, at the same time, using programs, processes, and information not only to fine-tune against the competition, but also to figure out how to do other very important things, like managing shrink and developing and segmenting categories toward a goal of developing, rather than just managing, a category. And that's where the really big rewards are."
For his part, Hertel likens the early lead given to produce to picking a winner at the one-mile mark during the Chicago Marathon. "There's an awful lot to do before someone should feel good or bad that they're ahead or behind, because there's a lot of the race yet to be run."
The consumer angle
Up to now, one of the biggest voids in perishables category management has been the lack of consumer involvement in the process, according to Axtman. "Traditionally retailers and suppliers have had very little information about the end consumer relating to how they buy, what they really want, and how they're really using products, all of which are now becoming much more prevalent in process for the large CPG companies that know their consumers up and down."
When it comes to segmenting, targeting, and new product positioning strategies for perishables, however, Axtman says the industry "has been poorly equipped to do that. But now that we've got lots more value-added products, new packaging, branding, and better data, we've got to look at the categories from the consumers' perspective and understand how our products can fit and how to bring them to the party in meaningful ways, and that's a big change in what's beginning to happen."
Senior leadership support
Looking ahead, Axtman says the consumer will factor considerably more heavily into perishables category management discussions. "As we get better tools, the need to bring consumers into the process is at the fore."
How so? In many cases, Axtman says, retailers and suppliers will be required to continue changing the way they do business, "based on how programs are designed and executed with the use of different sets of resources, shared responsibilities, and collaborating in the true sense to ensure it's working."
Though the opportunities for perishables category management are indeed promising, the inherent risk of "category managing" certain specialty items off the shelf needs to be carefully considered, according to Hertel, who notes the practice's traditional underpinnings that emphasize profit and volume, and diminish the consumer and an individual marketplace.
In very competitive markets, he says, retailers need to carefully weigh common sense against the numbers to avoid eliminating niche products that otherwise give particular stores an edge—in spite of an apparent need to go when cross-referenced against the traditional category management playbook.
Hertel says a retailer not only needs to look at the numbers, but also market regionally as well as on a store-by-store basis while continually adjusting the product mix to maximize sales and space allocation.
To be truly successful, Hertel notes, any new perishables management framework must demonstrate to retailers how they can more effectively use the space they already have. "Perishables offer the opportunity for real differentiation. As a supermarket, you can be known as the 'go-to' place in town for certain items." Further, with perishables frequently the centerpiece of stock-up trips, Hertel says there's great potential to increase ring.
While the industry is making real improvements in perishables management, Hertel says the next phase will require senior leadership support. "Unlike the category management initiative of the '90s, much of the impetus and the resources must come from retailers. With the importance that perishables represent to supermarkets' future, the investment is mandatory."
According to PMG's Boyer, "The bulk of our energies is being geared to help retailers understand the true economics in their perishables departments, inclusive of overhead, labor, and shrink. We're also embarking on a project to determine optimal levels of shrink and out-of-stocks. Everyone thinks reducing these numbers is the answer. I think they're probably going to be right most of the time, but we're going to try and quantify what the optimal numbers should be."
Going forward, there will be considerable benefits gained from past experiences that emphasized process rather than results, according to Hertel. In light of the growing understanding of business facts and analytical capabilities that he says didn't exist prior to the revolution, Hertel says there are three essentials necessary to enable supermarkets to remain a vital force from a food retailing point of view."It all comes down to how perishables suppliers can help their retail customers become consumer-preferred destinations, how they can grow volume profitably, and how they can leverage that success from a market-basket perspective."