FEATURE: The Role of Brokers: Middle Management
Category management continues to evolve -- and the role of major food brokerage firms continues to change, too. The nature of that change, not surprisingly, will tend toward the brokers' role deepening, especially where the rubber meets the road.
Basically it's not your boss' category management, says Michael Bernatchez, senior v.p. of corporate marketing for Acosta Sales and Marketing Co., one of the full-service leaders in the brokerage space. The practice has gotten more complex, with variables such as fickle consumers with stratified needs, and pressure from nontraditional competitors with their own category management philosophies and goals. Retailers are as much in need of help in strategizing and execution as they ever were.
And guess who's stepping into the middle of the action? As service providers to both retailers and suppliers, brokers are increasingly bringing efficiency and expertise to the technological and analytical tasks associated with category management. What's more, because they work with myriad other retailers and manufacturers, including players outside the supermarket community, they often provide a broader perspective on the consumer, as well as changing shopping patterns across a wide range of product categories.
Going inside
Jacksonville, Fla.-based Acosta, for example, provides outsourced sales, merchandising, marketing, and promotional services to consumer packaged goods manufacturers in the grocery, drug, mass, convenience, and club channels of distribution.
When category management was first popularized in the mid-1990s, Acosta was at the forefront, but most manufacturers at the time wanted to be directly involved in every step of the category management process with their retail accounts.
However, as category management and the retail market have evolved, the role of Acosta and other brokers has expanded. In essence, as a class, brokers have been taking over most of the category management work for their manufacturers, while the suppliers have begun to shift their own category management efforts to their largest retailer accounts.
"For the most part, our manufacturer clients only want to be involved in category management work when they have specific consumer research and insights they want to deliver," explains Bernatchez.
In these days of the growing influence of category captains, it's no surprise that most retailers want to partner with just the No. 1 or No. 2 brands in a given category. In the same way, because the big brokers represent tons of manufacturers -- in Acosta's case, that ton equals more than 1,300 CPG companies -- it's easier for retailers to deal with one sales agency than with dozens of different vendors. The sales agency representing these brands directly helps the retailer with the category plan. Indeed, large sales agencies like Acosta usually have the resources to work in the field on a daily basis with retailers.
As category management continues to evolve, the broker's role will only become more central. As Bernatchez sees it, key market forces are altering the fundamental dynamics of the practice.
"The key demographic drivers are the aging population and the growing number of ethnic, particularly Hispanic, households in the country," he says. The result has been a greater focus by retailers on clustering within a chain. "Merchandising, assortment, pricing, and shelving decisions are all being affected by clustering," notes Bernatchez.
Looking beyond Wal-Mart
Grocery retailers are realizing the whole channel-blurring phenomenon requires them to take a much deeper look into the consumer purchase decision-making process. The broker also sees a change in how retailers view their competition, and this in turn greatly affects category management strategies.
"There is a growing realization by grocery retailers that they need to understand shopping behaviors in competing channels," he adds. Until recently, grocery retailers, obsessed with the impact of Wal-Mart, have focused their category planning on competing with the megachain. Now dollar stores, convenience stores, and drug stores have also altered the dynamics of competition, and are as important, or more important, than Wal-Mart, especially in certain critical categories such as center store departments, says Bernatchez.
Frequent shopper card data is also beginning to have an impact on category management decisions, notes Bernatchez. Many retailers have used loyalty cards for years, but haven't taken advantage of the data they gather.
"Retailers are finally beginning to use their loyalty card data. They'll start clustering their merchandising around consumer segments identified through their loyalty card programs," he says. This will assist retailers in not only retaining loyal customers, but also in "closing the gaps" where they're not getting their share of the customers' spending.
"For example, Jane Doe may be a loyal customer, spending an average of $89 a week in the store, but an analysis of her purchases might show that she's not buying her paper goods or household cleaning items from the store," says Bernatchez. In response, a retailer can then plan and execute merchandising strategies designed to increase the basket ring from such loyal customers.
Loyalty card opportunity
Kroger and Ahold have both launched consumer-centric retailing initiatives that use loyalty card data as the core for marketing, assortment, pricing, and shelving decisions. Others will follow, predicts Bernatchez.
In a new book on category management's past, present, and future, ACNielsen uses Acosta as a case study to examine how brokers can and do enhance the impact of category management. In that chapter about the brokers' role, Bernatchez goes into considerable detail on how brokers' relationships with retailers have evolved.
In the mid-1990s, of course, category management was an eight-step process that many retailers found too unruly to execute properly. Over the years, that process has been scaled back. Many retailers now employ a suite of customized category management templates that can be automatically populated by data, to minimize the amount of manual data pulling and input required.
"Now we can spend more time analyzing the data and formulating recommendations, instead of pulling and organizing the data," says the broker.
Over the past five or six years, retailers have turned category management into an extremely calendar-focused, repetitive activity.
"[Retail] customers today view the category management process as a menu from which they pick and choose the areas they want to see," says Paul Mulvaney, an Acosta category development manager, who is quoted in the ACNielsen book. Mulvaney is one of 400 category development managers or space technologists who work with retailers and suppliers for Acosta.
"It seems most of our retailers don't want to do the full plan anymore," says Mulvaney, who works with several leading Northeast retailers. "While it seems that our customers still believe in the process, they're definitely approaching it differently."
No cookie cutter
Because category management is a retailer-driven process, there's no one-size-fits-all process. Some retailers like to pull their own data, for instance, rather than have the broker pull it for them. Others ask for consumer/panel data, while still others like viewing only general category, segment, brand, and promotional trends.
Some persist in wanting the traditional full-scale category management plan. Safeway, for example, relies on such a plan, based on a category optimization program called SCOP (Safeway Category Optimization Program). Kroger employs a proprietary process called KOMPASS, for Kroger Optimization Management Plan Aligning Store Sales.
"No matter what the approach, however, the category management process basically tries to look at the consumer purchase dynamics and financial implications of merchandising, assortment, pricing, and shelving [MAPS] decisions at both the category and brand level," says Bernatchez.
He describes a typical meeting at a retail chain, where roles, responsibilities, timelines, milestones, and checkpoints would be mapped out. These tasks would be tied to a schedule for retail execution.
"Retailers have a very scheduled category plan," explains Bernatchez. "For example, they may do frozen entrees once a year, and it will be done in March. The retail shelving will be done in September. It's very much according to a calendar at this point."
With nearly all U.S. chain retailers enforcing planogram compliance at the store level, Acosta has had to make a commitment to space technology. The broker maintains a national team of 180 space technologists who create, develop, and update retailer schematics across the United States. Sixty-five percent of these space technologists work side by side on a daily basis with the retailers' own category managers at the retailers' headquarters.
Doubtless, the future of the food brokers' art is tied inextricably to the future of category management, or whatever strategic system for product, assortment, pricing, and merchandising takes its place in time. As such, the practice will be influenced as much by the broker community as that community is influenced by it. That comes with managing from the middle.
Basically it's not your boss' category management, says Michael Bernatchez, senior v.p. of corporate marketing for Acosta Sales and Marketing Co., one of the full-service leaders in the brokerage space. The practice has gotten more complex, with variables such as fickle consumers with stratified needs, and pressure from nontraditional competitors with their own category management philosophies and goals. Retailers are as much in need of help in strategizing and execution as they ever were.
And guess who's stepping into the middle of the action? As service providers to both retailers and suppliers, brokers are increasingly bringing efficiency and expertise to the technological and analytical tasks associated with category management. What's more, because they work with myriad other retailers and manufacturers, including players outside the supermarket community, they often provide a broader perspective on the consumer, as well as changing shopping patterns across a wide range of product categories.
Going inside
Jacksonville, Fla.-based Acosta, for example, provides outsourced sales, merchandising, marketing, and promotional services to consumer packaged goods manufacturers in the grocery, drug, mass, convenience, and club channels of distribution.
When category management was first popularized in the mid-1990s, Acosta was at the forefront, but most manufacturers at the time wanted to be directly involved in every step of the category management process with their retail accounts.
However, as category management and the retail market have evolved, the role of Acosta and other brokers has expanded. In essence, as a class, brokers have been taking over most of the category management work for their manufacturers, while the suppliers have begun to shift their own category management efforts to their largest retailer accounts.
"For the most part, our manufacturer clients only want to be involved in category management work when they have specific consumer research and insights they want to deliver," explains Bernatchez.
In these days of the growing influence of category captains, it's no surprise that most retailers want to partner with just the No. 1 or No. 2 brands in a given category. In the same way, because the big brokers represent tons of manufacturers -- in Acosta's case, that ton equals more than 1,300 CPG companies -- it's easier for retailers to deal with one sales agency than with dozens of different vendors. The sales agency representing these brands directly helps the retailer with the category plan. Indeed, large sales agencies like Acosta usually have the resources to work in the field on a daily basis with retailers.
As category management continues to evolve, the broker's role will only become more central. As Bernatchez sees it, key market forces are altering the fundamental dynamics of the practice.
"The key demographic drivers are the aging population and the growing number of ethnic, particularly Hispanic, households in the country," he says. The result has been a greater focus by retailers on clustering within a chain. "Merchandising, assortment, pricing, and shelving decisions are all being affected by clustering," notes Bernatchez.
Looking beyond Wal-Mart
Grocery retailers are realizing the whole channel-blurring phenomenon requires them to take a much deeper look into the consumer purchase decision-making process. The broker also sees a change in how retailers view their competition, and this in turn greatly affects category management strategies.
"There is a growing realization by grocery retailers that they need to understand shopping behaviors in competing channels," he adds. Until recently, grocery retailers, obsessed with the impact of Wal-Mart, have focused their category planning on competing with the megachain. Now dollar stores, convenience stores, and drug stores have also altered the dynamics of competition, and are as important, or more important, than Wal-Mart, especially in certain critical categories such as center store departments, says Bernatchez.
Frequent shopper card data is also beginning to have an impact on category management decisions, notes Bernatchez. Many retailers have used loyalty cards for years, but haven't taken advantage of the data they gather.
"Retailers are finally beginning to use their loyalty card data. They'll start clustering their merchandising around consumer segments identified through their loyalty card programs," he says. This will assist retailers in not only retaining loyal customers, but also in "closing the gaps" where they're not getting their share of the customers' spending.
"For example, Jane Doe may be a loyal customer, spending an average of $89 a week in the store, but an analysis of her purchases might show that she's not buying her paper goods or household cleaning items from the store," says Bernatchez. In response, a retailer can then plan and execute merchandising strategies designed to increase the basket ring from such loyal customers.
Loyalty card opportunity
Kroger and Ahold have both launched consumer-centric retailing initiatives that use loyalty card data as the core for marketing, assortment, pricing, and shelving decisions. Others will follow, predicts Bernatchez.
In a new book on category management's past, present, and future, ACNielsen uses Acosta as a case study to examine how brokers can and do enhance the impact of category management. In that chapter about the brokers' role, Bernatchez goes into considerable detail on how brokers' relationships with retailers have evolved.
In the mid-1990s, of course, category management was an eight-step process that many retailers found too unruly to execute properly. Over the years, that process has been scaled back. Many retailers now employ a suite of customized category management templates that can be automatically populated by data, to minimize the amount of manual data pulling and input required.
"Now we can spend more time analyzing the data and formulating recommendations, instead of pulling and organizing the data," says the broker.
Over the past five or six years, retailers have turned category management into an extremely calendar-focused, repetitive activity.
"[Retail] customers today view the category management process as a menu from which they pick and choose the areas they want to see," says Paul Mulvaney, an Acosta category development manager, who is quoted in the ACNielsen book. Mulvaney is one of 400 category development managers or space technologists who work with retailers and suppliers for Acosta.
"It seems most of our retailers don't want to do the full plan anymore," says Mulvaney, who works with several leading Northeast retailers. "While it seems that our customers still believe in the process, they're definitely approaching it differently."
No cookie cutter
Because category management is a retailer-driven process, there's no one-size-fits-all process. Some retailers like to pull their own data, for instance, rather than have the broker pull it for them. Others ask for consumer/panel data, while still others like viewing only general category, segment, brand, and promotional trends.
Some persist in wanting the traditional full-scale category management plan. Safeway, for example, relies on such a plan, based on a category optimization program called SCOP (Safeway Category Optimization Program). Kroger employs a proprietary process called KOMPASS, for Kroger Optimization Management Plan Aligning Store Sales.
"No matter what the approach, however, the category management process basically tries to look at the consumer purchase dynamics and financial implications of merchandising, assortment, pricing, and shelving [MAPS] decisions at both the category and brand level," says Bernatchez.
He describes a typical meeting at a retail chain, where roles, responsibilities, timelines, milestones, and checkpoints would be mapped out. These tasks would be tied to a schedule for retail execution.
"Retailers have a very scheduled category plan," explains Bernatchez. "For example, they may do frozen entrees once a year, and it will be done in March. The retail shelving will be done in September. It's very much according to a calendar at this point."
With nearly all U.S. chain retailers enforcing planogram compliance at the store level, Acosta has had to make a commitment to space technology. The broker maintains a national team of 180 space technologists who create, develop, and update retailer schematics across the United States. Sixty-five percent of these space technologists work side by side on a daily basis with the retailers' own category managers at the retailers' headquarters.
Doubtless, the future of the food brokers' art is tied inextricably to the future of category management, or whatever strategic system for product, assortment, pricing, and merchandising takes its place in time. As such, the practice will be influenced as much by the broker community as that community is influenced by it. That comes with managing from the middle.