FRESH FOOD: Moving the needle
It's been a long time coming, but there are strong signs that key perishables players have finally kicked category management into high gear. When it comes to applying the data gathering, analysis, and marketing and merchandising principles of full-fledged category management, the fresh departments in supermarkets have at best been playing catch-up with the dry grocery section of the store, where category management was born and where for years consumer packaged goods companies have set the standard for the discipline.
The from-the-gut approach to managing the fresh side of the store that has sufficed for decades, however, is slowly giving way to a more data-based, fact-based strategy, thanks to the persistent efforts of leading-edge retailers that for years have wanted to translate to perishables the gains they've received from category management efforts in the packaged goods departments.
The discussions, pilot projects, and other initial forays into applying category management to the perimeter are reaching critical mass, according to category management experts at the forefront of the movement. There are still many mitigating factors, such as wide disparities of commitment among prospective players at all levels, and the persistent hurdle of finding and analyzing reliable data on sales, but full-blown category management has graduated from desirability to inevitability.
In the past 12 months "category management has been a really hot topic throughout the entire perishables industry," says Ed Mackowiak, v.p. of Hoffman Estates, Ill.-based FreshLook Marketing Group, a perishables scanner-based research provider.
"Because of the volume of information that has cycled through the fixed-weight categories, the next logical extension of the process is now being incorporated into perishables," says Mackowiak. The real key, he adds, "will center on taking the tremendous volume of data and turning it into useful information that will drive the business in an efficient manner."
There's no arguing against Mackowiak's points. However, the fresh side of the store continues to grapple with finding an overarching strategy for category management. From retailer to retailer, and department to department, the efforts cover a broad spectrum. For the most part, produce and meat are where suppliers and retailers are having the most success in applying programs, while deli prepared foods and in-store bakery are still notably further back on the continuum of progress.
Of applications of the discipline across perishables, Mackowiak says, "What we're seeing varies widely -- from none at all to extremely well-thought-out strategies. It's a bell-shaped curve, however; the bell is fairly big in the middle or slightly bigger at the less sophisticated end."
However, the "really forward-thinking companies," he adds, are steadily sharpening and refining their efforts "by aggressively attacking their key trading partners to gain leadership status."
Again, fresh produce and meat are where these aggressive attacks are occurring. That's not surprising given the confluence of other important trends in those departments, such as advancements in case-ready packaging and fixed-weight items.
Salad experts
In produce the greatest platform for progress in category management continues to be the packaged salads section, where a few suppliers have been locked in an increasingly sophisticated and heated competition to become the category experts in the retail community. Firms such as Fresh Express, Ready Pac, and Dole are developing and fine-tuning their programs with elements like new software tools, beefed-up category management field teams, and detailed promotional and merchandising plans, many of them tailored to the needs of specific chains.
Category leadership is a prime goal of Salinas, Calif.-based Fresh Express, a pioneer in the fresh-cut produce business overall, and also a player at the cutting edge of category management practices in the segment.
"As produce and packaged salads continue to grow in importance, we continue to invest in hiring and training the industry's best analysts to research and explore the available information to turn the reprocessed data into action steps aimed at driving category profitability for our customers," says Dan Wasser, v.p. of business information and analysis for the supplier.
Wasser says his company recognized early on that profitable category growth at retail "went hand in hand with investments in people, training, and systems. Fresh Express prioritized the analytical and consulting aspects over building tables and multimeg files."
Wasser adds that the company's ongoing support of and commitment to those efforts "is evidenced in the quality and size of our category management team," which stands at 10 and includes executives with retail resumes, experience on the data-gathering and analysis side at companies such as IRI, and tenures at major CPG firms.
Fresh Express applies these resources atop a layer of continual new-product development, a staple in many successful category management schemes in the packaged goods world.
In today's retail environment, delivering a good product alone isn't enough, says Bruce Axtman, president and c.e.o. of the Chicago-based Perishables Group, another firm that, in a consulting capacity, has been a leader in perishables category management. The required actions for success include creating and executing a program in conjunction with consumer insights, says Axtman.
"Even for those who do a good job of evaluating data and enhancing their processes, if they don't understand the consumer piece, it will become increasingly complicated to make the right decisions regarding adding value to a category rather than just adding another item," he adds.
The fresh foods industry has not been aggressive enough in this regard, according to Axtman. Category segmentation based on consumer purchase behavior is a key that will enable trading partners "to figure out where and how things fit and whom to target," he continues. "As an industry, we haven't done a good job of really defining those things and presenting them both in-store and in the overall strategy. And when it's all said and done, that's where the biggest opportunity is, because of the exciting nature of the perishables business."
Until recently, one of the major roadblocks to marrying accurate movement and share information for perishables marketers was the large quantity of privately held companies in the business that seldom -- if ever -- shared financial and sales data, notes Axtman. In the past year, he says, the Perishables Group has moved to find a way around that barrier by partnering with ACNielsen, an alliance that replaces "guesstimates" and extrapolation with reliable, fact-based consumer information gathered at registers across the nation.
Better data
Powered by ACNielsen point-of-sale (POS) scanner data from 30,000 census stores, the Perishables Group is now delivering a complete read of the fresh foods market that includes all major retailers in all major markets. The alliance got under way earlier this year for the produce department and will be next rolled out across the board with dairy, deli, bakery, and meat, according to Axtman.
Using its proprietary FreshFacts software to standardize ACNielsen's POS data for standard UPC and random-weight products by retail account, the Perishables Group is enabling clients to analyze product distribution, movement, market share, price, promotion effectiveness, and other market-sensitive information about fresh produce sales.
"The alliance provides a quantum leap in capabilities for perishables department suppliers and their retailer partners," says Axtman. He adds that until now perishables categories have had sharply limited access to the kind of standard grocery category management information in the market, such as census-level chain data and rest-of-market comparisons.
ACNielsen, VNU's Schaumburg, Ill.-based business unit, recently introduced another service that addresses the consumers' piece of the puzzle, and in direct relation to retail. Called Shopper Trends, it's a retailer equity segmentation service that quantifies the impact of shoppers' attitudes on how loyal they are to specific chains and stores. The findings will arm participating retailers with knowledge to help them better capitalize on marketing programs, find new ways to attract more consumers, and maximize their sales opportunities.
Shopper Trends was born out of the completion of the first phase of an aggressive expansion of ACNielsen's U.S. Homescan consumer panel, bringing the panel size up to 91,500 households. ACNielsen plans a second phase, increasing the size of the panel to 125,000 households, to take effect by the end of 2005.
ACNielsen will use Shopper Trends to apply Winning Brands, its brand-equity segmentation service, to retailer equity and link it to the Homescan panel. Segmentation can be performed by region, local market, or retailer-defined trade area to provide a deeper understanding of how factors such as a retailer's price position, quality proposition, and selection affect shoppers' loyalty.
Full disclosure at retail
For some, data-based fresh category management will truly hit its stride once retailers more widely allow their own troves of data to see the light of day. Fresh Express's Wasser affirms that opening that data door and gaining access to customers' internal data will take the practice of category management to the next level.
"While much can be accomplished with syndicated services," he says, "having access to the customer's internal data, including store-level shrink, gross and net margins, and store demographic classifications -- not only for packaged salads, but also for all value-added produce -- will expand our analytical expertise." That level of knowledge would equip Fresh Express to manage the entire department as a singular entity.
The supplier has broken the ice with a select group of partners. "This has already proven itself a tremendous success with a handful of customers," notes Wasser.
While the dramatic improvements in consumer-tracking information represent a profound new chapter in the evolution of perishables category development, FreshLook's Mackowiak agrees that a new era of full disclosure is upon some retailers "because of their desperate need to get a handle on this and jump to the forefront quicker." That can only advance the category management game further.
"Some of our [vendor] clients are getting much more detailed information as a trusted partner," explains Mackowiak. He adds, however, that the practice will continue to spread only "if retailers are, in turn, receiving worthwhile results."
Loyalty card marketing data is another arrow in many retailers' quivers that can help category management efforts.
In cases in which Fresh Express customers use a loyalty card program and are willing to share the data, "we have been able to work with their information to better understand their shoppers as well as their shopping habits," says Wasser. "We can also identify what additional items they purchase when they select a packaged salad." The intelligence about related purchases helps Fresh Express identify optimum consumer profiles as well as the most effective merchandising tactics for involving complementary categories.
"We also like to examine the effect our category management efforts have had on migrating consumers into the higher-ring segments of our packaged salads category, which then adds more dollars to our customers' bottom lines," observes Wasser.
The cost factor
The substantial costs of acquiring and analyzing the requisite data continue to discourage more widespread adoption of category management practices among many fresh foods players, but Wasser says his team views it as an investment rather than a cost.
"Our customers are making more money because they are selling the right products in the right stores, which are priced correctly and managed appropriately," says Wasser. "As our efforts continue to add value to retailers' bottom lines, we are rewarded with new and renewed business opportunities."
The practice requires commitment for the long haul. The expense of acquiring the data might be dwarfed by the attendant costs to manage and present it, adds FreshLook's Mackowiak. "The real challenge is to bring both the [cost] factors down. My feeling is that in some cases, retailers have detailed, arduous, difficult-to-prepare templates, and [the industry] may be better served by less detailed presentations that happen more frequently, so the analysis becomes a life-saving operation, and not an autopsy."
In early October FreshLook began marketing brand-specific scanner-based sales information on deli meats and cheeses, with standardized category definitions and retailer-specific geographies. Containing distribution, sales, and pricing information on some 2,000 separate brands of meat, poultry, and cheese, FreshLook's new database, according to Mackowiak, offers retailers detailed and timely marketing research information on manufacturers and producers.
Up to now FreshLook's clientele has mainly included produce growers, associations, and manufacturers, such as the Florida Department of Citrus, the California Avocado Commission, the National Strawberry Commission, Chiquita, Dole, and Del Monte, adds Mackowiak.
"Meat is a big growth area for our company, as is bakery," he notes. However, the in-store bakery segment has been especially slow to adopt category development programs for several reasons, but especially because of widely disparate in-store bakery product descriptions and the limited number of players willing to make the investment.
RFID-enabled doughnuts
To fully provide quality category information, explains Mackowiak, "It is necessary to match fixed- with random-weight products to show the entire category." That's what makes bakery department category management especially tricky from a technical standpoint.
"Retailers also don't provide all the necessary details," says Mackowiak. "When a dozen doughnuts are purchased, there's no way of knowing whether they were cake, glazed, or assorted." He expects that the application of category management will continue to face limitations in the bakery category "until they jam an RFID chip into each doughnut."
Floral is another story. At presstime FreshLook was preparing to unveil a contract with a major retailer and a vendor to develop the first-ever floral category hierarchy.
"As basic as it might be out of the gate, we will embark on the first high-level look at the floral category," notes Mackowiak. "Presently, all we can do is look at top-line data, but up to now there's been not much to go on regarding shrink, or benchmarking against anyone else."
One thing is certain: The future of perishables category management ultimately lies in the hands of the retail community. More and more supermarket operators will be looking for the kind of operational and bottom-line improvements from fresh that category management has realized for them in dry grocery.
And they will increasingly expect rapid paybacks. Fresh Express's Wasser says the supplier community will be game as long as retailers are.
"There are still significant growth opportunities with proper category management," he continues. "Growth will occur through the continued expansion of data utilization and with a focused commitment to category management practices." However, while manufacturers will rise to whatever levels their retail customers demand, to support the development of the business, he says, "Senior-level ownership at retail is critical."
The from-the-gut approach to managing the fresh side of the store that has sufficed for decades, however, is slowly giving way to a more data-based, fact-based strategy, thanks to the persistent efforts of leading-edge retailers that for years have wanted to translate to perishables the gains they've received from category management efforts in the packaged goods departments.
The discussions, pilot projects, and other initial forays into applying category management to the perimeter are reaching critical mass, according to category management experts at the forefront of the movement. There are still many mitigating factors, such as wide disparities of commitment among prospective players at all levels, and the persistent hurdle of finding and analyzing reliable data on sales, but full-blown category management has graduated from desirability to inevitability.
In the past 12 months "category management has been a really hot topic throughout the entire perishables industry," says Ed Mackowiak, v.p. of Hoffman Estates, Ill.-based FreshLook Marketing Group, a perishables scanner-based research provider.
"Because of the volume of information that has cycled through the fixed-weight categories, the next logical extension of the process is now being incorporated into perishables," says Mackowiak. The real key, he adds, "will center on taking the tremendous volume of data and turning it into useful information that will drive the business in an efficient manner."
There's no arguing against Mackowiak's points. However, the fresh side of the store continues to grapple with finding an overarching strategy for category management. From retailer to retailer, and department to department, the efforts cover a broad spectrum. For the most part, produce and meat are where suppliers and retailers are having the most success in applying programs, while deli prepared foods and in-store bakery are still notably further back on the continuum of progress.
Of applications of the discipline across perishables, Mackowiak says, "What we're seeing varies widely -- from none at all to extremely well-thought-out strategies. It's a bell-shaped curve, however; the bell is fairly big in the middle or slightly bigger at the less sophisticated end."
However, the "really forward-thinking companies," he adds, are steadily sharpening and refining their efforts "by aggressively attacking their key trading partners to gain leadership status."
Again, fresh produce and meat are where these aggressive attacks are occurring. That's not surprising given the confluence of other important trends in those departments, such as advancements in case-ready packaging and fixed-weight items.
Salad experts
In produce the greatest platform for progress in category management continues to be the packaged salads section, where a few suppliers have been locked in an increasingly sophisticated and heated competition to become the category experts in the retail community. Firms such as Fresh Express, Ready Pac, and Dole are developing and fine-tuning their programs with elements like new software tools, beefed-up category management field teams, and detailed promotional and merchandising plans, many of them tailored to the needs of specific chains.
Category leadership is a prime goal of Salinas, Calif.-based Fresh Express, a pioneer in the fresh-cut produce business overall, and also a player at the cutting edge of category management practices in the segment.
"As produce and packaged salads continue to grow in importance, we continue to invest in hiring and training the industry's best analysts to research and explore the available information to turn the reprocessed data into action steps aimed at driving category profitability for our customers," says Dan Wasser, v.p. of business information and analysis for the supplier.
Wasser says his company recognized early on that profitable category growth at retail "went hand in hand with investments in people, training, and systems. Fresh Express prioritized the analytical and consulting aspects over building tables and multimeg files."
Wasser adds that the company's ongoing support of and commitment to those efforts "is evidenced in the quality and size of our category management team," which stands at 10 and includes executives with retail resumes, experience on the data-gathering and analysis side at companies such as IRI, and tenures at major CPG firms.
Fresh Express applies these resources atop a layer of continual new-product development, a staple in many successful category management schemes in the packaged goods world.
In today's retail environment, delivering a good product alone isn't enough, says Bruce Axtman, president and c.e.o. of the Chicago-based Perishables Group, another firm that, in a consulting capacity, has been a leader in perishables category management. The required actions for success include creating and executing a program in conjunction with consumer insights, says Axtman.
"Even for those who do a good job of evaluating data and enhancing their processes, if they don't understand the consumer piece, it will become increasingly complicated to make the right decisions regarding adding value to a category rather than just adding another item," he adds.
The fresh foods industry has not been aggressive enough in this regard, according to Axtman. Category segmentation based on consumer purchase behavior is a key that will enable trading partners "to figure out where and how things fit and whom to target," he continues. "As an industry, we haven't done a good job of really defining those things and presenting them both in-store and in the overall strategy. And when it's all said and done, that's where the biggest opportunity is, because of the exciting nature of the perishables business."
Until recently, one of the major roadblocks to marrying accurate movement and share information for perishables marketers was the large quantity of privately held companies in the business that seldom -- if ever -- shared financial and sales data, notes Axtman. In the past year, he says, the Perishables Group has moved to find a way around that barrier by partnering with ACNielsen, an alliance that replaces "guesstimates" and extrapolation with reliable, fact-based consumer information gathered at registers across the nation.
Better data
Powered by ACNielsen point-of-sale (POS) scanner data from 30,000 census stores, the Perishables Group is now delivering a complete read of the fresh foods market that includes all major retailers in all major markets. The alliance got under way earlier this year for the produce department and will be next rolled out across the board with dairy, deli, bakery, and meat, according to Axtman.
Using its proprietary FreshFacts software to standardize ACNielsen's POS data for standard UPC and random-weight products by retail account, the Perishables Group is enabling clients to analyze product distribution, movement, market share, price, promotion effectiveness, and other market-sensitive information about fresh produce sales.
"The alliance provides a quantum leap in capabilities for perishables department suppliers and their retailer partners," says Axtman. He adds that until now perishables categories have had sharply limited access to the kind of standard grocery category management information in the market, such as census-level chain data and rest-of-market comparisons.
ACNielsen, VNU's Schaumburg, Ill.-based business unit, recently introduced another service that addresses the consumers' piece of the puzzle, and in direct relation to retail. Called Shopper Trends, it's a retailer equity segmentation service that quantifies the impact of shoppers' attitudes on how loyal they are to specific chains and stores. The findings will arm participating retailers with knowledge to help them better capitalize on marketing programs, find new ways to attract more consumers, and maximize their sales opportunities.
Shopper Trends was born out of the completion of the first phase of an aggressive expansion of ACNielsen's U.S. Homescan consumer panel, bringing the panel size up to 91,500 households. ACNielsen plans a second phase, increasing the size of the panel to 125,000 households, to take effect by the end of 2005.
ACNielsen will use Shopper Trends to apply Winning Brands, its brand-equity segmentation service, to retailer equity and link it to the Homescan panel. Segmentation can be performed by region, local market, or retailer-defined trade area to provide a deeper understanding of how factors such as a retailer's price position, quality proposition, and selection affect shoppers' loyalty.
Full disclosure at retail
For some, data-based fresh category management will truly hit its stride once retailers more widely allow their own troves of data to see the light of day. Fresh Express's Wasser affirms that opening that data door and gaining access to customers' internal data will take the practice of category management to the next level.
"While much can be accomplished with syndicated services," he says, "having access to the customer's internal data, including store-level shrink, gross and net margins, and store demographic classifications -- not only for packaged salads, but also for all value-added produce -- will expand our analytical expertise." That level of knowledge would equip Fresh Express to manage the entire department as a singular entity.
The supplier has broken the ice with a select group of partners. "This has already proven itself a tremendous success with a handful of customers," notes Wasser.
While the dramatic improvements in consumer-tracking information represent a profound new chapter in the evolution of perishables category development, FreshLook's Mackowiak agrees that a new era of full disclosure is upon some retailers "because of their desperate need to get a handle on this and jump to the forefront quicker." That can only advance the category management game further.
"Some of our [vendor] clients are getting much more detailed information as a trusted partner," explains Mackowiak. He adds, however, that the practice will continue to spread only "if retailers are, in turn, receiving worthwhile results."
Loyalty card marketing data is another arrow in many retailers' quivers that can help category management efforts.
In cases in which Fresh Express customers use a loyalty card program and are willing to share the data, "we have been able to work with their information to better understand their shoppers as well as their shopping habits," says Wasser. "We can also identify what additional items they purchase when they select a packaged salad." The intelligence about related purchases helps Fresh Express identify optimum consumer profiles as well as the most effective merchandising tactics for involving complementary categories.
"We also like to examine the effect our category management efforts have had on migrating consumers into the higher-ring segments of our packaged salads category, which then adds more dollars to our customers' bottom lines," observes Wasser.
The cost factor
The substantial costs of acquiring and analyzing the requisite data continue to discourage more widespread adoption of category management practices among many fresh foods players, but Wasser says his team views it as an investment rather than a cost.
"Our customers are making more money because they are selling the right products in the right stores, which are priced correctly and managed appropriately," says Wasser. "As our efforts continue to add value to retailers' bottom lines, we are rewarded with new and renewed business opportunities."
The practice requires commitment for the long haul. The expense of acquiring the data might be dwarfed by the attendant costs to manage and present it, adds FreshLook's Mackowiak. "The real challenge is to bring both the [cost] factors down. My feeling is that in some cases, retailers have detailed, arduous, difficult-to-prepare templates, and [the industry] may be better served by less detailed presentations that happen more frequently, so the analysis becomes a life-saving operation, and not an autopsy."
In early October FreshLook began marketing brand-specific scanner-based sales information on deli meats and cheeses, with standardized category definitions and retailer-specific geographies. Containing distribution, sales, and pricing information on some 2,000 separate brands of meat, poultry, and cheese, FreshLook's new database, according to Mackowiak, offers retailers detailed and timely marketing research information on manufacturers and producers.
Up to now FreshLook's clientele has mainly included produce growers, associations, and manufacturers, such as the Florida Department of Citrus, the California Avocado Commission, the National Strawberry Commission, Chiquita, Dole, and Del Monte, adds Mackowiak.
"Meat is a big growth area for our company, as is bakery," he notes. However, the in-store bakery segment has been especially slow to adopt category development programs for several reasons, but especially because of widely disparate in-store bakery product descriptions and the limited number of players willing to make the investment.
RFID-enabled doughnuts
To fully provide quality category information, explains Mackowiak, "It is necessary to match fixed- with random-weight products to show the entire category." That's what makes bakery department category management especially tricky from a technical standpoint.
"Retailers also don't provide all the necessary details," says Mackowiak. "When a dozen doughnuts are purchased, there's no way of knowing whether they were cake, glazed, or assorted." He expects that the application of category management will continue to face limitations in the bakery category "until they jam an RFID chip into each doughnut."
Floral is another story. At presstime FreshLook was preparing to unveil a contract with a major retailer and a vendor to develop the first-ever floral category hierarchy.
"As basic as it might be out of the gate, we will embark on the first high-level look at the floral category," notes Mackowiak. "Presently, all we can do is look at top-line data, but up to now there's been not much to go on regarding shrink, or benchmarking against anyone else."
One thing is certain: The future of perishables category management ultimately lies in the hands of the retail community. More and more supermarket operators will be looking for the kind of operational and bottom-line improvements from fresh that category management has realized for them in dry grocery.
And they will increasingly expect rapid paybacks. Fresh Express's Wasser says the supplier community will be game as long as retailers are.
"There are still significant growth opportunities with proper category management," he continues. "Growth will occur through the continued expansion of data utilization and with a focused commitment to category management practices." However, while manufacturers will rise to whatever levels their retail customers demand, to support the development of the business, he says, "Senior-level ownership at retail is critical."