GETTING A HANDLE ON CATEGORY MANAGEMENT

GETTING A HANDLE ON CATEGORY MANAGEMENT

How to use the category management assistance offered by suppliers and distributors to your best advantage.

By Cheryl Ursin

“I get inundated with information,” declared Roger Voss, executive vice president at Centennial Liquors, a 30-store chain headquartered in Dallas, TX.

Voss is talking about the statistics, facts, planograms and advice that suppliers and distributors can generate and provide to retailers.

They do it, they say, in the interests of category management, a term that has become a buzzword, not only in the beverage alcohol industry, but in retailing in general.

But just what is category management? And more importantly, just how useful can it be to a retailer?

Category management started in the early 1990s in the supermarket industry. Pressed by growing competition from new types of retailers, most notably Wal-Mart, supermarkets and their trade associations, in conjunction with outside retailing consultants, developed an initiative called Efficient Consumer Response (ECR).

According to the Grocery Manufacturers of America, the initiative was started in 1993 and “is a food and consumer products industry strategy where distributors and suppliers work closely together to bring better value to the consumer . . . The ultimate goal of ECR is a responsive, consumer-driven system in which distributors and suppliers work together as business allies to maximize consumer satisfaction and minimize cost.”6805CA701

Say what?

In part, ECR and category management, which is one of ECRs major components, is simply an attempt to improve on what retailers and their suppliers have always tried to do: sell consumers the products they want in the most efficient and consumer-friendly way possible. “They didn’t reinvent the wheel,” said Jan Jackson, president of the two-store Jax Package Store operation in Atlanta, GA.

Anheuser-Busch’s senior director of retail planning & category management, Joe Patti, echoed that sentiment. As he put it, “Category management is just good business practices.”

But category management also takes into account the latest developments in both retailing philosophy and in technology.

On the philosophy side, category management encourages both retailers and suppliers to look at their business from a different perspective. “In the past, we focused on our own brands,” explained Marty Crane, director of category management for Seagram North America. “But business is changing and retailers are demanding to know not only what we are doing to sell, for example, Absolut, but how what we are doing will affect the entire vodka category.”

As its name implies, then, category management focuses on entire categories rather than on individual brands. “Rather than put all the Gallo products together, all the Clos du Bois, all the Kendall-Jackson, you put all the merlots together,” explained Gary Gardener, operations manager for the 25-store Belmont Beverage chain in Fort Wayne, IN.

“Consumers have been thinking in categories forever,” said Rick Oberhofer, vice president, channel development for Canandaigua Brands. He gave the example of consumers making out their grocery lists, writing down “paper towel” and “strawberry yogurt” rather than “Bounty” and “Dannon.”

From the technology side, retailers and suppliers have more information available than ever before. And they have more sophisticated software to use on that information. Beverage alcohol suppliers point out that they all use many of the same tools. For example, many use information provided by the major market-research companies ACNielsen and Information Resources, Inc. (IRI). That information might include scanner data, sales data directly from different types of stores, and it might also include household panel data, in which select groups of consumers are asked to record their purchases, using a scanner supplied by the company. Many suppliers also commission their own custom consumer research or collect their own data.

Likewise, beverage alcohol suppliers often use the same software, such as space-management programs from a Dallas, TX-based company called Intactix, to analyze the information, on a local level, for their retail accounts. Some suppliers have also developed their own custom software programs. For example, Miller has begun using Localizer-PLUS, a customized software program that uses its own proprietary research and store-level data.

The result of all this newly available information and analysis is what Seagram’s Crane calls “fact-based selling.” As Roger Voss of Centennial, put it, “Prior to having these capabilities, retailers just kind of winged it, the best way they knew how.”

Now, ideally, retailers can tap into the information suppliers know about the consumers who live in their trading area. “We can tell you something like your consumers love soccer. That might result in you using soccer-themed p-o-s, something that is relevant to your consumer,” said A-B’s Patti.

More generally, category management can help retailers learn about their customers, their competition and their own operation. It can result in what Patti calls a SWOT (for Strengths, Weaknesses, Opportunities & Threats) analysis of your business.

“Category management can increase sales, whether that’s unit sales or gross profit. It can increase [customer] traffic. It can help retailers manage their costs and optimize the use of their working capital, through inventory reduction,” said Seagram’s Crane.

“There are some tactical benefits,” said A-B’s Patti. “It can help you better manage your cooler sets. That can reduce out-of-stocks. It can ensure that the beer your customers want is cold when they want it. Ultimately, it is about increasing profits by doing things for the customer.”

Still, category management is a fairly recent development for beverage alcohol retailers and some remain wary. One concern: how much of the information and analysis can be applied specifically to beverage alcohol retail operations? That has been, suppliers admit, a valid question. Because category management initially started in other retail industries, most notably supermarkets and convenience stores, the information that suppliers could provide was not always particularly helpful to beverage alcohol retailers.6805CA704

“The national information was coming from grocery stores,” said Jax’s Jackson, “and their business is so different from mine that, frankly, the information was just not useful to me.”

Belmont’s Gardener agreed that to be at all useful, category-management information must be very specific. “I don’t need nationwide information. Even hearing about Fort Wayne as a whole isn’t completely useful. With a chain, I need to know what works in the different neighborhoods,” he explained.

Suppliers report that their information is improving all the time. “Nielsen does have information on certain liquor markets,” said Seagram’s Crane. “Florida is a good example. We can get total Florida liquor sales and Nielsen can also break the information down for certain cities: Miami, Orlando, Tampa and Jacksonville.” In the last year and a half, IRI has also started offering scanner data from liquor stores.

Centennial’s Voss finds that his distributors, by and large, give objective and useful information, but he also noted, “The advice they give you does usually favor their own product.”

For their part, suppliers, while conceding that the objectivity of advice is a valid concern, argue that giving unbiased information is in their own best interests. “The whole point of category management is an unbiased approach, the idea that if the category grows, we will grow along with it,” said Seagram’s Crane. Plus, suppliers note, retailers can verify the information given to them by a supplier, in some cases, by looking at their own sales data, and in other cases, by comparing it to the advice given by other suppliers.

The bottom line for retailers is that many of their suppliers and distributors are offering information, sophisticated analysis and advice — for free. “There’s no big investment of time [for the retailer] and it’s in the best interests of the suppliers and distributors to help you,” said Belmont’s Gardener.

The key? “Someone in my position has to weigh all this and decide what to do,” said Centennial’s Voss. rare wines fpo

Suppliers point out that retailers can start small with category management. “It depends where they are starting from and how comfortable they are,” said A-B’s Patti. “They can do as much or as little as they want. I suggest they start with the pieces of their business that are key to the success of their operation.”

Jeff Schouten, director of category management at Miller, pointed out, “At a simple level, a planogram for the beer cooler doors or shelf is category management. On the other end is a detailed beer category analysis and marketing plan, including strategies for all key areas such as promotions, assortment, marketing and pricing.”

Some retailers prefer to work with just their key supplier in a category. Others work with many. “Certain companies have certain strengths and retailers often feel there is more objectivity when they work with a number of suppliers,” explained Steve Walkerwicz, business development manager for the Atlantic/Pacific region for Seagram North America. Walkerwicz, who also works on category management with nine of the eighteen control states, pointed to the New Hampshire State Liquor Commission as an example. “Brown-Forman has been very actively working with them on shelf sets while we have been working on SKU optimization and promotion evaluation for them,” he said.

And suppliers are constantly honing their information and their analysis. Indeed, Kevin Cooke, vice president, corporate off-premise, for Allied Domecq, declared, “What we’re doing now is the next phase: it’s consumer management.” He gave the example of taking information about consumers in a retailer’s area — such as that many area consumers like Starbuck’s coffee or buy flavored coffees at the supermarket — and using that information in the liquor store. For example, the beverage alcohol retailer might choose to do promotions that cross-merchandise products that can be mixed with gourmet coffees.

If knowledge is power, beverage alcohol retailers are, thanks to their suppliers and distributors, becoming more powerful all the time. And in a competitive industry, with customers who are becoming more and more sophisticated and demanding, that’s a good thing. “You can’t get complacent,” said Belmont’s Gardener. “You have to take the time to look at all the necessary information.”

Cheryl Ursin is contributing editor to Beverage Dynamics and Cheers. Her writing has also appeared in the New York Times and other publications.

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