Category Management: A Big Opportunity
Throughout a dynamic and interesting interactive session, distributors were encouraged to work closely with manufacturers and their retailer customers to implement or improve existing category management services that would leverage the sales and profit potential of core items and the incremental opportunities offered by new item introductions.
Led by executives from Impact21 Group, a consulting firm that offers category management expertise for the convenience store industry, there was a clear message that built upon work already provided by AWMA: make sure core items are in place and in stock, that inventory is managed properly, and that shelf space is utilized to be as effective and efficient as possible.
Impact21 Group’s president, Lisa Stewart, pointed out that even during the economic downturn the c-store industry held its own, and predicted that 2011 would see modest growth. But she stressed the importance of reducing costs and operating as intelligently and efficiently as possible, and said distributors are critical to helping their retailer customers achieve those objectives.
“The reason why we focus on merchandising, category management, and automation is so we can remove costs out of the supply chain,” she said. “That is essential for the industry today.”
Sound category management, of course, is a good way to achieve that, Stewart emphasized.
“You can help retailers figure out how to improve their business by focusing on turns,” she added. “We need to remove excess inventory and become in-stock on top selling items.”
Michael Herbst, principal consultant at Impact21, noted that 60 percent of SKUs typically carried by distribution centers sell less than five cases per week. Quoting from AWMA’s recent study, “Targeting the Core,” which identified opportunities for the convenience channel to increase confectionery sales and profits, Herbst said there is a $1.4 billion dollar opportunity in that category alone if assortment is managed correctly.
He noted that the top 50 SKUs are generally only in-stock 83 percent of the time in convenience, and if that could be increased to 100 percent, the sales boost would amount to $410.1 million per year. The same principle, he said, applies across all categories in the channel.
All too often distributors and retailers miss opportunities to profit from the initial sales surge for new products because they are too slow to be introduced, Herbst said, adding that many failed items are left on the shelf too long, clogging up space. Manufacturers, distributors and retailers were urged to work together to solve those issues.
“A compelling business reason for category management is reduced cost of goods for retailers and cost to serve for suppliers,” said Casey McKenzie, senior partnering consultant with Impact21 Group.
But, he said, challenges can get in the way, starting with lack of support from top management, lack of efficient training, lack of consistent effort, and inadequate implementation at store level.
CM involves the entire supply chain. Wholesalers are uniquely positioned to add value, especially in our channel of trade. If you can talk the talk and walk the walk it will help you work with your retailers.
“What’s in for you?” McKenzie asked. “It’s about reducing complexity, because complexity impacts your ability to deliver, and gets between you and your customer, and it erodes profitability.”
Chris Girk, director of category management and business development at Lawrence Merchandising, a merchandising services group, detailed the importance of using reliable data to make sound category management decisions.
“Category management is a service driven competitive advantage that you can use to drive your customer base,” he said. “The ones that go back and implement category management are the ones who will grab those customers.”
Mike Carroll, national category management team leader at the Wm. Wrigley Jr. Company and Noel Vacanti, senior manager for strategic insights at Mars Chocolate North America LLC, discussed opportunities to increase confectionery sales by effective category management.
Key steps, they said, include a sharp focus on the consumer’s preferences and buying habits, the necessity of having the right assortment, which includes focusing on the core, establishing the right shelving layout, and merchandising to capture impulse purchases and make it easy for consumers to pickup their favorite items.
Vacanti emphasized the importance of making sure core items are in stock. “If you have gaps in your top sellers, that can cost you over 10% of your business,” he said.
They urged distributors to analyze the shelf sets for individual locations at least annually to account for changes, and pay attention to shipment data to help avoid out-of-stocks.
There were a number of questions from the audience regarding the inability of some distributors to get specific items that other channels, such as mass or drug are able to obtain, or to get them in time to take advantage of new item sales lift opportunities.
Bill Frazer, vice president, US convenient stores at Wrigley Sales Company, said efforts have been underway to resolve such issues, and Vacanti said the same is true at Mars Chocolate North America LLC.
“Our sales force spends a large portion of their time on distribution,” said Carroll, “making sure the core is OK and that new item opportunities are being addressed,” noting that it’s in the best interest of all trading partners to resolve any such issues.
“If their (retailer’s) business is healthy, your business is healthy, and if your business is healthy, our business is healthy, so we have a vested interest in this,” he said.
“The program was terrific,” said Larry Warner, Federated Foodservice. “We work with suppliers to help them provide service to their customers, and I learned a lot from that session.”
Brian Hazelwood, product manager at Paper Rolls Now, found the category management program to be extremely helpful. “I learned a lot about category management, from SKU rationalization, to the importance of keeping core items in stock, and to develop strategies to reduce slow movers. It was a highly informative, fascinating presentation.”
