Using Category Management To Dominate TheShelf
Across Europe the battle for the hearts andminds of supermarket shoppers is starting way before products hit the shelves. The buyingdecision as to which brand of baked beans ends up in the shopping basket is being made asa result of how the supermarkets and its suppliers interact. Increasingly, it is businessdecision in this area that decides which brands go in the basket, because if it’s noton the shelf, it won’t be in the basket.
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Supermarkets are the avenue to consumersand therefore hold a tremendous amount of power. The similarities between retailerstrategies in the main European markets are increasingly noticeable. Concentration ofownership, acquisitions and cross-border alliances between retailers are driving areduction in the number of buying points. Ten of the major grocery markets in Europe nowhave at least 50 percent of trade passing through the hands of five or fewer retailers.
Many of these omnipresent retailers havehigh overhead costs and have financed their expansion by borrowing heavily. Organic growthis limited and competition from overseas increasing, yet the pressures to deliverincremental profit remain. This situation encourages strategies that can be a source ofconflict with suppliers as attention focuses on cheaper suppliers, negotiated margin, costreduction and own label development. Additionally, promotional budgets are directed toactivity that develops spend per shopping trip and store loyalty rather thanbrand-specific activities.
However, supermarket suppliers are not asimpotent as they seem as most major European retailers are actively developing portfoliosof store groups differentiated by type, positioning and region. This gives suppliers theoption to match the ranging, merchandising, pricing and promotion policies of the storeswith their own supply and marketing strategies. By working in association with thesupermarkets via unified objectives, working structures and IT, suppliers can become morepowerful, and certainly powerful enough to squeeze their competition off the shelf.
To achieve shelf space dominance, suppliers- especially big brands – aim to be indispensable within their particular category. Thismeans accommodating the needs and wants of key customers in every area, from promotionalstrategies through to product and packaging size. Retailers argue that branded suppliersfail to recognize the total category as a whole and to present their brand plans in thiswider context.
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By GlobalDataIn the US, retailers are setting the agendafor joint efforts to develop tailor-made business strategies for core categories.Wal-Mart, a discount retailer, provides its suppliers with a statement of objectives andpriorities. This information includes macro-economic and shopper behavior information,customer profile category “mission statements”, and a list of service standards(e.g. full electronic data interchange, planning calendar, and so on). In return theydemand a Strength-Weakness-Opportunity-Threat (SWOT) analysis of the supplier’smarketing program in the context of Wal-Mart’s objective. They also need a strategicbusiness plan designed specifically for their Wal-Mart trade. This includes product mixstrategies, logistics and marketing strategies and quarterly meetings with suppliers’vice presidents. Using integrated IT systems in conjunction with sales and operationsplanning helps management teams work together.
Through sharing market, brand and storeperformance data, retailers and suppliers can work together to define the range,merchandising, promotion and/or pricing plans at retail level. Working togetherelectronically cuts co-ordination time and helps Category Management (CM) become a cornerof Efficient Response/Efficient Consumer Response (ER). Through such partnershipactivities suppliers can work with a single supermarket, or across a chosen group ofretailers, to ensure that their own mainstream advertising ties in shelf space dominanceand point of sale activity in key outlets.
Furthermore, production can be planned sothat stores can carry extra product, reducing competitor shelf space and allowing forrapid product replenishment should the promotion exceed expectations. Similarly, specialpromotions can be quickly implemented should an excess of stock build up (perhapsfollowing an anticipated spell of hot weather that failed to materialize).
Category Management is increasingly whatthe major retailers are demanding from their suppliers, as research from Kurt SalmonAssociates shows. Asked for the five most important criteria for selecting a supplier forJoint Category Management (JCM) – equivalent to preferred supplier status – retailersresponded:
- Demonstrated capabilities with other (non-competing) distributors
- Breadth of product offering category
- Capabilities and personalities of team members
- Involvement/accessibility of top management
- Overall feeling of trust and openness in relationship
Perhaps of most interest for many suppliersis that ‘Supplier Market Share’ is an omission from the list. This goes againstthe perception that JCM programs favor large manufacturers in relationships withretailers. None of the top five factors discriminates against medium and smallmanufacturers, giving these suppliers as much incentive – and as much business potential -as their larger competition. Indeed, as “Demonstrated Capabilities with OtherDistributors” is at the top of the list, it is experience that counts most. Withsmaller supplier far more nimble than their bigger competitors, Category Managementrepresents a real opportunity for medium and small size suppliers to steal a march ontheir more powerful rivals.
To really leverage the opportunity thatCategory Management offers the small and medium sized suppliers, there needs to be achange in strategic thinking and an improvement in technology. Without a new approach, allthe technology in the world will make little difference as an IT system can not helpsupplier management teams think from the retailers point of view. However, once themind-shift is in place, available technology can bring a great deal of transparency withinthe supplier/retailer relationship, helping Category Management strategy development andEfficient Customer Response.
Mark Barnekow is the Worldwide BusinessDevelopment Manager to the Food and Beverage Industry at JBA, a leading worldwide supplierof enterprise management software to the highly competitive mid-market sector. Typically,JBA customers gain competitive edge from the rich functionality of our products combinedwith our @ctive™ Enterprise strategy. This strategy optimizes business processperformance, based on international best practices, to consistently reduce costs andimprove margins without continuous systems development.
JBA industry focused solutions meet theexact needs of selected target industries by incorporating industry best practicefunctionality integrated with best of breed partner products and services. In the Food andBeverage, Apparel & Footwear, Automotive Supplier and Electronics sectors, JBAIndustry Teams skilled in both industry and products, optimize their use for eachcustomer.
In 1998 JBA completed its 18th year ofcontinuous growth with revenues over $470 million, growth built on our consistentinvestment in people, products and most importantly our customers. JBA employs 2,700people, supporting over 4000 customers in 53 countries.
About JBA Food & Beverage
JBA Food and JBADrinks, our market leading software, provide the most comprehensive and flexiblebusiness solutions available to the Food & Beverage Industry. They have been developedas a result of a close understanding of the issues crucial to the Industry, and theextensive expertise gained working with customers in the Dairy, Bakery, Meat &Poultry, Brewing, Wines & Spirits and Wholesale Distribution sectors.
JBA are co-sponsors of the just-food andjust-drinks web sites. The sites are aimed primarily at IT and business professionals inthe food and beverage industries. Located at www.just-food.comand
Mark Barnekow, Worldwide BusinessDevelopment Manager to the Food and Beverage Industry at JBA
