Meeting customer needs, and maximising the value of the retail shelf -space is what category management is all about, aggressively executing on category management can deliver great results and overcome the seeming handicaps of small businesses.
Here are six great rules to follow:
1. Know the relay schedule, and if possible be involved in the planning discussions. Most chain retailers, particularly supermarkets will have a lead supplier who has the inside running because they have all the data, and better access to the decision makers, but that doesn’t mean you cannot participate. Being persistent, informed, and helping the buyer management hierarchy achieve their KPI’s all contribute to the nurturing of the relationships with them that will deliver benefit at some time. Besides, most people have some sneaking sympathy for the underdog.
2. Understand the volumes and margins of all products in the category, and manage your recommendations to the retail buyer with his objectives in mind, maximising the absolute margins that come from the shelf space, rather than just concentrating on your margins. Retail buyers are not there to look after your margins, only theirs.
3. Understand the sales that come from differing shelf positions, and the impact of differing placements for differing Sku’s. Eye level is always best, but is high better than low? What about the type of shelf grouping, by size, brand, flavour and which combination is the best for you, and the retailer? Retailers will generally have a layout in place, but are often willing to experiment, from which you can both learn. Data is the key to understanding these options, but in addition, the value of the eyeball in making 2 and 2 equal 5 is immense. How many category analysts in large businesses actually get out and talk to the people managing the sections in store?
4. Understand the construction of the retailers profit model. Volume X Item gross margin = gross profit. Going one step further, dividing by the shelf space allocation gives a return on the space, and being really fancy, you can weight the value of the shelf space. Add into the mix the impact of your promotional payments/discounts, promotional buy periods, frequency of promotion, and sensitivity of consumers in the category to price reductions on the retailer margin, and you can come up with a number I call RRRE, or Return on Retail Real Estate. Finding ways to influence that number without selling the farm is the supplier heaven.
5. Respect the discipline of the planogram, which is the document that executes the category management decisions at store level. To varying degrees, retailers use the planograms to organise the selling face in the stores, and as a discipline on store management. However, in the discipline there are often opportunities for the store managers, and SME owners whose objective is to sell more at a better price. Encourage field staff to be creative, a stack of bananas or Christmas pudding near the custard, French mustard next to the hams, dried fruit into the flour category with some cake recipes, A scarf from next door with your handbags, the potential for cross selling is limited only by imagination, and preparedness to do a bit extra, and the planogram offers predictability of the status quo, wherein lies the opportunity to be creative.
6. Leverage seasonal volumes, and Christmas is a particularly terrific time of the year in a number of categories, and should be a core part of promotional planning. At the same time, pressure comes off a bit because all the key decisions have been made, so it is a great time to work on the relationships, plant the seeds that will deliver next year, and build your category management profile with your customers. After all, your competition is probably at the bar thinking the game is over. Whoops.
An added word about Christmas. Any time of change is a time of opportunity, and Christmas ranging is one of the biggest changes retailers go through in the manner in which they allocate their shelf space, as they seek to maximise their seasonal sales. Doesn’t matter what market retailers are in, from fashion to food, car accessories to handbags, pre Christmas sales are critical to the annual numbers.
Just think about the space supermarkets allocate to hams from the beginning of December. Where does that space come from? How do they allocate it across differing brands, sizes and types of ham? and if you are a ham producer, how can you get a slice, and if you sell some of the products that give up shelf space, to hams, how do you make up for the lack of shelf exposure?
Allen Roberts is a guest contributor to Australian Food News and writes another of his regular articles here. He is the Director of Strategy Audit www.strategyaudit.com.au and has worked in the food sector for more than 35 years. To read his full biography click HERE.
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