1. Define category management and why it is an important component when operating a convenience store.
Category management is a systematic, disciplined approach to managing categories as strategic business units, while focusing on consumer expectations. What does this mean? Category management helps retailers and suppliers work together to analyze business performance, better serve customer needs and increase sales and profits. This definition, first developed by the NACS Category Management Task Force in 1997, still hold true today; however, the ways in which retailers and suppliers work together has changed dramatically.
Without question, category management is one of the most important business processes developed for retail. It is used today in one form or another by most manufacturers and retailers, across all channels of trade, including convenience stores. A typical convenience store will carry thousands of products within its limited space; therefore, it is necessary to consolidate similar products into categories and sub-categories, to facilitate managing pricing, promotions, evaluate performance efficiently and effectively and better understand consumer trends. NACS provides retailers with a recommended definition of categories and sub-categories, as a starting point (NACS Category Definitions and Numbering Guide – Version 7.2) which can be used to set up pricebooks and benchmark with its NACS State of the Industry Report ® data collected annually. While retailers may take some liberties in how they organize their business, a defined list of categories and sub-categories supports the process of building product assortments, creating consumer-driven plan-o-grams, driving pricing / promotions and evaluating items for listing and de-listing. If a retailer has already set up its pricebook using another structure, NACS recommends creating a cross-reference for use with supplier partners and benchmarking.
2. What is the most effective balance between convenience retailers and suppliers in category management?
At a fundamental level, category management is driven by the retailer, but is heavily supported by suppliers with competitive data, market/industry data and consumer insights. Additionally, as brands are being marketed today through new digital channels, retailers are working with suppliers to leverage these insights and learn more about consumers in real-time. Why, how, when and where consumers shop the category are important “shopper insights” and can truly enhance a retailer’s category management process. Combining these important “shopper insights” with a retailer’s own data on its categories (e.g., item movement, basket analysis, cannibalization, profitability, etc.) and customers (e.g., day parts, loyalty data, mobile apps, customer research, etc.) is the best way to optimize performance across the entire business. By following a disciplined approach of analyzing category and sub-category performance, both internally and compared to industry benchmarks, defining category roles and strategies and incorporating consumer preferences and insights, retailers will be able to ensure they are positioned to target not only their existing customers, but their aspirational customers as well. The breadth and depth of assortments based on category roles, pricing and promotions that support category strategies and the placement of products within plan-o-grams that meet consumer preferences are all outcomes of category management.
3. How has the process of category management evolved?
Category management has continued to evolve with changes in the retail landscape. Originally developed in the convenience channel as a defensive move against channel blurring and new competitors, it now needs to address some major changes in the industry. Once a challenge for my own category management team in the late 1990’s, data is readily available and accessible both internally and externally. Loyalty programs, social media and mobile apps have increased access to consumer insights like never before. The ability to synthesize all the data available to category managers have given rise to advanced analytics, big data and machine learning in order to provide faster insights and help prioritize opportunities. In addition, customers have changed dramatically with increases in retail formats and on-line choices. One size no longer fits all, as customers create ever-changing segments with unique behaviors and expectations based on lifestyle and/or lifecycle.
Once thought of as a quarterly or annual activity, category planning has evolved to a weekly or monthly activity as new data is introduced and incorporated. Retailers and suppliers are collaborating and sharing data more frequently to react quickly to trends, ensure plans are updated as data changes and refine metrics as required. Category managers can now see specific customer behaviors, at specific stores or channels, in close to real time. Relevant and targeted messages and offers can be disseminated across any platform that a customer desires. Lastly, the customer experience is no longer just an in-store or forecourt transaction. Our customers are interacting with our brand across multiple digital platforms and expect a seamless experience. Being able to segment customers, react to their needs/desires with the right products, messaging and platforms will be a true differentiator in category management in the years to come.
4. What is the biggest misperception about category management?
We often hear from retailers that they can’t do category management effectively because they are resource or data challenged and don’t have time to dig that deep into either their categories or their customers. They continue to rely on suppliers to drive their business, in terms of what they carry, how its displayed and how its promoted. This often creates a scenario where the retailer is not meeting its customer’s needs and the supplier is trying to “guess” at what those needs are.
One of the biggest misconceptions about category management is that it has to be implemented across the entire business all at once. Any retailer can start small, pick a category or sub-category where performance is struggling or one that will have a large impact on the business. Then, select a supplier partner or partners and focus on something as simple as performance against the industry and/or consumer insights and trends. If your supplier partners can’t or won’t provide support, there are many studies available online through NACS, trade publications, white papers, blogs, supplier websites and a myriad of other sources that can be used. This will at least provide a starting point and allow you to make some key decisions on this part of the business. More importantly, you can learn as you go and every category or sub-category you work on next, will become easier.
The other misconception we hear is that retailers don’t believe they have the right level of sales/sku-level data necessary to implement a functional category management plan. Ideally, retailers will want to use transaction level data, loyalty data and inventory data to implement their category management plans, as details on market basket, day parts, out of stocks and promotional effectiveness will provide valuable insights. While many retailers are now collecting transaction level data and some are even collecting item level on-hand inventories and loyalty data, the right systems may not be in place to be able to access and analyze such large amounts of data in a holistic way. Working with suppliers or third-party data analytics companies is an option for some and great learning can be found and emulated as systems are developed internally.
Candidly, if a retailer is only able to easily access item level scan data and some level of gross profit performance for its categories, developing a functional category plan is possible and recommended. Supplementing this will shopper insights from suppliers and/or through their own research, will go a long way. Remember, category management was implemented by many retailers using supplier and/or wholesaler shipment data in the beginning, when scan data wasn’t available. Use what you have or can create easily and then develop a plan to begin tracking, storing and accessing the data you want in the future. Additionally, resources such as the NACS Category Management Framework and the NACS Advanced Category Management Program will provide a lot of guidance and tools.
5. When you’re on the road visiting your clients’ stores, what is the one (or several) items you always go for in a convenience store?
I am in a convenience store several times a week in my job working with retailers. No matter the time of day or occasion, I am always grabbing a bottle of water. My preference is spring water and I’m not a fan of sports tops. I haven’t mastered how to open them! Since I’m traveling most of the time and grabbing meals, you’ll also find me looking for healthy snacks that include nutrition bars, salads, boiled eggs, cheese, fruit and veggies. Fortunately, this is becoming much easier to find and the quality and value being offered is just as good as my local grocery store and often better! I will also always try anything new that our clients are offering, which isn’t always healthy. Oh well, it’s my job, right?
For an extended version with more information about how to run a successful convenience store, check out our downloadable guide, Principles of Category Management.
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