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Eye on efficiency.

Category management in the produce department has been slow in coming but it's picking up steam as an increasing number of retailers adopt standardized PLUs.

Even a potato can get a makeover. According to research by the National Potato Promotion Board, Denver Colo., potatoes are turning into popular impulse items--and we don't mean as potato chips or french fries. This trend is taking hold for potatoes packaged in mesh bags or sold pre-cut or blanched.

Welcome to the world of produce category management. Industry observers note that a wealth of opportunities exists for retailers to build produce sales and develop incremental business if they tap into category management's scan data and research. Finding the right resources and applications for this data are the remaining stumbling blocks to industrywide acceptance of category management in the produce department.

"Category management is more viable now than ever because the produce department has changed so much overall," says Jean Ashby, category management director, Washington Apple Commission, Seattle, Wash. This change has been driven by the disappearing seasonality, due to improved production processes and technology. The addition of imports and greenhouse products has also impacted the department. "With these items come additional challenges," says Ashby. "Produce needs to optimize the space and figure out which items to promote. Category management helps retailers identify the performance of these new items."

In many cases, the produce department may be primed to incorporate category management tactics. "Produce has the advantage of going into category management because their workers have to keep close to the product because it's perishable," says Bryan Silbermann, president, Produce Marketing Association (PMA), Newark, Del. "Retailers already have to know consumer demand, or. else they'll have a department of rotting products."

Identifying high-performance items can pay off with big dividends. According to industry experts, effective use of category management in produce can increase sales 5% to 15%. It's also estimated that produce shrink can be reduced up to 50%. Supermarket operators seem to be getting the message. According to the Food Marketing Institute's (FMI) 1998 "Speaks" report, approximately two-thirds of supermarket companies were installing category management plans in the produce department.

The key to tapping into category management's benefits are standardized price look-up codes (PLUs). Observers note that PLUs are the primary tool for building efficiencies in the form of reduced shrink, increased profits due to accurate and quick key-ins on produce items and improved customer satisfaction with the shorter checkout time. Retailers also gain from the knowledge of what, when and how consumers eat produce, which can lead to better optimization of the product mix. "PLU codes are the enabler for category management in the produce arena," says Ben Ball, vice president, Dechert-Hampe & Co., North-brook, Ill.

However, these codes bring additional challenges. "PLU codes are just getting into circulation," says Ashby. "Working through data issues is always a challenge, especially in 100-store chains where it's hard to make sure all understand the process. It's a change of philosophy, and that takes time."

Observers believe this will come as retailers understand the significance of PLU scan data. "As you implement an application, such as the use of scan data, the data will get better because it becomes more important that it does get better," says Bruce Axtman, vice president, Willard Bishop Consulting, Barrington, Ill. "So, this will trickle down to the store. As retailers realize the value in the information more stickering and packaging will improve the quality of front-end data."

Ashby points to a number of supermarket companies, including Wegmans, Jewel, Meijer, Lucky and Cub (Dayton), that are doing a good job with produce category management. "They are committed to wanting to grow their business, willing to try new things and implementing at the store level," says Ashby. Other observers note that retailers such as Schnuck Markets, HEB, Publix and Wal-Mart also are having success with category management in their produce operations.

Changing philosophies to incorporate category management may be difficult, say industry experts. For example, some retailers are using the same PLU code for three items without changing the item description, says Kristine Ballecer, marketing director, California Tomato Commission, Fresno, Calif. "They need to understand what numbers correlate," she says. "Merging computer systems among divisions is pretty difficult. And some companies have different financial and reporting periods. Their historical data is not comparing apples to apples."

Others insist that PLU codes are being merged into retail operations smoothly. "The PLU and coding issues haven't been an issue," says Mark Boyer, partner and co-founder of PMG, a consulting firm specializing in perishables, Tyler, Texas. "Retailers have made pretty good data capture. The cashiers aren't guessing and punching in wrong PLU numbers."

In fact, employees play a significant role in the success or failure of category management. "Retail is only as good as its weakest link in the chain," says Silbermann. "Cashiers have to be accurately ringing up the data. For the produce department, retailers need to make sure that they're hiring the right people. Category management managers need to have the right training, identification skills sets and degree of analysis that those in procurement may not have."

When category management is handled well, some surprises can come from the data. For instance, traditional commodity products may be more profitable and incur less shrink than new premium items. Axtman's company, which has done much work with packaged salads and bulk commodity lettuce, has found that in many cases bagged salads are less profitable and have higher shrink levels. He attributes this to the more difficult handling, rotation and stocking methods associated with the bagged salads.

Of course, the scan data "glass" can be viewed as half full or half empty. From a sales and gross profit standpoint, bagged salads are more profitable than bulk lettuce, note some observers. "Clearly, garden salads are still a volume and tonnage driver," says Michael Celani, senior vice president of retail sales, Ready Pac, Irwindale, Calif., which has been involved in category management efforts for a number of years. "But the profit drivers are premium products. The objective for retailers is to move more people into those segments."

Category management in produce also can have a significant impact on pricing programs. "Price is based on value perception," says Ashby. "People buy and consume products for different reasons, so retailers should price items differently. With peer pricing, retailers need to establish a strategy based on identifying within your assortment who shops for what products and then reinforcing the product price based on that information."

The concept of peer pricing enables retailers to strengthen consumer relationships, rather than aim for the lowest prices in town. The Washington Apple Commission's work in its category illustrates this idea. The core varieties of the apple category are Granny Smith, red delicious and golden delicious; 95% of consumers buy these products, Ashby notes. Low prices--and corresponding low margins--are essential with these varieties. However, this is not the case for the lower-volume gourmet varieties, which shoppers view as special. For these products, retailers can bump up their profit margins because the consumers who purchase them are far less price sensitive.

The same pricing concept holds true with categories such as artichokes and bananas. "The consumer is nonplussed about artichoke pricing," says Boyer. "It's' more important to be sharper on banana or soft fruit prices because they create a price impression. Shoppers might even change stores if bananas are too expensive."

Retail scan data obtained through accurate PLU coding can reveal other surprises about pricing. According to Ballecer, sometimes retailers assume they're making more money because they've upped their prices, while they actually may be losing money. Retailers. may also discover that their shrink and costs are much higher than expected. In other cases, the work flow may not be smooth, as steps are taken out of or added to the equation by employees. Another misstep occurs when retailers fail to consider the impact of their actions, say observers. What happened when a particular product was taken out of the produce lineup?

Category management helps with the weeding-out process. However, some argue that this process existed long before the emergence of category management. "There's an old phrase, 'sell it or smell it.' Take a look in the trash bins to see what didn't work out," says Boyer. The items in the trash bin tend to be niche products, he notes.

Celani agrees. "It's pretty basic 'that there's a life cycle with lots of items. Those that are more narrowly focused have a shorter cycle because consumers mainly try them on special occasions," he says.

Finding what works with category management varies with every operation. For that reason, most retailers prefer to customize the standard eight-step process of general category management: category review, category definition, category role, category assessment, category scorecard, category strategies, category tactics and plan implementation. "The industry has gone through the eight step-process and essentially choked on it," says Ball. "The eight-step process is onerous. Many retailers have mostly tailored and streamlined it to meet their own needs. Their primary objective is to get the data and decision-making in a uniform structure for the efficiency of the management." For manufacturers or shippers that help retailers with their category management programs, the key is to focus on efficient assortment, in-store testing and consumer research.

A customized approach may focus on tactics such as assortment, pricing, promotion and merchandising. "We identify the tactics and strategies that work for most retailers," notes Ashby. "Improvements in performance are measured by volume sold and gross and net profits. But the bottom line is that you have to create profit. So, we evaluate our program based on our ability to drive the category in those areas over a period of time."

Thorough testing is key to a customized category management program. The California Tomato Commission tests every action step in a category management program on a cluster of stores for two months, Ballecer says. The commission's efforts can benefit those working with store category management programs in a tangible way, she says, noting that some retailers reward their personnel with raises based on their category management performances, sometimes up to two to three times their salary.

Retailers are using category management techniques at the strategic level but more needs to be done on the operational level, says Axtman. This type of reporting can check retail performance on the sales and store level. In addition, loyalty cards and panel data, as well as partnering efforts between retailers and suppliers can add to the collective produce knowledge.

Optimization of the mix is mentioned frequently as the overriding factor for a successful produce department, particularly with the explosion of new produce and salad varieties. "Most of the fresh work that has been done at Supervalu has been focused on optimizing assortment and developing planograms and schematics. Promotion planning is also a top priority for us as well," says Judy Farniok, manager of category management development, Supervalu, Eden Prairie, Minn.

Items that make the cut in the crowded produce section need to be the cream of the crop. "What items make a difference?" says Silbermann. "We're seeing produce departments and the number of items increase. But generally, the amount of space being devoted to each stock-keeping unit is actually going down slightly. I think that's a direct result of category management."

Where space is an issue, optimization becomes essentila. "Make items more distinct or create more space," says Ashby. "If items have little movement, consider if they move at certain stores or if they create excitement in the category on a regular basis. That will keep the category fresh."

Creating excitement can be an important role for certain products. "New items don't generate lots of new sales, but they create excitement," says Boyer. "Those successful in category management would say it's all how you define it. I define it as capturing sales data at the SKU level, measuring how the promotions and assortments perform, testing new items and getting rid of under-performing items."

Consistent follow-through is also a key element of any produce category management program. This isn't always easy in an era of consolidation, when there may be more than one person in charge of produce. However, most mergers typically yield a more streamlined approach to the produce section, say some observers. "Each of the major 'acquisitors' has a good category management process," says Ball. "As those that are not as well developed are acquired, utilization will increase across the industry"

Observers point out that good implementation of category management techniques requires an investment of money and time. Many retailers are turning to shippers and their representative organizations for resources. Few retailers have funding for their produce category management programs, say some industry insiders. "There is a phenomenon we've encountered. With category management, someone has to pay for it," says Boyer.

Often, that someone is the shipper. "The success of category management relies on strong vendor partners willing to invest in and support the process," says Farniok. "Fresh produce as an industry is lagging behind fresh meat and deli in supporting this type of analysis and planning. This seems to be driven by the presence of more commodity types of items and less branding in the produce department."

Some in the industry point out that most innovations in category management come from the manufacturer or shipper side. "The reason category management has evolved the way it has is that it's driven by the manufacturer side," says Richard George, professor of food marketing, St. Joseph's University, Philadelphia, Pa. "Retailers deplete their inventory to make money on the next buys, and they look to the manufacturers to do this for them. Then, retailers ask how category management fits into their store strategy. Shouldn't we be doing this in produce now?"

Retailers have their own reasons for not wanting to invest time in produce category management. For one thing, the process is time consuming and labor intensive. Because most retailers have different computer systems, scan data has to be input manually, which can take weeks. "A lot of retailers aren't doing a comprehensive job in produce category management and are relying on outsourcing," says Ballecer. "It is more realistic for them to expect me to do it than them. Ten years ago, [retail employees] just did their job. Now, they do four to five jobs for 2,000 stores. They don't have five minutes to spare. And others understand the process too well and shy away."

Simplifying the category management process can help retailers accomplish their goals. "The process can get bogged down in analysis and papers, and that doesn't get you anywhere," says Ashby. "People get involved in a huge process, and it's hard to take action. Category management can be very simple and doesn't have to be overwhelming. Retailers should just focus on one idea at a time and try and see if it has any opportunities."

Some observers note that the reliance on technology needed for category management doesn't come easily in the produce business, which has long been characterized by its personal, handshake-deal relationships, not by its use of cutting-edge technology. "Relationships will remain important because produce's fundamental raw ingredients are agriculture. There is a blending of relationships and data," says Celani.

Most in the produce industry embrace such blending. "Retailers can't run produce just by the numbers," says Silbermann. "I'm not some old fogey technophobe who doesn't like computers--I'm a tech junkie. Smart operators understand there needs to be technology and analysis, as well as an understanding of the mentality of shoppers and the impact of display arts. For example, there's not much one can do with Campbell soup cans on the shelf, but there are 50 ways to arrange a produce display in terms of variety, size and color."

In today's produce department, it's a safe bet that such displays won't be based purely on aesthetics. "We see category management as a process that utilizes the information and data available, whatever that might be, to develop category plans and strategies," says Farniok. "The plans that we can develop today utilizing the information available from our partners, retailers and internal data resources. will be better than the reactive 'gut' feel approach that has been extensively used in the past."

Consumer input also should be included in the equation. "An analytical approach is valid, but I believe in hard and soft science," says Linda McCashion, vice president, marketing, National Potato Promotion Board. "Retailers need to talk to people because they don't always know what's behind the numbers. They can't use :one size-fits-all as a tool because there are demographic, neighborhood and regional differences."

Some industry experts point out that the effects of category management may be largely invisible to consumers. "Asking customers about category management is almost like asking them about HMR [home meal replacement]," says George. "They're not seeing its effects, or they might be noticing a disappearance of many local and regional brands. I hope retailers focus more on the front door and ease up on supply-side issues. Retailers should be trained to sell produce and solve customer problems before they put a dime into produce category management."

Technology developments under way promise a dynamic future for category management in the produce business. To facilitate the scanning process of PLU codes, Fresh Pak LLC, Pasco, Wash., recently developed PLU stickers that are able to resist cooking temperatures and peel off afterwards. Some industry experts expect to see edible PLU stickers and the use of frequent shopper card data as part of the category management process in the future.

Other observers point out that the industry still has some distance to go before realizing the full potential of category management in produce. "Category management has a long, long future ahead," says Boyer. "It may change its name or get more advanced, but it will have to increase to keep customers in the stores or else stores will be put out of business. Category management has come a long way in produce. If it was a 100 mile journey, the industry has maybe gone 10 or 15 miles, with some having gone 50 miles, and a handful even further."

But at the end of the journey, the benefits will be clear. "The analysis done will create a leaner, meaner and faster store specific," says Ball.
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Author:Ladage, Megan
Publication:Grocery Headquarters
Article Type:Brief Article
Geographic Code:1USA
Date:Jan 1, 2000
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