Category management can improve overall sales and profit performance. Like most principles of category management, quite a bit depends on the particular retailer’s market position and roles of each individual category.
By John Zikias
While the practice of category management has been discussed by many retailers and implemented at thousands of stores in the convenience store industry over the past several decades, many still struggle with implementing this principle properly.
Category management when executed properly always focuses on the needs and wants of the consumer. This focus ensures that retailers have the current and new products that consumers are looking for when visiting retail locations.
While this approach appears straightforward, I continue to be asked questions about rebate funds, new item inclusion, category captains and how to best delete slow selling SKUs. While each of these areas is up to each individual retailer, there are guidelines to follow to help ensure that category management is properly implemented in your retail chain.
First, at the core category management is an analysis of SKUs in a subcategory or category. This can be viewed in several ways depending on the role of the category. For example, if your category has a role of profit generator, then you may review data showing profitability; however, if the role is sales driver, then you may focus on retail and unit sales.
While it’s important to look at your data, be sure to work with a supplier to assist in providing market data. Your top 10 items may be different from the market and provide insight to opportunities. Also keep in mind when working with a supplier that they provide market and competitive data that’s reliable.
The supplier should provide factual information and an objective point of view when identifying items to delete and add. Forget names such as category captain and instead just work with a supplier that helps best manage and analyze your data.
Another area to review is rebate funding. While rebates are an important part of the gross profit equation, keep in mind that they are “just a part,” not the sole reason for stocking a particular item.
CHECK UP FRONT
This becomes difficult to review with one’s manager. It is always “safer” in some folks’ minds to accept a “big” check up front and book this to profits. When this happens rarely are the lost sales from having the wrong assortment ever discussed. In addition, many retailers fail to break down the rebate to the SKU level and then determine the additional items sales needed to exceed this rebate. In many cases I have found this to be just a few items a week.
Don’t get me wrong, rebates are important. However, get the assortment right first and then work on the rebate program. You may still end up making one or two product decisions in a large category such as beverages or candy to get the best overall cost of goods, but this should be the exception versus the rule. Like most principles of category management, quite a bit depends on the particular retailer’s market position and roles of each individual category.
New items are another area to drive performance. This is where retailers need to blend art and science. Use past product launches as a guide to predict new item performance from a particular supplier. In addition, don’t wait until most other retailers have added the item for you to add to your assortment.
Doing so you will have missed out on all the introductory allowances and promotion. If you find after a few months that a new item isn’t selling, look at options from changing the position to liquidation. No one ever made a profit watching an item fail to sell on his or her store shelves.
Category management can improve overall sales and profit performance by taking a fact-based, strategic approach to managing assortment and promotions.
John Zikias is president of JAZ Enterprises and has more than 35 years of experience in the convenience store industry implementing category management, marketing principles, supply chain and reviewing organizational effectiveness. He can be reached at [email protected], or on (602) 315-9139.