At the United Fresh show in Chicago, we were intrigued by a panel moderated by Steve Lutz of the Perishables Group that was focused on how consumers perceive organics sold in conventional grocery stores. You can read the piece we wrote about the workshop here.
We thought it would be worthwhile to learn more about the kind of work the Perishables Group is doing. It has long been a leader in category management in the fresh foods arena, benefiting significantly from an alliance with AC Nielsen.
Category management is often thought of as a “big company” exercise, so we were intrigued when we learned that the Perishables Group was working with Lunds and Byerly’s.
We asked Pundit Investigator and Special Projects Editor Mira Slott to learn more:
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Bruce Axtman President and CEO The Perishables Group Chicago, Illinois
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Q: Could you tell us more about your new category management program with Lunds and Byerly’s?
A: Our primary contact is with Rick Steigerwald, director of produce operations at Lund Food Holdings, and former corporate category manager produce/floral at Supervalu.
I’ve known and worked with Rick for awhile. He’s familiar with the work and benefits that can be gained in the perishables departments through the category development process because of projects we did together when he was at Supervalu. Rick was also involved with category development in produce at Super Target, which uses Supervalu as its supplier. This connection with Rick makes it easier to facilitate and implement a strong perishables category management program at Lunds and Byerly’s. Management commitment is key to a successful program.
Q: Lunds operates at quite a different scale than some of the chains you’ve worked with in the past. How does this impact the process?
A: It’s a nice fit for us. Although Lunds is not a large chain, it is very successful. It operates upscale stores that do large volumes in perishables. This is a great place for us to expand the depth and breadth of who we work for.
Q: What are the key benefits you offer through your new information sharing agreement and subsequent perishables category management program?
A: One of the main factors is that Lunds and Byerly’s, like most retailers, haven’t had access to this information. What they do have is access to their own internal data, and they’ve worked directly with their own suppliers to do category management with individual categories. They have been limited to their own data and vendors. It is not that efficient to go category by category on a vendor by vendor basis. Different information is received from each participant, which makes it challenging to do direct comparisons and conduct meaningful analyses.
Q: So you’re able to help Rick Steigerwald and his team get a more accurate picture of how their produce department performs on both its own terms and in comparison to other chains?
A: One critical component of our program is standardizing competitive market data with the store set.We get all the data through Lunds and Byerly’s and AC Nielsen. We do the data production, category management coding work and make it available to Rick and his team on a monthly basis. They decide what companies and categories they want to include in the process. This program is evolutionary. We will start with ten key categories in produce. Lunds provides the major vendors in each category as partners. Some of the major suppliers are stepping up and doing work on their own, analyzing where their current and future products fit.
We will do additional produce categories over time and eventually expand to other perishable categories, providing new insights into category performance across departments, but we are beginning with produce.
The most obvious piece is standardizing the process, and including competitive data. That is the fundamental difference from what the chain is doing currently. We bring experience and expertise to help customize and internalize the process. Here are the core reports and the score cards. How Rick and his team evaluate that information to improve their business is up to them.
We provide the web-based portal for every partner to access in a seamless manner. Data score cards come available through the portal, and can be pulled out for appropriate information. We also share our recommendations.
Q: What does one do with all these score cards to improve performance?
A: It can range from fine tuning assortment, changing price strategies, testing new ideas, re-segmenting categories, bringing in new products. Results vary, but consistently show that the interactive process stimulates increased sales and profits. We’ve seen tremendous category performance results, often in excess of 10- to 15-percent improvements, and in some cases significantly higher than that. We have lots of examples.
The store may be missing some key items, or the promotion is much higher or lower than it should be, or is just not the right product to promote. There are common fundamentals that tend to come out of the process.
Q: When and how will you broaden analysis to the inter dynamics between and across categories and/or departments?
A: Further down the road, more sophisticated analyses can be undertaken that address merchandising space allocation and product segmentation. Information pertinent to consumers is another area that tends to get short-changed.
Here’s our share of produce, our percentage of apple sales. Are we promoting more or less than our competitors? Do we sell more, do they carry more SKUs or less? The process builds over time. First we have to get our arms around individual categories and how they are trending, over-performing or under-performing compared to the market.
After establishing a foundation, we can use more complex category management applications; expand horizons across categories, understanding the impact of promoting one fruit and how that affects another fruit category. This provides the opportunity of doing group or family ads, salad products in conjunction with tomatoes and carrots. Does that get the consumer to buy head lettuce, etc. Frankly it takes time to get to that level. I don’t want to overstate the scope of the program at this point.
price elasticity modeling with data points are used to asses the impact of price on volume sales. We are able to measure the impact of price changes on performance, assortment analysis, and activity-based costing to look at all activities’ costs related to handling products through the retail system, including shipping, stocking and shrink, to understand true profitability. At the end of the day, what’s the real profit? How does this vary with shelf space, five-pound bags versus three-pound bags? Once we get a base of knowledge, this opens opportunity for new levels of more sophisticated work to bring into the process.
We can’t turn the switch and be at full speed over night; the first few months we must focus on getting up and running; validate data, performance bench marking is the first phase.
Q: You mention the possibility of taking a more consumer-centric approach in applying category management techniques. Could you explain what you mean?
A: As we develop the program over time, we want to be more inclusive of data that sheds light on consumer segments and shopping behaviors, maybe through retail kiosk coupons or loyalty cards. Our program can evolve and take shape and be more inclusive, looking at an overall goal of maximizing performance of produce and perishables in general.
We also look for direct input from consumer lifestyle Spectra data. We are able to evaluate categories based on consumer clusters. It is not only how the category compares to competitors in a market, but to understand how it should perform by consumer segment and how it uniquely applies to each of the stores in the chain, and to spot the adjustments that need to be made based on that shopper.
By analyzing Spectra behavior grids, we can identify opportunity gaps based on consumer clustering. The problem could be that we’re doing a lousy job with the bargain consumer or the foodie-type consumer as it applies to these six stores underperforming in tomatoes.
Q: Do you find such variations with a smaller more specialized chain?
A: Lunds and Byerly’s are not homogeneous. You still find a different consumer mix in each of their stores. Consumer product interest is not the same. Categories like tomatoes or mushrooms could vary a lot. We must always strive to get consumer insights, wants and needs. We may be missing opportunity in a market or it’s not taken at all. These are reasonable things we’d shoot for over time.
Q: How many retailers release data to AC Nielsen for your use?
A: Our data comes primarily from supermarkets, but we also have retailers like Fred Myers, Meijer’s, and Biggs, classified as mass merchandisers or hypermarkets. Still we aren’t getting information from Wal-Mart or Costco. It’s not everybody. But our data generally represents a large percentage of the competitive retail environment. We are also able to bring in consumer insights. AC Nielsen operates consumer panels tracking purchases across any place they shop. From that data we can show how different shopping Wal-Mart is versus our client’s market. Another resource to bring in to play, and the advantage of our partnership with AC Nielsen, is household panel data. AC Nielsen’s advanced analytics groups help with some of our more sophisticated models.
Q: I’ve heard that Wal-Mart has agreed to release some data to AC Nielsen. Does this relate to what you’re doing?
A: To some degree, we have greater access of data coming out of Wal-Mart that over time we’ll be able to incorporate into our products. This will play out over time, but I don’t know how much will be available and how much of it will be related to fresh produce and perishables.
Q: How important is category management to gaining a competitive edge?
A: Category management is a sound process, but like anything else, the proof is in pudding; how effectively do we execute the process, what tools, who’s involved, do we have good consumer insights?
Category management becomes more and more important as we get more variations from the consumer side, which is less homogenous than ever, and as competition intensifies, with channel development, and all kinds of alternatives to the typical grocery store.
Consumer insights become more and more important. We can’t look at just what we did and the actions of our direct competitors. We need to go beyond what’s currently being done, expand our view of the world through direct consumer research, through the web and in store, as well as traditional methodologies such as focus groups. We’re always looking at new ways to gain insight into why the consumer is shopping at this time, in this place. Is it price, quality, convenience, what’s the issue? This is very critical information to understand.
We recently did a fairly large organic study of how consumers are shopping in conventional channels versus Whole Foods. Consumers are willing to buy organics at mainstream supermarkets but there are barriers based on how they feel about conventional stores.
Q: Didn’t Rick Steigerwald participate in a United workshop related to this study that Steve Lutz moderated?
A: Rick was part of that panel on organics at the United workshop. Lunds and Byerly’s is an exciting chain for us to work with. It is upscale and innovative; the stores are beautiful and generate a lot of volume. Rick is quick to understand and capitalize on new things, identify opportunity and figure out how to create value. That’s a great environment for us to work in. Some retailers are hard. They may have engrained ways of doing things or cumbersome bureaucracies, and it’s difficult to get approval for implementation of new concepts. We know that by working with Lunds and Byerly’s there won’t be those obstacles. When the feelings are very positive, the program tends to work very well.
Like most things in life, category management can be done well or poorly; the process can be managed by insightful people or by slaves to computer-generated data. So, in and of itself, category management as a process is no panacea.
Yet, consistently, retailers that are serious about category management do better than those that are not. Not because the data is perfect or makes obvious what decisions should be made — it does not.
Chain retailers who are serious about category management do better because there is no alternative. If you don’t do category management, what can you do? Once in a while a single gifted merchandiser can run a department or store based on merchandising flair, personal experience, instinct and knowledge of his customers and, frankly, we don’t have the data and the programs that can beat that gifted impresario of produce.
Once you look to scale anything, though, if you don’t use data, you use superstition and that just won’t maximize success.
Besides, that a company like Lunds and Byerly’s elects to engage in the process is itself a strong harbinger of success. It means they are sitting down every day trying to do better.
An awful lot of retailers want to get better, but they don’t examine their business with the rigor and critical eye necessary to make it happen. Rick Steigerwald and the top executives at Lunds and Byerly’s deserve a lot of credit.
Many thanks to Bruce Axtman of the Perishables Group for letting us in on this intriguing project.
