Our piece, Pundit’s Pulse Of the Industry — Willard Bishop Consulting’s Bill Bishop included this quote from Bill Bishop:
“…for some period of time AC Nielsen was out in front by itself in category management including perishables. Now, there is a strong initiative on the part of IRI to win a piece of that business.”
We wanted to learn more about IRI’s interest in this field and thoughts on category management and retailing, so we asked Pundit Investigator and Special Projects Editor Mira Slott to speak with Thom Blischok, President, Retail Solutions North America & Strategic Consulting, Information Resources, Inc. (IRI), to find out more:
 |
Thom Blischok President, Retail Solutions North America & Strategic Consulting Information Resources, Inc. (IRI) |
Q: Has there been a turning point in category management strategy and direction? Is retail competition fueling the science?
A: For background, it’s fair to say for probably the past 50 years, retailers and grocers have used various forms of technology heavily focused on the center-store to analyze what sells and what doesn’t. There is good science around useful local assortment and findings that 20 to 25 percent of merchandise could come out and not disappoint customers.
Q: Is the current retail environment infusing new life in category management?
A: In the past few years, there has been a focus on key strategic differentiators in retailing; one is clearly perishables, another private label, another pharmacy, and the fourth is organic. People are looking for unique ways to differentiate. Category management is a catalyst.
In perishables, there has been an explosion and redirection of thinking. Although fresh is critical, the concept of assortment and localization is more critical as retailers for the first time jump outside the conventional ideas behind the shopping trip. There’s the “shop interrupt”. I walk into the store midweek for a quick trip to pick up bread, milk, eggs, a basic stock adjustment, and all of a sudden the freshest looking perishable display catches my eye; defining, innovative merchandising that instantaneously appeals to the consumer and changes the dynamics of the trip.
Aisle displays are prolific. Consumers are bombarded by an average of 75 to 100-plus in-aisle displays a week. People have become numb when they walk into a cacophony of produce displays. The use of displays can have tremendous payoff if you get that right. All of a sudden, you begin to appeal to the different senses and desires; healthy, exotic, family-stable, convenient, comfortable, self-indulgent. That’s when a consumer will pay $3.50 for a Chinese pear apple.
Q: How is IRI partnering with retailers like A&P?
A: Leading-edge retailers today are using information technology to manage perishables in new ways, tracking and analyzing POS data to better understand the customer and store market segment, to begin to get a stronger picture of the landscape, of what’s important in market penetration, store trends, cluster performance. We provide a detailed analysis of how and what we track, and we try to help the retailer understand not only the value of packaged, but non-packaged produce in the stores.
It should be used to drive strategy and assortment based on what’s important to the customer.
Whole Foods has driven its entire strategy around wholesome freshness; Trader Joe’s on freshness and uniqueness.
Q: Do you see more venues using category management to bolster perishables strategies?
A: Very clearly in the next three to five years, more grocers are looking to reinvent the perishable category. In the next five years, you’ll see the trend spill over to unconventional venues. We expect to see pretty strong representation of perishables in convenience stores and drug stores for very small market baskets. We’ve validated that with consumer panel data. You will see a continuation of the trend in alternative channels to introduce coolers and freezers for perishable foods.
Q: In my discussions with dollar stores, integrating produce has been a slower process than anticipated due to the complex nature of the business. What have you found?
A: Dollar stores would love to move to the perishable world, but the segment has an uphill climb. You really have to understand how a store gets fixtured and specifically what types of products the fixtures and the store can handle. I’m not convinced the dollar store framework has the propensity to become a force in this area.
Q: Is customer-centric thinking really new?
A: Every retailer is working on the concept of the relevant customer. Everyone essentially is struggling to understand the consumer who shops in their stores, what sells and what doesn’t sell. Loyalty programs are being created, an entire wave of segmentation and analytics is being created.
Q: What comes of that?
A: Some are deciding to abandon certain customer segments, short-term and long-term. Today, if you take a typical grocery store, the real winners will be those that pick select customers to target by shopping experiences and strategically implementing category management abilities from there. If I believe in the fresh shopper looking for health and wellness and having fresh snack attacks, I’m interested in being the best of the best in fresh snacks so my customer won’t switch to a competitor.
Determining the useful customer is probably the biggest single struggle. How much I spend on each trip as opposed to how much I spend on an item or category. That 59 cents for the five pounds of sugar is interesting, but what’s more important is what the baking customer does during the rest of the shopping trip, and capturing all the necessary items to support that customer.
This is a strategic change in loyalty-card thinking from how much the customer spends to how well I’m supporting my shopper. Choose to create differentiation in three to five shopping experiences, and those shoppers never wander away.
Q: Don’t most consumers vary shopping experiences based on occasion, time of the week, etc.?
A: If you go into market basket data, it can tell you what the compelling shopping experiences inside your store are. There are probably 27 to 30 different ones. It could be weekly stock-ups, snack attacks, pet lovers, nature lovers, all with very structured reasons and interpretations.
You point to the traditional mistake of defining characteristics of a weekly shopper, when in fact they may be here for four or five reasons at different times of the month.
The key is to find three to five dominant ones in the stores and determine how to change merchandise displays based on that information.
Assume all three of us go to the grocery once a month to maintain our homes. If the concept of home maintenance turns out to be one of the reasons, you have to develop your selection so that you are the category authority in home maintenance. That involves a change in the physical displays.
Bloom is one of the first stores in America creating a separate express [grab-and-go near the front of the store] section, a very powerful strategy.
Q: So when you say that 20 to 25 percent of merchandise could be eliminated and not disappoint customers, is that all customers or just the majority?
A: A major initiative is useful assortment. In the average grocery store today, without question 20 to 25 percent of merchandise is not needed. To document this statistically, we took 25 stores including major combo, drug and grocery, looking at 16 million transactions. There was one whole category in convenience food and drink where 72 percent of the stores didn’t sell a single item in 16 weeks. Determining useful assortment by category is painstaking. There is wonderful folklore on what the customer buys and doesn’t buy.
Q: As retailers weed out that 25 percent of merchandise that’s not selling, what will fill the voids?
A: You will see a big shift in product development. Retailers are now trying to move to useful assortment and 25 percent of shelf space is open now. This will drive a whole different level of innovation. Retailers don’t spend enough time in new product innovation.
The largest single marketplace in the next five years won’t be Hispanic. Baby boomers will be the largest single segment of the U.S. market in the next five years, with an additional $46 billion of spending over what they spend today. And it doesn’t matter what products you introduce if they’re on the top shelf and older Boomers can’t reach them. Plannograms are critical to productivity of facings.
Q: With all the technological advances in information gathering, I imagine there is no shortage of data available, but are retailers actually using it, and if so, are they able to sift through it to effective ends?
A: Most retailers have a plethora of IRI data and demographic statistics on consumers, but part of the strategy is packaged insights. How do I use information to determine what items to sort and delete, space layout, pricing, the best communication strategy for my consumer base? It’s not simple.
Q: How does IRI address this complexity?
A: We have to understand what is in their stores, and their market, and then one higher. Consumer panels tell us where they shop; how much of their wallet is spent at A&P, a second retailer and third retailer. If we take the POS data and overlay that with the consumer, we can assess share of stomach in perishables by household. We can also see leakage, and the affects of putting something on promotion.
The world of category management, the way we know it today, is dead. The next generation is designed around customer segments and store clusters. Instead of managing items and categories, it’s applying items and categories to customer segments and store clusters for localization.
Q: What do you mean by localization?
A: Localization goes back to the concept of the fresh fruit cart in New York. The strategy and thought process for 10 years has been to build localized stores. A good way to look at it is that 80 percent of products are common with 20 percent localized based on ethnicity, age grouping, customer segments and shopping experiences.
Retailers are trying to get localization in place. It will be first realized in sister stores or like stores. This is a behavior model. When we talk segmentation, it’s not necessarily traditional, loyalty-based, profit-based. It will be behavior-based.
The next generation of category management looks at how consumers behave versus what they buy and don’t buy.
A&P is at the forefront of segmentation. Food Emporium is a brilliant concept. A&P is attempting to structure business differently with relevant tiers, addressing low-end customers with a budget-conscious store representing trust and value, in the mid-tier and upper-tier focusing on convenience/express service, comfort, self indulgence, and another one for health and wellness. They are trying to bring products and price points serving those strategic behaviors to be better positioned. A&P is attempting to have better stickiness with its customers, and I believe they are achieving that.
Wal-Mart is trying to redefine who they are in a dynamic world, which becomes a bigger issue when you’re talking about a $350 billion company. You can’t be everything to everybody. You need to be the important thing to the people you serve.
Q: What industry changes are set to take place moving forward? Where does produce fit in?
A: For a couple of generations, the 1950’s, 60’s, and 70’s, we’ve seen acquisitions and growth, leading to market saturation; in the 80’s and 90’s, a world of acquisitions and consolidations. The 2000’s are a time to change format, rethink strategies to focus on the consumer. It’s a tougher environment to compete in. The shopper is less loyal and more discerning than he or she has ever been.
The biggest sellers are generic; the touch points are specific, understanding the price points and markets. Some retailers will get out of some categories or portions of categories, and some will get into new ones.
The industry is dynamic and we’ll see further consolidations, format innovation and experimentation, reinvention of categories. The produce category will rise to a different level of healthiness. Look at Hannaford’s healthy star labeling program as an excellent example. Stores are hiring dietitians. A 54-year-old woman whose blood sugar is starting to rise will want display signage and messaging to help her choose what she should buy.
I hire a dietitian because it’s no longer about the physical vegetable; it’s how the product is suited to the consumer’s life. It’s a big shift in thinking. Why will they use the product? It’s about putting relevant product on the shelf. A big transformation is occurring.
Q: How does information regarding produce and perishables more broadly interconnect with category management strategies throughout the store?
A: Perishables always must be viewed as part of the overall strategies and over-arching requirements for the store. There is a mandate that retailers begin to understand the total store. We’re at a different level, perishables are critical to the store, but it is also important to understand their relationship and interaction to the rest of the store. The customer has product choices beyond the produce department and it is crucial to analyze how shopping behaviors influence those choices. A healthy eating person may shop perishables, but also purchase vitamin supplements, maybe look for certain types of red wine in the wine department, and shop both organic fresh herbs and organic dry goods.
Shopping behavior is paramount. Thinking of the store with a category isolationist perspective will give a little growth, but thinking of the linkage of each category to the rest of the store will lead to significant growth.
Thom certainly has his arms around many of the hot buttons in retailing today. We take a few points to be especially valuable:
1) There is good science around useful local assortment and findings that 20 to 25 percent of merchandise could come out and not disappoint customers.
This means that retailers are wasting a lot of space and money, vendors are vulnerable to having product lines discontinued by retailers, and there is a whopping opportunity for innovation.
2) In the last few years, there has been a focus on key strategic differentiators in retailing; one is clearly perishables, another private label, another pharmacy, and the fourth is organic.
So we are in a good area in perishables. Note, however, that a big part of the value equation for retailers in stocking organics is differentiation. As supply bottlenecks are cleared through and organics become ubiquitous, the value for retailers in stocking them may decline.
3) … jump outside the conventional ideas behind the shopping trip. There’s the “shop interrupt”. I walk into the store midweek for a quick trip to pick up bread, milk, eggs, a basic stock adjustment, and all of a sudden the freshest looking perishable display catches my eye; defining, innovative merchandising that instantaneously appeals to the consumer and changes the dynamics of the trip.
Can retailers merchandise their stores to transcend their own limitations? Or, inevitably, does any attempt to do this detract from the core competency of the store. In other words, is that dynamic changing perishable display just in the way of another shopper?
4) Every retailer is working on the concept of the relevant customer. Everyone essentially is struggling to understand the consumer who shops in their stores, what sells and what doesn’t sell. Loyalty programs are being created, an entire wave of segmentation and analytics is being created.
One wonders if Wal-Mart did this before running those ads in Vogue?
5) Today, if you take a typical grocery store, the real winners will be those that pick select customers to target by shopping experiences and strategically implementing category management abilities from there. If I believe in the fresh shopper looking for health and wellness and having fresh snack attacks, I’m interested in being the best of the best in fresh snacks so my customer won’t switch to a competitor.
The question, though, is whether a general mass market format, such as conventional supermarket, won’t inevitably lose all these “select customers” to specialized outlets. So if “fresh snacks” are the thing, maybe Tesco will do it better and more conveniently. If “wholesome freshness” is what is being sought, maybe Whole Foods will open in the neighborhood. Is it reasonable to think a “general store” will be the “best of the best” — doesn’t that sound more likely to be a specialty store?
6) You point to the traditional mistake of defining characteristics of a weekly shopper, when in fact they may be here for four or five reasons at different times of the month.
As Coca-Cola revealed in a report they sponsored a few years ago, many people shop many different venues at different times. So, in many cases, the Whole Foods shopper is not a distinct person. The same person can normally go to a conventional supermarket but whenever she is doing a dinner party, shop at Whole Foods. The key to success is often to understand why people shop a particular store and then orient the store to successfully satisfy this reason the consumer selected the store.
7) Retailers don’t spend enough time in new product innovation.
This has long been a Pundit peeve, very evident in the articles in Pundit sister publication, DELI BUSINESS. In foodservice, operators are used to working with suppliers to develop new items designed to meet their customers’ needs as well as to be able to be cooked and stored in existing facilities. Most retailers, certainly in produce, have no idea what kinds of products their customers would value, and fewer still actually are working to develop these new products. The old retail mentality of sitting and waiting for suppliers to present new products is an enormous obstacle to maximizing sales and profits.
8) The world of category management, the way we know it today, is dead. The next generation is designed around customer segments and store clusters. Instead of managing items and categories, it’s applying items and categories to customer segments and store clusters for localization… This is a behavior model. When we talk segmentation, it’s not necessarily traditional, loyalty-based, profit-based. It will be behavior-based.
This is the mental shift that holds the best hope for refocusing food retailing for greater success. Can we look at the actual behavior of consumers and design stores and create products to work in the context of that behavior?
9) A&P is at the forefront of segmentation. Food Emporium is a brilliant concept. A&P is attempting to structure business differently with relevant tiers, addressing low-end customers with a budget conscious store representing trust and value, in the mid-tier and upper-tier focusing on convenience/express service, comfort, self indulgence, and another one for health and wellness. They are trying to bring products and price points serving those strategic behaviors to be better positioned. A&P is attempting to have better stickiness with its customers and I believe they are achieving that…Wal-Mart is trying to redefine who they are in a dynamic world, which becomes a bigger issue when you’re talking about a $350 billion company. You can’t be everything to everybody. You need to be the important thing to the people you serve.
It has been awhile since anyone had very much good to say about A&P, but in juxtaposing it with Wal-Mart, the issue is clear. Just as HEB created Central Market and A&P acquired Food Emporium, it seems likely that segmentation of store concept is more likely to be a success than trying to attract upscale purchases at the regular Wal-Mart.
10) The produce category will rise to a different level of healthiness. Look at Hannaford’s healthy star labeling program as an excellent example. Stores are hiring dietitians. A 54-year-old woman whose blood sugar is starting to rise will want display signage and messaging to help her choose what she should buy.
I hire a dietitian because it’s no longer about the physical vegetable; it’s how the product is suited to the consumer’s life. It’s a big shift in thinking. Why will they use the product? It’s about putting relevant product on the shelf. A big transformation is occurring.
We’re not sure about this example. Telling pre-diabetics what to do sounds like a recipe for a lawsuit. But the point that we need to think not about the product itself so much as what the benefit is that the consumer will derive from the product is to the point. Of course, selling benefits, not features, is Sales Training 101.
11) Perishables always must be viewed as part of the overall strategies and over-arching requirements for the store… Thinking of the store with a category isolationist perspective will give a little growth, but thinking of the linkage of each category to the rest of the store will lead to significant growth.
The very structure of our business into departments is problematic. We now know that your sales of fresh lemon can be tied to the freshness of the store’s fish. The sales of specialty cheese may depend on the wine selection, and only by attracting the wine and cheese customer can some specialty produce items move.
Success depends on understanding these interrelationships well enough to offer a compelling product to attract and retain the shopping behavior that is the opportunity for a given store.
Many thanks to Thom Blischock and IRI for sharing their insights with the trade.
