September/October, 2000

From the Editor

More Than Numbers

We are in the midst of the biggest boom in specialty foods in human history. How could it be otherwise? Unprecedented affluence, higher levels of education, more frequent travel, and a gathering of immigrants from around the world combine to boost demand, while highly sophisticated manufacturing techniques, innovative packaging technology, low tariffs and advanced transportation capabilities add up to increased supply.

Yet in the midst of this boom, there is trouble afoot, and it goes by the name of category management. In and of itself, category management sounds quite unobjectionable, indeed beguiling: Simply study each category – such as salad dressings or cookies – and adjust the product mix so as to maximize sales of the category.

In its purest form, it serves a purpose. Chocolate chip cookies may be so much more popular than other types of cookies that in a cookie department with room to display ten brands, all the top ten selling cookies could be chocolate chip. Under these circumstances, a category management approach might find that, although these are the ten best selling brands, they are sufficiently similar that 90% of the buyers of the bottom five chocolate chip cookies would buy the other brands. On the other hand, by replacing those bottom five sellers with an assortment of vanilla crèmes, peanut butter cookies and others, the total category sales will rise.

That’s the theory. In practice, category managers all across the country are targeting specialty foods because the movement reports their computers churn out characterize these particular items as slow sellers.

This is a mistake because the value of any individual item to a store simply can’t be measured by its contribution to its category. The contribution of an item, any item in a supermarket, is a combination of its own direct contribution to sales and profits as well as the value added by the additional customers, additional shopping visits or additional purchases that occur because the store stocks that item.

This has long been recognized by retailers when it comes to the perimeter of the store – fresh produce, baked goods, service deli, prepared foods, the floral shop, etc. These have all been seen as opportunities for retailers to differentiate themselves and are thus worthy of extra investment.

Many a produce department has been stocked with loads of specialty items that are often as much décor as an item for sale. Equally, many a bakery is told to bake away so the store can have pleasant scents wafting through the aisles, even if the bread bin is quite full.

The center of the store, though, has often been assumed to be a swath of parity products. This is a fair enough assumption. After all, how can one store really differentiate its Hellmann’s Mayonnaise or Heinz Ketchup from other stores except on price?

But the boom in specialty foods has rendered obsolete this old vision of the center of the store as hopeless. It turns out that the way to turn the center of the store into a supermarket’s edge is with assortment, specifically an assortment of specialty foods.

The consumer who buys specialty food isn’t just some customer; he or she is the store’s best customer. It is the specialty-food consumer that buys the most and buys the most profitable items in a store.

Good merchandisers have long known this and suppliers have long said this but, up to now, proof has been scarce. However, the National Association for the Specialty Food Trade (NASFT) and Liberty Richter, a major specialty food distributor, joined forces to fund and promote some unprecedented research.

Though the research is not unprecedented in its findings and reconfirms what smart people in the trade have been saying for years, the research is unprecedented in its scope and sophistication. It gives manufacturers something to hand to any category manager thinking of dumping a low-volume product and to any buyer hesitant to take on another upscale line.

The question, though, is whether supermarkets are listening. Because what this piece of research does is call into question the underlying logic of the kind of category management that is done at retail today. In the hands of manufacturers, this will be a great defensive tool, but in the hands of retailers, if taken to heart, this research could be the start of a new, more profitable way of looking at product mix and customer value.  FDM