June, 1998

From the Editor

On Category Management And Specialty Foods

Shakespeare urged us to first kill all the lawyers. For the specialty food industry, it may be category management that poses the more immediate threat. Much ink has been spilled singing the praises of category management. The consultants have sold it as a panacea, certain to increase sales and profits while also better serving the consumer. And, indeed, although many a new theory disappears from the scene as quickly as it appears, category management has been one innovation that seems set to leave real marks on the food industry. With both supermarkets and manufacturers, people are increasingly finding themselves with business cards that read “category manager” or some such title.

Of course, in many cases this is just semantics. The people who have been declared category managers are in many cases not given any special training. More often than not, these newly named category managers have neither the ability nor the inclination to fulfill the newly created role. These people want to be what they trained to be: buyers or merchandisers.

Of course in many cases the implementation of category management is dubious. Manufacturers all over the country are paying big dollars to be selected “Category Captain,” which in many cases actually gives them the power to plan-o-gram whole sections of the store. Well, one doesn’t have to be the sharpest crayon in the box to realize that manufacturers don’t fork over big bucks to objectively apply results of dispassionate data processing.

These Category Captains pay up because they get to favor their own products over competitive offers – regardless of what an independent analysis of the data might reveal. If a supermarket is taking dollars to let manufacturers run the department, one knows the supermarket couldn’t care less about category management and just uses the term as subterfuge to get more dollars out of manufacturers.

Yet if poor implementation is an important drawback for category management, the specialty food industry is bound to suffer from the very concept. Category management always sounds like motherhood and apple pie – something one can’t possibly be against.

How should it work? Very simple, say its proponents: retailers and their suppliers get together and share information. Both groups cooperate to reach consumers in a more effective manner.

In fact, within the blinders a category manager has to operate from, category management is brilliant. Instead of looking at individual products, a good category manager is going to look at the totality of what a retailer is doing with a whole category of products.

It sounds so good. The problem, however, is that while the category managers are maximizing sales and profits for their own little category, nobody is managing the overall shopping experience.

This is, of course, a recipe for disaster. For a supermarket, the purpose of featuring a really fine extra virgin olive oil or balsamic vinegar rarely has much to do with maximizing the sales and profits of any particular category. It is there to boost the sales and profits of the entire store.

Specialty food items do this in several ways that go beyond whatever sales or profits they may generate in and of themselves: First, the consumer who purchases specialty food items is a high-dollar, high-margin purchasing consumer. All customers are not created equal. Even two customers who spend the same amount in the store can contribute very differently to the store’s profitability. The customer who buys high end specialty food is a profit producer. This customer buys the prepared foods, fine fish, specialty produce and the high-margin grocery items. A customer loading up on the special of the week may well be a profit drain even if the total ring is high.

Second, specialty foods are one of the few ways to distinguish one store from another in the eyes of the consumer. Sometimes it is a specific product – “ABC Market carries that brand of marinade the kids really like” – and sometimes it is just a general appearance – “They always have so many interesting things.” In either case specialty food displays create a reason for a shopper to select one store over another.

All this is incontestably true. The problem, however, is that if you are a category manager, it is also irrelevant. Category managers may well be paid based on the performance of their category. Almost by definition, though, a category manager has neither the authority nor the incentive to look beyond the range of his category. Will carrying wonderful supplies of olive oils and vinegars encourage the sales of Romaine lettuce and bleu cheese for crumbling over the salad? The category manager in charge of olive oil probably doesn’t know and certainly isn’t paid to care. What category management inevitably leads to is a glorification of the old 80/20 rule.

This is the old bromide that 80% of your sales will come from 20% of the products – a rule said to be true at all times and in all situations. Indeed it is often true and it leads category managers to constantly winnow out variety in order to devote more of the space to the best sellers.

One obvious critique is that this is not going to help supermarkets compete against the myriad of competitors, such as supercenters, warehouse clubs, internet shopping, etc. What will help supermarkets compete? That’s easy; three things: Expanded variety, which means everyone can find wanted products at the store. In-depth variety, so those consumers who want or need special types of food, such as kosher or organic, can find more than a token offering. Finally a bit of life and fun and glamour that makes shopping not a boring chore but a celebration of the richness of taste and textures that food can offer.

The only way to get this is via specialty food, and the only way to get the specialty food offerings increased is to have supermarkets push aside category managers and emphasize the total store shopping experience.  FDM