February, 1994

Fruits of Thought

The Produce Category

Category management is the latest craze to sweep the produce department. Its proponents claim the approach will do everything from increasing retailers’ profits and sales to reducing costs and motivating personnel. Time may well prove them to be correct.

At the same time, the question of whether category management will ever really be implemented on a wide scale is very much an open one. After all, DPP (direct product profit) methodology is barely used in produce despite years of evangelizing by consultants.

DPP has fallen by the wayside for two basic reasons: first, it is too difficult to gather accurate information as to what the direct product cost is, and second, even after the DPP is produced, retailers aren’t sure what to do with that information.

The data is difficult to obtain because you have to conduct extensive time studies, and to be accurate, you really have to do them at different times of the year, taking into account different carton sizes, product conditions, etc. It is also important to study enough people to gather a representative sample of how long it takes an average employee to, say, get a box of lettuce trimmed, wrapped and in the case.

But the even bigger problem is what to do with the information once you have it. A number of years ago, a DPP study found that sweet corn has a terrible DPP. The chain looked at this information and decided to do nothing. It continued to sell and promote sweet corn as usual, because it was part of the appeal of the overall department and the overall store.

The very fact that we don’t just sell sweet corn to make profits on sweet corn, but that we sell sweet corn to attract consumers to our stores, may be what limits the utility of category management in the produce department.

I think the industry should give a great round of thanks to the Washington Apple Commission, for working closely with retailers to utilize category management. There is no question that any commodity promotion group loses effectiveness if it is perceived as solely looking to push retailers to sell the group’s commodity without regard for the retailer’s best interest.

The Washington Apple Commission, confident it has a good product to promote, is going to retailers and saying it is going to help them make more money on apples, even if maximizing profitability means urging a display of New York state McIntosh apples. This forward-thinking attitude will most certainly rebound to the benefit of both retailers and the Washington apple growers and shippers.

If anything, we need to expand this way of thinking. After all, many of the toughest and most significant decisions are not within narrowly defined categories, such as apples, salad vegetables, etc. The decisions that are most significant are often made by looking at the produce department as a whole, as a complete category.

The question of allocating space between Granny Smith and Golden Delicious apples may be significant, but it pales beside the question of how much space should be allocated to apples versus bananas. It may well be that we should all implement category management but with the emphasis on far broader categories.

If you are going to emphasize category management, the core of the process is really creating the categories and then putting someone in charge of the categories, usually a category manager. But many produce retailers trying these things are failing in this area. They don’t provide the kind of extensive training that is often required to transform a buyer or a merchandiser into a category manager. For that matter, it is not clear that everyone wants this job. After all, some buyers are proud to be good buyers and that’s the job they applied for and would like to keep.

Doing the research on category management isn’t easy either, and if category management really takes off, suppliers will be expected to do much more. The only way a category manger can do a good job is if they have data to utilize in making decisions about what to carry, when to carry an item, how to price it, how to display it, etc. The variables are many and the research to answer these questions will be providing a service that really adds value to their marketing efforts.

In the end, category management may well be a useful tool, but it is not likely to be a divinity before which the whole industry bows and prays. For what if the category management study shows that, in fact, it can never increase your profit to sell a given variety of apples? Do you drop it knowing that some consumers will start shopping at your less-sophisticated competitor? Obviously not. Because your goal isn’t to make money on a variety of apples, or on apples generally, or even really on produce generally — it is to make money on the whole store.

Today Wal-Mart and Kmart are building supercenters in which they combine their giant discount stores with full supermarkets. They do this because they recognize the value of attracting regular food shoppers to large stores where consumers can then buy other items.

The produce department is the key to food stores because of its colors, its scents, and natural appeal. We should use science where appropriate to run our operations better, but we should never forget that produce is the key to the impression consumers have of our store. And, of course, you never get a second chance to make a first impression.  pb