MERCHANDISING

When it comes to category management, Supervalu is still in the evolutionary process and a little behind where it had hoped to be at this point. "The goal had been to have category management in place throughout the company in 18 months; it has taken longer," says Leland Dake, vice president of merchandising.

The primary reason the goal was not met is that Supervalu wanted category management to be done right. As a result, even when the process was in the test stage in Denver in the mid-'90s, it was done slowly and carefully. That deliberative approach was continued in the roll out. "We are different than some of our competitors in that we have been slow and methodical in our roll out. We wanted to make sure that it worked," Dake says.

Dake's title is somewhat of a misnomer since under Supervalu's Advantage program, merchandising is part of category management. For Supervalu, such areas as products, SKU selection, pricing recommendations, promotions and strategies for retailers come under the category management umbrella.

Historically, says Dake, there have been four Ps of marketing—product, price, placement and promotion. They all apply to category management, and to them Supervalu has added a fifth P, procurement. "The goals of category management are improving retail sales, retail profits and retail marketing," adds Dake.

"Category management is a gradual process, varying from region to region," Dake notes. He likens the process to attending college. "The freshman year you take category management 101, the second year 201, followed by 301. All regions have gone through category management 101, which focuses on the five Ps. Other regions have taken the 201 course, which involves integrating the strategic process." Some regions are taking the 301 course, in which the integration process includes demographic information and strategic pricing.

"I don't know what the 401 course will be, but there will be one," he says. Supervalu also has begun teaching perishables category management 101. "We feel pretty good about that," Dake adds. "Overall from a wholesaler perspective, we have pioneered category management. And we are ahead of the game in perishables. But we still have a long way to go in both."

In the most advanced regions, the process encompasses 130 categories in grocery, dairy and frozen food. In some, general merchandise and health and beauty care are included. "We have not seen if there is anything applicable in category management for prepared foods," he says. "It depends on the definition of prepared foods. And there are different levels. For example, in heat and reheat, some product is UPC and some is not. We have to see which of the Ps fit in there."

Each department and each category must be considered individually when strategy is concerned. What is the retailer's strategy in regard to merchandising? Dake asks. "Is it to generate sales, to generate profits or to compete with retailers?" These questions must be answered.

The category management process is reaping benefits, including SKU reductions resulting in freeing space, which gives shoppers a better view and adds to category sales. Retail margin has improved. At the same time, the company has learned quite a bit in the process, particularly in the Denver test.

"The biggest lesson was that initially, while we spent a lot of time on templates and internal education, we didn't spend the same quality time ascertaining how it worked at retail. Most specifically: shelf integrity," Dake says.

"When a planogram is created and implemented at the store level, how do you make sure that after 12 weeks the shelf will still resemble the planogram?" he asks. The problem throughout the industry, according to Dake, is that about eight weeks after a reset, compliance with a reset is only about 65%.

"One reason is that manufacturers and brokers continue to compensate their salesmen based on distribution of SKUs and placement on the shelf, not on category management principles," he says. "That has been our biggest issue—the biggest unknown. But in the last 15 months we have invested a lot of time and energy in developing a process that could increase shelf compliance after eight weeks from 65% to more than 90%."

Supervalu is doing this in two ways. One has been an extensive retail-training program through the company's Supervalu University. The second is moving to the home-store concept, which Dake says is fairly new in the industry.

"Traditionally, when you are going to do a reset you call all manufacturers and give them the planogram. They get 30 people in the stores, but that means a lot of time spent driving from store to store. To avoid that, we are assigning stores to suppliers based on their share of Supervalu's business. For example, if Pillsbury does 15% of our business, they do 15% of the stores."

This means that in a particular store, a broker or supplier representative will supervise the reset for all categories involved, not just his or her own products. "This cuts down on windshield time, since they spend all day in one store," Dake says. "Besides, if the shelves in a store don't look like the planogram, Supervalu knows who to go to. The home-store concept has been started in one region and compliance has been more than 90%. We think we might have the answer." As new items are introduced, salesmen are responsible for cutting them in to their store. In the region, the home-store concept is being done in the grocery, frozens, dairy, GM and HBC departments.

When the Advantage program was launched, Supervalu began organizing its promotional programs around clusters, or groups of similar stores within each of its marketing regions. When he discussed this concept three years ago, Jeff Noddle, executive vice president of Supervalu and president and COO of its wholesale food companies, used the Midwest region as an example. The EDLP Cub stores constitute one cluster. High-end companies such as Dierbergs, in St. Louis, go to market differently. There is an IGA group in the region that is high-low, while stores such as those operated by Niemann Foods, Quincy, Ill., use their own or different names and tend to be price driven.

Now, says Dake, the company is also going to demographic clusters in a few regions. "This is new for wholesalers, and we are still basically taking a 101 course on this," he says. "With 201, which is the next step, those Supervalu personnel and retailers who already have the basics down are moving to clustering by consumers or demographics." This could mean fine-tuning the process by crossing the boundaries of store format and concentrating on the consumer. "For example," Dake says, "if a price-oriented Cub is in a more affluent neighborhood, it could be in a cluster with another retailer that has more of a high-end approach. This would include what SKUs are carried. We are just starting on this and it's too early to give any results, but we think it is the right course to take."

Marketing plans are designed jointly by a group that includes both headquarters and regional officials encompassing category management, advertising, marketing and sales, he says. This means both weekly ads and one-, two- or three-year marketing plans for each retailer in the region.

Dake stresses that the retailer must be paramount in all activities if the Advantage program is to succeed. "We are really focused on driving retailers' sales and profitability," he says. "We want to make all our retailers the best in the country. If they are successful, they will remodel and upgrade their stores, build more stores and buy more products from us. They will become more efficient and we will too. Supervalu will win in the end by focusing on retailers. The fact that the company has been outpacing the rest of the wholesaling industry shows that we are doing this. We think we're on the right track."