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Category Management Post Covid: Do You Really Know What Drives Your Business?

In the last blog I discussed the Triple Bottom Line of “People, Planet and Profits.” That is the new yardstick that many consumers, especially younger ones, use when they judge whether your business is one they will support. This new generation of social media savvy consumers will make the world a better place by forcing us to make better business decisions. In other words, we need to worry about more things that just money.

If we give people what they want, when the want it, how they want it and where they want it, we will be rewarded with loyal customers, sales and profits. Category management techniques help answer the what and where questions. Category management initially started with grocery stores in the early 1990s as a way to maximize the “real estate” in grocery stores based on what sold at the register (consumer driven) versus who had the largest promotion budget (manufacturer driven). Over time this has expanded to leverage data & shopper insights, product, pricing and assortment to drive shelf management and planning. These concepts apply to both off and on-premise retailers.

So, what does this mean for you and your business?

You need to understand how your consumer purchases your products. You probably already have most of the data you need to make better decisions. A great starting point would be to do a share of market/share of shelf analysis. For example, if Brand A represents 10% of your business, it should represent 10% of the space you use to merchandise the product. Typically, we do this in linear feet, which takes packaging and how you merchandise into account.

The same can be applied to taps in a bar or facings of beverages behind the bar. You want to be “in stock, fresh and full” of the items you sell the most. Consumers like to see full shelves and rarely buy the last item on the shelf. The old adage “stack it high and watch it fly” still works. Sounds basic, but many companies don’t understand this concept.

From here you begin to add variables like seasonality, promotions, new products and other data to make better decisions. Think back to the Pareto principle or “the 20-80 rule.” Take your POS data and rank the items you sell from top to bottom. You can do this on sales or profits. I’ll bet that the top 20% of these items represent close to 80% of your sales or profits. Make sure you are always in stock of these items!

Then you can start reallocating space to the other items based on percentage of sales or profits.  Make sure to have dedicated space for seasonal items and new items. This will allow those consumers that are looking for something different to find them in the same place in the store all the time. Using data to make your merchandising and assortment decisions will make your customer experience better and generate more sales/profits.  

Think about the proliferation of hard seltzers, malt beverages, and RTD products over the past five years. Are you using art or science to determine what goes on the shelf and what comes off the shelf?

More recently, supply chain issues & labor shortages have affected all businesses. This needs to be taken into account as well in your planning.

If you have multiple locations, make sure to adjust your merchandising for each location as no two retail locations have the same customer profile. What sells well in one location may be a poor performer in another.

Whether you are an on-premise or off-premise establishment, you need to make sure you understand how consumers buy your products, and adjust your merchandising and marketing programs around how they live. It will positively impact your bottom line!

And remember, Marketing is a race with no finish line.

George Latella teaches Food Marketing at Saint Joseph’s University in Philadelphia. Food Marketing, which is the largest major at Saint Joseph’s University, recently celebrated its 58th anniversary. George is also a partner in Beacon Marketing group which provides marketing planning, research, and e-commerce/direct marketing communications for food and beverage companies. George can be reached at glatella@sju.edu or 610-660-2254.

George Latella

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