As food-drug-mass retailers regain footing lost during the Pandemic, new research reveals their approach to category management is
The set of business activities commonly known as category management have long served food, drug and mass retailers well. The core methods are well-known and proven by decades of experience.
Two linked, pervasive challenges from the past year affect today’s category managers: (1) The stunning gain in e-commerce share of purchases has moved the business into uncharted territory; and (2) Omnichannel data overload confounds their ability to make quick, effective and accurate decisions. Solving the resulting complexity is the signature opportunity for the industry over the next few years.
These recent changes in food-drug-mass retail require a fresh look at key aspects of category management execution, says new research commissioned by Precima, a NielsenIQ company and conducted by Coresight Research: How Category Management Has Changed Forever. The report examines two matched surveys conducted in March and December 2020.
The findings reveal implications for category managers in several foundational areas:
On-Shelf Availability. Analytical thinking and technology literacy will remain essential in the next five years but keeping shelves stocked rose to the top of the list of concerns about the future. Fueled by fluctuating demand caused by the global pandemic, nearly 8 in 10 respondents now expect product availability management will be more important (41%) or much more important (38%) in the coming era. This is a salient reminder of the importance of retail basics even while acquiring new skills. It is also about evolving company culture to focus more keenly on on-shelf availability and having the right products on shelf to satisfy customer demand.
Gather Supplier Data. Retailers recognize that the current best practice is to gather supplier data to fuel superior category planning and decision making, with 19% rating this skill important and 39% very important. Looking toward the future, they expect the significance to increase further, with 40% indicating it will be more important than today and 39% saying it will be much more important.
Collaboration Outlook. Retailers and suppliers understand that data transparency is of paramount importance today and its importance must continue to increase. Three-fourths (76%) say transparency is more important today than five years ago, and slightly more (77%) agree it will be even more important five years hence. A joint effort is needed between retailers and their supplier communities to achieve a single, common view of data and insights. Collaboration will be enabled by more efficient and more effective platforms that are suitable for omnichannel.
Automation is Axiomatic. Retailers recognize the need and say they are ready or fully ready to speed category decision-making by use of greater automation. This covers multiple tactical and strategic practices, including promotion selection (75%), price management (75%), products assortment mix (73%) and inventory management (75%). When it comes to automating key category management decisions and processes, retailers must be conscious not to pile new activities on top of existing work. The goal is to enable speed to insights by streamlining process, while freeing humans from repetitive and routine decisions.
From the above and other findings in the research, four key category management imperatives that flow from leveraging technology and data effectively are identified:
- Build category strategies from correct execution of category tactics that deliver reliable demand data – especially assortment, price, promotion and inventory management.
- Extend focus beyond technology know how to consider best data practices that will enable the business to be successful in the future.
- Data-centric collaboration with supplier partners is a key opportunity for developing a sound competitive response in a marketplace increasingly influenced by digital-only retailers.
- Automate key category processes wherever possible, to speed and streamline the work and free category managers for strategic decision-making.
From “tipping point” to “sticking point”
Retail observers note that the pandemic year of 2020 will be remembered as a “tipping point” for food-drug-mass retailers in their transformation to a true omnichannel business model. Ultimately, category management is about customers, serving their needs and harnessing their preferred behaviors. In the present era, it has reached a “sticking point” where new learned customer behaviors and expectations have changed their perspective. There will be no going back.
Online food and beverage sales shattered projections for the year ended Nov. 30, 2020, growing by 125%, to reach $106B according to NielsenIQ’s Total US E-commerce measurement powered by Rakuten Intelligence. That amounted to a 12% share of total food and beverage dollars that were spent online.
The phenomenon is not just limited to the U.S. In the UK for example, online grocery penetration more than doubled in the past year (+132%) to become a fixture for up to 41% of households. It accounted for 17% of all grocery sales in February, according to data from NielsenIQ Homescan Total Till.
Faced with an absolutely staggering evolution of the market, category managers have been on the center-stage, applying their professional judgement and juggling a challenging set of incoming data streams. New decision processes reflect new roles for combined online and in-store decisions.
The classic 8-step category management process remains the anchor. But in the omnichannel era, it is redefined by understanding shoppers where they are shopping. The balance has tipped from a category-first orientation to one that is much more customer-first. Success factors now include:
- Create a single view of the retail business across sales channels and customers. Among the fundamental concerns of retailer executives is the need for great quality master data served via platform to decision-makers within the organization. This must be accomplished in a way that keeps things simple enough to use effectively on a daily basis. Data then becomes an enabler of success, not just an added complexity for decision-makers. A usable single view of data across sales channels and customers will allow category managers to continue to address the fundamental levers of customer satisfaction and enable the right decisions for right shoppers in the right channels.
- Systematize those analytical skills that you really are going to need to succeed in the future. How will category managers make more frequent, more subtle, more data-driven decisions more easily? That depends upon simplicity of methods and repeatable winning approaches. Omnichannel category management requires less bespoke invention of plans, more application of tried-and-true practices and the freeing of humans to test scenarios that can make a real difference.
- When it comes to trading partner collaboration, be transparent and mean it. Transparency is both a value (intent) and a methodology that can be enabled by shared platform. There is a great opportunity to transform collaboration with vendors into growth. Data-sharing can have multiple objectives. Regarding data as asset can lead to monetization. Even better, growth-generating decisions may ultimately deliver bigger prizes, such as gains in sales and margins, attracting more investment, or greater customer satisfaction.
In summary, the future vision for category management is to approach algorithmic retailing, defined by three essential traits:
- Automation. 70% or more of today’s decisions will be made better, faster and cheaper through automation. Support humans in this and free them to set strategies for growth.
- Transparency. Enabling clarity through alignment of goals and shared visibility to plan and track success together.
- Capability. Traditional buying and selling skills combined with data literacy and analytical thinking that is systematized and embedded into retailers’ processes.
Category management has already been profoundly altered in the year just passed. The pace of change is likely to accelerate in the years ahead, fueled by the shift to digital shopping behaviors and the concomitant data explosion. Retailers are grappling with this inevitability, but they recognize there is hard work ahead to remain competitive. In the omnichannel era, category management must be customer-defined and customer-driven.
About the research: Data is from the December 2020 Coresight Research survey of global grocery/drug/mass retailers and consumer packaged goods (CPG) suppliers in France, Germany, the UK and the U.S. Some findings were compared against select findings from a separate March 2020 survey of a similar respondent base. These surveys had 110 respondents and 104 respondents, respectively, and asked the same set of questions.
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View our recent webinar highlighting the research key findings.