Adapting to changing market conditions and new technologies has always been a prerequisite for sustained success in business. With an eye toward improving product mix and better meeting the ever-changing desires of different consumer groups, retailers and consumer packaged goods companies are in the process of such a transition.
Category management, which brought order to the retailer and manufacturer relationship, has been a key tool since 1995, when it was recommended by the Food Marketing Institute’s Industrywide Efficient Consumer Response Task Force. While the model has withstood the test of time, a recent survey from the F.M.I. and conducted by the consultancies of Deloitte and Winston Weber shows it may be time for a change.
The study found that 100% of retail and C.P.G. respondents believe some degree of change is required to the current category management model. A quarter of the respondents believe nothing less than an entire redefinition and transformation is necessary. When asked to identify the most significant shortcomings of category management, a majority of the retail and C.P.G. companies cited its narrow focus on single categories and a deficiency in factoring the shopper’s perspective.
A report published by the F.M.I. about the survey suggests the planning process critical to category management must be expanded beyond categories and encompass individual retail departments and even the overall operation of retail stores. This holistic approach will have implications for retailer organizational structures that are typically compartmentalized, with merchandising and store operations that are rarely in alignment.
“The magnitude of changes required to address these issues might be minimal to moderate for some retailers, but they will likely be significant for most,” the report said.
The next model utilized by the industry most likely will include many of the foundational aspects of category management but include a shopper-centric approach. While category management found success with many elements, including improving supply chain efficiencies and giving managers greater insights into item-level costs, improvement will rest on better understanding who is shopping as well as what influences purchases.
Better understanding consumer shopping patterns and purchasing behaviors will require a greater use of digital insights, and this is an area of weakness identified in the F.M.I. survey. Both retailers and C.P.G. manufacturers gave themselves low marks in the cultivation and application of digital-based insights. Sixty-three per cent of survey respondents said “none” or “limited” when quantifying their application of digital insights to shopper data while developing insights for category planning.
The cultivation of these insights is critical as the food and beverage landscape continues to fragment and diversify. While convenience, value, health and wellness, freshness, and premiumization will all remain powerful influencers, the rapid emergence and, in some cases, disappearance of such trends as free-from, non-G.M.O., Paleo, etc. also will influence consumer behavior. As the F.M.I. report rightly notes, these trends, which are inter-category and solution oriented in nature, represent a test to ascertain whether the industry is shopper-centric enough to stay ahead of the consumer.
Too often, C.P.G. companies and retailers focus on the four “Ps” of the shopping experience — price, promotions, product and placement. Yet the consumer’s shopping experience extends well beyond these elements, and it should be enhanced with the goal of developing and maintaining consumer loyalty.
The cultivation of loyalty requires an investment in engagement. To successfully keep apace or stay ahead of consumer trends will require a level of engagement unheard of in the past. It will require the embrace and use of big data as well as outreach efforts that aid in the understanding of why current consumers are loyal to one brand, product or retail format.
A significant, positive finding from the F.M.I. survey is that both retailers and C.P.G companies are satisfied with current joint-planning efforts. This finding shows the challenges many are facing have less to do with communication and execution, and more to do with better understanding the key influencers of consumers. It also further supports the adoption of a shopper-centric approach.