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CATEGORY MANAGEMENT: THEORY AND IMPLEMENTATION IN AN ORGANIZATION

Daniel Christian Hansen

PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION

UNIVERSITY OF NORTHERN BRITISH COLUMBIA

April2014

Abstract

The Category Management process has assisted retailers with achieving sales and

profitability growth during advantageous economic periods while maintaining profitability

during economic declines. Through a comprehensive literature review of the Category Manager

position as prescribed by AC Neilson compared with practical training of the Customer Product

Manager position from within the Overwaitea Food Group the author will review the Eight Steps

of Category Management to find parallels and deviations between the two roles. Through

analysis of the two positions; strategies that are aligned will receive minor review while those

strategies that have belong to only one party will be revisited in an attempt to achieve

consistency between the two very similar roles and responsibilities. It is observed that the

Customer Product Manager position is imitative of the fundamental Category Manager position

with minor alterations.

The fundamental findings of this research will be designed in such a way as to assist

future Customer Product Managers with an additional tool to further understand the roles and

responsibilities of a new career path. The study will clearly address the relevance of such a role

in the industry, while exposing areas for further development. Recommendations will include

methods to educate all facets of the Overwaitea Food group retail operators about the Customer

Product Manager duties and responsibilities in an attempt to align the two separate entities to

share one common goal. Through research, key areas of inadequacy will be addressed such as

the elimination of any education by AC Neilson pertaining to Vendor meetings, merchandising

contribution fund attainment and SKU rationalization for the category review chapter.

Recommendations of key findings will not be limited to either party, as the purpose is to find the

most practical business solutions to accommodate future growth.

TABLE OF CONTENTS

Abstract

Table of Contents 11

Introduction IV

Objectives and Methodology VI

Chapter One Company Overview 4

Chapter Two AC Nielsen Overview 6

Chapter Three Training Process 10

Chapter Four Category Management 19

Chapter Five Category Definition 23

Chapter Six Category Role 25

Chapter Seven Category Assessment 27

Chapter Eight Category Scorecard 32

Chapter Nine Category Strategy 35

Chapter Ten Category Tactic 40

Chapter Eleven Category Plan Implementation 44

Chapter Twelve Category Review 46

Chapter Thirteen Vendor Meetings 50 Negotiations

Chapter Fourteen Recommendations 53

Bibliography

iii

Appendix 1 Application Training Schedule Vl

Appendix 2 Category Role Flow Chart X

Appendix 3 Ten Rules for Choosing Product Assortment Xl

Appendix 4 Eight Steps of Category Management Xll

Appendix 5 Proposed Alternative to Traditional Eight Steps Xlll

Introduction

This paper will serve as a guideline to assist those newly trained Customer Product

Managers with additional information that can be utilized to complement previous required

training. This training is designed to become a self-study tool which will provide additional

industry insights to ease the transition into a new role within the Overwaitea Food Group (OFG).

The intention of this paper is not to replace, but merely enhance the rigorous training process to

which new CPMs have previously been exposed.

The purpose of this paper is to serve as a guideline to support and complement the pre-

required Overwaitea Food Group training offered within the Langley Office. This will aid

Customer Product Managers to become familiar with the eight steps of Category Management as

prescribed by AC Nielsen and allow an understanding of how these steps correlate with the in-

house training. It is important to recognize that this paper will not replace OFG training but is

simply developed to augment the training. The following sections will outline the objectives and

methods of the paper, followed by an overview of the focal retail company and the role of AC

Neilson in the retail merchandising process. Next, the position of Category Management in the

merchandising process will be outlined and the initial training that new category managers

receive when beginning their new position within the Overwaitea Food Group will be detailed.

The remainder of the paper will further develop the role of the Category Manager based on

relevant literature and on the author' s personal experiences over his first several months in the

position. Taking into consideration that the Category Manager position requires continual

growth, personal observations and experiences discussed are limited in scope to the duration of

the paper. The paper will conclude with recommendations regarding improvements for the

training process and suggest areas for future studies.

Objectives and Methodology

At the end of this paper users will become familiar with:

• The eight steps of Category Management;

• How each of their training sessions tie in with the eight steps;

• The modified approaches of Category Management;

• The rationale for each technical system from the original training;

• The importance each application of training has within the eight steps of Category

Management;

• The importance and the flow of each application learned through the OFG training.

Industry specific discoveries will be learned through a literature review process in conjunction

with personal observation as a basis to complete the paper and come up with some key

recommendations .

Chapter 1 Company Overview

This chapter will provide a very brieflook into the rich history of The Overwaitea Food

Group, a privately owned grocery retailer that has been operating in British Columbia for nearly

100 years. Overwaitea Foods currently has over 140 retail locations throughout British Columbia

and Alberta.

"Over weight tea Foods" 1 originated in New Westminster in 1915. The first store was

created by R.C . Kidd with the guiding principal of giving back to the community. Kidd's

strategy was to give 18 ounces of tea for the price of 16. This single store concept did not last

long and as Kidd expanded his operations he altered the name to Overwaitea Foods. The type of

business that was being operated at that time would now be considered a convenience store.

There have been many changes for a company operating in the same industry over nearly 100

years. (unknown, 2012)

In 1968 there was a considerable change to how Overwaitea Foods operated. Jimmy

Pattison, a Canadian entrepreneur, purchased the Overwaitea Food Group with plans of

expansion through vertical and horizontal integration. While Mr. Pattison' s accomplishments

have been well recognized in British Columbia (The Jim Pattison Group Investments and

Partnerships, 2013), his accomplishments within the food industry have been even more

impressive. The Overwaitea Food Group currently operates 129 locations under 6 different

banners: Save-On-Foods, Overwaitea Foods, PriceSmart Foods, Cooper Foods, Urban Fare and

Bulkley Valley Wholesale. There are over 15,000 unionized employees working in these

locations, approximately 500 head office employees and over 500 non-unionized management

1 "Over Weight Tea" was the original nick name coined for Overwaitea Foods. The name was derived because R. C. Kidd was famous for selling 18 ounces of tea for the cost of 16 ounces every day.

members working in the stores. With further plans of expansion underway, including the

possible acquisition of other retail locations as well as the creation of several new locations over

the next couple of years, there is a constant need to address every possible opportunity for cost

saving measures to keep the working capital freely flowing. During the last 45 years OFG has

addressed everything from manufacturing to point of sale, ensuring that the correct functions

have been tendered to third parties while taking care of what our people can best accomplish

while saving the company money. OFG has their own product lines amassing as many as 3,200

SKUs.

This paper focuses on the functionality and requirements of Category Managers (CPMs),

Customer Product Managers at OFG. With millions of Point of Sale (POSf purchases weekly,

the role of CPMs is to best capitalize on sales opportunities within the organization. The

purchasing and selling concept must fully be understood within the organization to take full

advantage of every key opportunity. Along with this, the concepts of strategizing alongside key

vendors and suppliers to accomplish common goals of sales and profitability are of the utmost

importance. With further expansion of the company, greater impact can occur from the decisions

that are made by CPMs. Each decision can potentially impact the company by hundreds of

thousands of dollars and a strong emphasis needs to be placed on overall decision making

process.

2 POS is terminology for Point of Sale (items that have been rung through a sales register for purchase by the consumer).

Chapter 2 AC Nielsen Overview

This chapter will provide a minor background on the AC Nielsen Company which is the

leading provider of market research data serving more than 25 countries.

"AC Nielsen Company of Canada measures and compiles statistics on television

audiences." (Bloomberg Businessweek, 2013) AC Neilson sells the stats and data to a various

group of organizations including: media, advertisement agencies, television channels, local cable

stations, radio, and retailers. The reason a company would purchase statistical information varies

in each industry all with one common goal of obtaining information to empower the ability to

have a better understanding of the needs and desires of consumers.

AC Nielsen's headquarter is located in New York City. (Business

Intelligence/ACNielsen: Retail Riches- See more at: http://www.baselinemag.com/c/a/Projects-

Data-Analysis/ACNielsen-Retail-Riches/#sthash.4eJAkoqb.dpuf, 2005) AC Nielsen was

established in 1923 and as of 2005 had over 20,000 employees working around the world. In

2001, Walmart made the decision to stop supplying market information to AC Nielsen. In fear

that research would become de-evaluated, Nielsen needed to come up with alternate

arrangements to seek out the information. Through this difficult time Nielsen created Home Scan

(Panel. , 2004-2013). This innovative system for obtaining customer product knowledge is very

primitive. AC Nielsen went directly to the source and hired regular consumers from several

different demographics to utilize product scanners and essentially scan every item they purchase

from every store. The benefit of a program like this is that they are seeing real time purchases;

the drawback is that this is currently a small sample size. AC Nielsen currently has over 250,000

households participating in Home Scan covering over 25 different countries.

AC Nielsen states their objectives: "We are a leading global information and measurement

company that provides clients with a comprehensive understanding of consumers and consumer

behavior. We deliver critical media and marketing information, analytics and industry expertise

about what consumers watch (consumer interaction with television, online and mobile) and what

consumers buy on a global and local basis. Our information, insights and solutions help our

clients maintain and strengthen their market positions and identify opportunities for profitable

growth." (About Us, 2013)

AC Nielsen delivers consumer analysis in over 100 countries, including both established

and emerging markets. AC Nielsen has some competition but maintains market leadership

throughout the industry in most of the services they provide. The analysis that is provided by AC

Nielsen is realized through continual evolution of their data collection process. They continue to

challenge the traditional formats of obtaining information through innovative measures. This

company has a strong research and development team focused on continually improving the

process to ensure that the largest focus group can be obtained.

"We align our business into two principal reporting segments, What Consumers Watch

(media audience measurement and analytics) and What Consumers Buy (consumer purchasing

measurement and analytics) . Our Watch and Buy segments are built on an extensive foundation

of proprietary data assets designed to yield essential insights for our clients to successfully

measure, analyze and grow their businesses. Our Watch segment provides viewership data and

analytics primarily to the media and advertising industries across television, online and mobile

screens, while our Buy segment provides retail transactional measurement data, consumer

behavior information and analytics primarily to businesses in the consumer packaged goods

industry." (About Us, 2013)

The idea is to link the two systems so that they work in sync to provide the ultimate

advertising experience for the suppliers and companies that utilize AC Nielsen. By analyzing the

consumer needs and shopping patterns by varied demographics AC Nielsen makes advertisement

recommendations as to when, where and who the advertisements should be focused.

John Larkin representing Spectra3 (John Larkin, 2000) discussed the importance ofbrand

awareness and product knowledge going into the new millennium. What John Larkin probably

could not have foreseen at this point was the technology that his company would produce

through collaborating with AC Nielsen. Currently Spectra and AC Nielsen are in the

developmental stage of a brain monitoring system that consumers who are employed by AC

Nielsen will wear while they shop. The electrodes will monitor the thought process of all

employees while they shop to determine what impulses they have while they are perusing the

shelves. AC Nielsen wants to fully understand what emotions are triggered in which

demographics and how these impulses can affect the daily shopping patterns. This next phase is

in its infancy, but time will tell if this plan fully comes to fruition.

When most people think of AC Nielsen data they tend to envision Nielsen reports which

are television ranking systems. While television and radio stations are rated based upon Nielsen

data, the common consumer is unaware that much of the innovation that occurs in most retail

stores are derived from consumer data collected from AC Nielsen. As previously stated, Walmart

3 Spectra is a technology company that provides web based functionalities for AC Nielsen

stopped utilizing AC Nielsen data in 2004, however in 2011 Walmart decided after more than a

decade to once again share some of their POS 4 with AC Nielsen. (Cheng, 2011) "This expanded

relationship with Nielsen will provide Walmart and Sam' s Club with deeper insights into

customer purchasing-and unmet needs-both nationally and in key local markets," said Cindy

Davis, head ofWalmart global customer insights, in a statement from Nielsen. This turn of

events occurred while Walmart ' s store sales were in a constant state of decline in the United

States market. The one important implication of renewing their partnership with AC Nielsen is

the knowledge that the American competition would be able to receive due to all the information

that Walmart would then be contributing to the network. In Walmart' s absence the validity of the

information being utilized by AC Nielsen was in question. Eliminating retail sales information

from the number one retailer in the world definitely had an impact on the quality of information

that was being provided by Nielsen. In addition, adding Walmart back into the AC Nielsen

portfolio further enhanced the credibility of the data which allowed AC Nielsen to develop

additional relationships with new businesses to which they had not previously been connected.

"It ' s going to help everybody get a realistic picture of their market share," said John Long, a

retail strategist at consulting firm Kurt Salmon.

This partnership has provided Walmart with greater capabilities to fully understand the

consumer while enhancing credibility for AC Nielsen.

4 POS is an abbreviation for Point of Sales . (Cash registers)

Chapter 3 Training Process

This chapter will provide readers with an introduction to the training requirements that

are currently practiced within the Overwaitea Food Group for new Customer Product Managers

prior to commencement of their new position.

There is a well-structured three week training course designed to ensure that new CPMs

have the fundamental skills and knowledge to fulfill their new role within the Overwaitea Food

Group. (For training schedule refer to Appendix 1)

On the first day new CPMs meet with the General Manager of Merchandising. At this

time they will be provided with a brief overview of what the job entails with some names and

contacts ofkey stakeholders that can assist with direction and support if needed. The following

lessons come from existing CPMs who prepare recruits for what the first week of training should

look like and they are told that over the next five days they would see every process necessary to

perform the functions of a CPM. This is where the process becomes a little overwhelming. The

remainder of the day consists of having an office tour which is daunting (it can take new people

five days to be able to self-navigate their way to the cafeteria without a map). After the tour and

introduction to well over 1 00 people, which is difficult enough, trying to remember all the names

becomes problematic. New hires then start in on sessions with department managers of different

tools and resources needed be able to do the daily tasks .

In the first day recruits meet with the manager in charge of the AMP software. 5 This is a

computer system that was produced in Europe and is utilized to input all of the sale items in all

banners6 throughout the company. New CPMs are then taught in a single two hour session all the

processes involved in creating a flyer, creating in-store sale items, building regular retail prices

and inputting pricing families 7 and categories. This system is quite daunting and even employees

who have been in this role for several years still find challenges with the system, but the

overview is necessary as this becomes one of the most important tools for any CPM.

On the same day recruits are trained by the lead manager in charge of A-series software. 8

This system allows CPMs to input original pricing, check on warehouse stock levels, product

availability and timeframes of when new purchase orders will be arriving to warehouses and

when they will hit store levels. This software is primarily used by category buyers , but is still has

functions that CPMs use such as approval of cost increases, decreases and the acceptance of new

line SKUs.

During that same day recruits meet with OFG ' s head financial analyst for the

merchandising department. The financial analyst discusses the importance of Category

Management and the pricing strategies for each banner and how segmented locations, regions or

geographical areas can assist with the CPM role. Recruits are then trained on price elasticity and

the need for clustering stores to the need of the consumer versus simply basing merchandising

5 AMP software is the advertisement, marketing and pricing software utilized in OFG for regular and promotional pricing of every item in every store for the company. 6 Banners are a term to explain different names of stores operating in one organization. 7 There are several different names of the grocery stores that belong to the Overwaitea Food Group. Generally for contractual purposes these different names have appeared over several decades . Currently OFG operates stores under the name of Overwaitea Foods, Coopers Foods, Save-On-Foods, PriceSmart, Bulkley Valley Wholesale and Urban Fare. 8 A-Series -Inventory management tool.

decisions independently on geographical location. The head analyst educates recruits about price

points, sales, flyer positioning and key drivers and opportunities.

The next training opportunity is given by the director who acts as a liaison between the

stores and the office employees. Discussions involve understanding the difference between each

operating banner and what CPMs can do to better support the retail locations while ensuring that

goals and objectives are met without sacrificing the needs of the customers at store level. Such

sacrifices could include only selling items with large margins or items that vendors have offered

great rebates on without considering the demand of the customers. Other areas of concern to the

customers could include the oversaturation of the sales floor with additional displays that is not

necessary, and could hinder the ease and speed of the customer' s shopping experience.

To conclude the first day CPMs visit with the General Manager of Corporate Brands.

Discussions will involve what the role of a private label entails. Western Family is the private

label used by the Overwaitea Food Group and the lessons cover the profitability of the category,

as well as the importance ofleverage9. It is common knowledge that corporate brands, which are

often produced by the national brand manufacturers, provide consumers with a more affordable

offering at a higher margin for the store, but what seems to be less known is the power of

leverage that a good corporate brand product can provide against the national brands. When a

company has a strong corporate brand the cost structure can become significantly reduced when

negotiating with vendors based on the consumer loyalty that the in-house brands provide.

9 Retailers use their private label to ensure that national branded vendors understand that there is an alternative to support the needs of the customers. If the cost structure is not adequate from the national brands many times companies will merchandise their private label more frequently, reducing the demand for the national brand which usually coincides with the national branded companies offering cost reductions to once again rebuild their market share .

The next day, the first few hours start with a lesson about the Aztek computer system

with the manager in charge. Aztek is a third party vendor that works in the Overwaitea head

office and though Aztek operates in many different chains throughout Canada, the Langley office

team works exclusively for Overwaitea Foods. The Aztek system essentially monitors every POS

transaction to ensure that schematics (plano grams) are designed to optimize key sales and

profitability opportunities. All transactions are taken into account when the layouts are

processed. The shelf design is developed to ensure the right items are positioned in the right

space to create customer awareness as necessary for each product in each store throughout the

entire company.

Next CPMs will visit with AC Nielsen; another third party provider that has a division

working exclusively at Overwaitea Foods. Recruits will be led through a two hour presentation

regarding the benefits of AC Nielsen data. They are shown the functionalities that will be most

prevalent to their specific role, such as: vendor scorecards, how to evaluate a supplier based

upon their monthly or year-to-date purchases, sales by unit, sales by value, profit, scan margin

and "spend" 10 • Their spend within OFG is completely broken down by: scan backs (money

received back from the vendor based upon the units that are sold during an allotted time period),

flyer allowance, newline listing fees, tribute ads, half page flyers , gatefold flaps , product recalls,

volume incentive programs, charitable donations and in store programs and contests. At the

bottom of the scorecard the two final numbers that are important to review are the net scan

margin and the net profit margin. This is a very good tool for analyzing current business with a

certain vendor versus previous history with the same vendor, as well as how vendors with similar

product lines compare to one another. Another excellent tool from AC Nielsen is the supplier

10 Spend is a term for the portion of revenue that suppliers reinvest in the firm by nature of advertisement or display allowances.

Meeting Report. This report analyzes how the supplier' s products are performing in OFG versus

the current performance in the market place. CPMs can assess the previous 12 weeks or the

previous 52 weeks and see how the performance matches up against retailers in Western Canada

or the entire country. This is a useful tool because it allows analysis with regards to marketplace

positioning and aids in the decisions regarding over- and under-development in certain

categories.

During the initial training there will also be meetings with software engineers employed

at the Langley office. These engineers designed and developed company specific versions of a

software system which is called QlikView. QlikView is another analytical tool which feeds off

the POS system and creates reports based on actual sales through the till . These reports are

exceptionally useful for forecasting potential sales lifts based on promotional activity during a

time of promotion. These reports hold years of data that can be retrieved at any time based on

criteria chosen by the end user. The information is extremely effective because the user gets to

set the criteria parameters. As an example, each week when anticipating the expected lift of sales

items that have been put in the promotional flyer eight weeks in advance CPMs can have a report

run to advise them of how many units have sold of any item at any given time in the past. Items

are then analyzed to assess expected unit lifts versus estimates the forecasting team anticipates.

This becomes useful as the buyers can focus eight weeks in advance to decide how many units

will need to be procured from the suppliers. The relevance of this process is to ensure that OFG

will have adequate stock to support the advertised specials when the time arrives. If an item is

expected to have a specific percentage of lift, the supplier will need to ensure that they have

produced adequate stock or OFG will be shorted and customers will become dissatisfied.

The next lesson pertains to the Portal 11 . This system is designed as a tool to work directly

with suppliers to ensure that they pay as agreed. Vendors pay for items such as flyer space,

warehouse listing fees , shelf allocation space, volume buying when a great promotional offer is

on, larger than normal advertisements such as half page ads or gatefold advertisements 12 and any

special offerings such as Scan and Win promotions or customer giveaways and donations. The

Portal system helps alleviate paper trails and ensures that contracts are paid in a timely manner

while mitigating potential errors. Upon submission of a contract the CPM logs into the portal to

ensure that the funding , time frames and offer locations are all submitted correctly. Assuming all

has been input accurately, the CPM needs to accept and approve the contract which then gets

sent through to the merchandising clerk for the category who processes the bill for payment. This

is similar to an A TM process which ensures that funds are made available and are paid

immediate! y.

An experienced CPM will train recruits about the attributes of the 931 and the 933

report 13 • These reports are also generated from the POS and are utilized to analyze items based

on their categories, families and individual SKUs to tell CPMs how many units have been sold

and what the value is, what the scan margin 14 is off each item or family, as well as potential

profit for each item and other variables. These reports are great tools for SKU optimization when

researching end plans or display ideas. The reports allow CPMs to dive in and see where the

department is trending compared to the previous year on certain items.

11 The portal is directly related to the Spend that was discussed in footnote 5. 1212 A Gatefold advertisement is the folding flat that protrudes over the front or back page of an advertisement flyer. This provides Overwaitea with additional advertisement space that can be sold to suppliers . 13 Inventory management reports that contain product descriptions, variant numbers, units sold, pricing and profitability. 14 Scan margin is a KPI that tradition retailers use to determine the value of product costs verse product sales . (Retail-Cost) I Cost= Scan Margin percent.

The most crucial lesson regards the overall planning phase of the business. This is where

an existing CPM coaches new hires on how to take all the aforementioned tools and put them

into practice in conjunction with the vendors to decide when to display products and at what

frequency and price. At this point there is no standard version or template for the planning phase

for the CPMs to use; however the process remains the same. A 52 week electronic template is

chosen and by working with the vendors, CPMs find when each item is best displayed with the

goal of optimizing sales and profit for the category. Certain items sell better at certain times,

such as seasonal items (an example would be turkey at Thanksgiving, Christmas and Easter).

After deciding when items will be advertised, the frequency of advertising and the pricing

strategy next needs to be discussed. Aztek or QlikView can be utilized to check on sales lifts

pending on suggested retail. The idea is to ensure profit dollars for the company break even

based on sales forecasted lift. There needs to be anticipation that a reduced sale price on an item

pays off the investment by selling enough additional units so that the penny profit 15 is equal or

greater than if the item had not been advertised. A CPM must keep in mind that there are times

when loss leaders will be advertised and there will not be incremental gains off of every item

advertised all the time, even with scan backs 16 and vendor support. Next there is a need to put the

items onto a weekly planner that can be printed off and kept in a 1-52 file or book for record

keeping and ease of recovery when needed. After the planning for the week is completed items

are entered into the AMP system by their variant number 17 so that it can actually become an

advertised price. Prior to the week of the advertisement there is follow up to ensure that the

pricing and product descriptions are accurate in the flyer. After the sales week has been

completed the reports discussed above all need to be processed to ensure that the sales proceeded

15 Penny profit is a term to define the actual profit in form of value as opposed to a percentage based margin . 16 Scan backs are the volume buying incentive money provided by suppliers to supplement a reduced sale price. 17 Variant number is a number attached to each product that is used for ordering of the product.

as expected. CPMs measure their estimated sales against the realized sales to measure the

accuracy of their assumptions . These reports become part of a greater database with additional

information for the next time the product is on sale. There is a great deal of analysis involved to

ensure that the right item is advertised at the right time, with the best frequency to optimize sales

and profitability.

A method that CPMs can use to fully understand what pricing should be established for

sale items is a pricing calculator. This item is especially useful when putting on in-store

promotional activity. The pricing calculator is a tool to measure the scan margin and scan dollars

of potential sales by reducing the price of a product. The way the system works is by first putting

in the base sales knowledge that can be taken from the Aztek or QlikView systems. First thing

necessary is to establish a base price on the item that is being reviewed. 18 Once the base price is

established, CPMs can then look onto Aztek or QlikView to see how many units of the item sell

at the regular price. The base price and base units sold are used to calculate how much profit is

made from the sales of the product without any form of advertisement. The next step is to decide

on the suggested reduced price. Once a price is decided a CPM can once again use Aztek or

QlikView to determine how many units of the product have sold in the past at a similar price

during a relatively similar time frame during the previous year. Once a suggested amount of units

are established, the new price and units are than put into the calculator. The calculator then does

the math to advise the CPM what the new profit will be by reducing the sales price. If the

advertised item generates reduced profits than it would if it were not to be advertised there needs

to be some justification. Occasionally there are additional reasons for a CPM to feature a product

when they are reducing profitability. Occasionally targeted sales for a particular family of

18 Base price is the regular price that the item is sold when void of any discount or offering.

products may be underperforming compared to targets agreed upon between CPMs and vendors.

If there are set targets that come with a financial payout for achieving year end quotas, the CPM

may sacrifice profitability for an item in a weekly flyer to try enhance the unit sales to ensure

that targets are achieved by year end.

There is a great deal of additional knowledge addressed in the first three weeks of the

CPM position, however most is too detailed for this report. (For application training refer to

Appendix 1)

Chapter 4 Category Management

This chapter will guide readers through several insights that assist retailers with reaching

decisions that impact the purchasing concepts used by retailers to cluster products into groups of

related products.

Category Management has been defined "Category Management is a retailing and

purchasing concept in which the range of products purchased by a business organization or sold

by a retailer is broken down into discreet groups of similar or related products; these groups are

known as product categories (examples of grocery categories might be: tinned fish, washing

detergent, toothpastes). It is a systematic, disciplined approach to managing a product category

as a strategic business unit. " (Category Management, 2013)

The first clarification that is necessary is that Overwaitea Foods employees under the title

of Consumer Product Managers or CPMs are actually known as Category Managers throughout

the industry. I will use these terms interchangeably throughout the provided literature.

Overwaitea Food Group will be written as OFG for the remainder of the paper. The phrase

"Category Management" was first used by Brian F. Harris in the mid 1980s. In CPM positions at

OFG the categories have been pre-defined and selected 19 by the Directors ofMerchandising

(formally known as Senior Customer Product Managers) 20 . The categories are broken up into

various strategic units and in case the role has yet to be defined, a few examples include: frozen

foods , dairy, pop and chips, cereal and portable snacks, bulk foods and natural foods . Though

there are many other categories it would prove redundant to list them all.

19 All categories already have a definition in OFG. There are many categories already divided into sub-categories. Examples would include: Frozen foods (Classification)- Ice Cream (Category) -Seasonal Ice Cream (Sub-Category) -Novelties (Sub-Category) 2° Category Managers report directly to Directors of Merchandising who reports to the General Manager of Merchandising.

The key concept of the position of a CPM is to increase sales performance of the category

while contributing positively to the bottom line and overall objectives of the company. There are

many different strategies that need to be considered with regards to this goal and these will be

expanded upon in the latter sections when comparing the training programs that new hires have

previously attended with the eight steps of Category Management as reviewed in AC Nielsen' s

Consumer-Centric Category Management by AC Nielsen with John Karolefski and Al Heller,

2005.

Another key reason for the development of CPMs is strongly tied to the relationships

between the suppliers and the retailers. It is important to fully develop not only one brand of

product but to develop the entire category. If there are too many feature promotions on one brand

of product and very limited feature promotions on the corporate brand or the competitor the

prices and profits will become eroded and soon enough the one featured company will essentially

have a monopoly of the category as the competitors fall off or become discontinued. 21 Items

generally will become discontinued when sales do not meet a sustainable level for the supplier to

continue with production of the product.

Category " Captains" are often utilized in the grocery industry. This is when the retailer

selects a supplier who has great insight into the overall needs of the category and is able to share

an unbiased opinion of what needs to be done within the category to increase both revenue and

profitability. In OFG these suppliers have often subscribed to a higher level of Aztek data 22 (see

below) and can provide specific product data such as increased sales, price perception, consumer

21 Discontinuation means the failure of a product to continue existence. Many times retailers will use the term discontinue when they simply mean removal of product . This misleads consumers to believe that the product no longer exists when it may just not be available in their store any longer. 22 (Aztek is the company that OFG uses to create all schematics within the company.)

demand and brand loyalty. Some of the analysis that Aztek utilizes to develop a schematic23

include sales lift, sales volume, profit percent, incremental lift and product positioning as well as

many other key factors . This information can be observed at a macro level such as all brands and

all markets, or can be broken down into smaller sample sizes such as Western Canada. There will

be further explanation on Aztek in subsequent chapters. The suppliers can purchase packages

with schematic programmers quite similar to cable bundles that one may purchase for home use.

The larger the supplier and the more money that they spend with the Aztek Company, the more

information becomes available to them. Generally speaking these are the suppliers that become

category captains, however in certain situations a small company could become the Category

Captain. The role of a Category Captain usually includes development of schematics,

recommended pricing strategies, advice on key products that are important drivers of the

category as well as industry information such as innovation. It is very important to comprehend

the importance of the selection process when choosing a Category Captain. This decision is not

one to take lightly. The chosen Captain must provide impartial, practical advice designed to

better the category, not only their brand. This is a very difficult skill for many suppliers to attain,

but some of the greatest companies in the world have chosen a strategy to provide the "what' s

right for the category, not what ' s right for their company information." A few of the largest

suppliers in the world that often become Category Captains because of their substantial category

knowledge include Kellogg ' s cereal and P&G. P&G is a very interesting company because they

have mastered their categories with such dynamic passion as a result of the substantial portfolio

that they oversee.

23 Schematic is synonym for planogram. The most simplistic definition would a detailed diagram of every item in the section and where they belong on the shelf.

The Competition Bureau, which is regulated by the federal government has some

concerns about the increasing involvement of Category Captains as they feel that there exists a

potential for the suppliers and the retailers to collude on prices, but with the advanced technology

and tools readily available for alternate suppliers this does not occur as often as one would

suspect. As a new Category Manager the role with Category Captains will become obvious when

attending vendor meetings. When meeting with a supplier, key indicators such as verbal and

written information can be observed that is either supplier specific in nature or is directly related

to the overall industry. Once identified, these key suppliers will become highly useful when

performing an overall category review (the process of dissecting the entire section, such as a

pizza schematic), or when implementing schematic changes that involve the discontinuation of

certain products. One may need to discontinue products because there is often limited physical

space available in each section. When product innovation occurs and the choice is made to

introduce new products into the schematic, something needs to be removed. This is not only at

the store level. Just because there may be additional facings of the product on the shelf does not

mean that picking slots24 will be available in the warehouse. The warehouse is also designed like

a schematic. Each item has a specified spot with a correlating pick number and once all those

spots are filled there becomes no readily available space and an item will need to be removed

from the system in order to introduce the new product. As well as CPMs, Category Captains

have access to information from both the AC Neilson data bank and Aztek to in the decision

making process as to what items should be removed.

24 A picking slot is similar to an allocated spot for a product in the store with the only difference is that this is in a warehouse. The warehouse is also designed by schematic.

Chapter 5 Category Definition

This chapter will discuss the factors that contribute to the inner decisions that retailers

must make regarding the structure of each individual category and the products that belong

within said category.

Category definition as defined in an article by Jerry Singh, a managing partner for a

Category Management firm "The process requires identifying the structure of the category and

all the items (SKUs) that belong to the category. The output of this step is the category definition

file that will be used to drive all analyses needed for the category plan. There is no formula for

how a category should be defined. The definition can be broad or narrow depending upon how

the retailer's target customers shop the category and the retailer's marketing objective." (Singh,

2000)

New Category Managers at Overwaitea Foods have already had their categories defined.

However, there is no definitive completion of this stage, as the grocery industry is a very fluid

environment. Within each of the categories that have been predefined for CPMs there are many

subcategories and it becomes an important aspect of the job to implement strategy to enhance the

revenue and profitability of these subcategories. As an example, let's discuss a new product line

of cereal being introduced to the market place. If the category were so broad that it just became

part of a cereal category there would be no merit to the classification. The category then is

broken down into many subcategories; is it an adult cereal25? Could it possibly be a children' s

cereal? 26 Is it hot or cold cereal?27 Is this cereal going to have a value offering28 or is it a

25 Adult cereal is categorized as a cereal that has greater nutritional content, traditionally with less sugar. 26 Children's cereal is categorized as a cereal which is merchandised towards children. Traditionally these items will have further offerings such as toys in the packages, increased sugar levels, vibrant colors and packages with mascots, etc.

.·i

destination item?29 There are many things to consider when deciding how this product should

become subcategorized. The success of the new item could very well depend on the strategy and

definition that has been chosen for the new item. Choosing wisely can set the item up for

success. Many items fall into sub-categories quite obviously when they are listed. Going back to

cereal for a moment, ifCheerios introduced another flavor (which they will, because they are

constantly innovating) it is fairly obvious which category they will become part of, since all the

Cheerios are in one familiar family. However; if a new cereal is introduced by a relatively new

company and the item is first to market, there will be much more thought required.

Part of the definition of the product is to understand where the item fits in. We need to

comprehend where the customers are going to look for this product. This is generally done

through researching information from data banks such as AC Neilson. If OFG is first to market,

the thought process should revolve around with which products the consumer might most

identify the new product. If the product is similar in nature to another product, returning to the

Cheerio example, then the product can become part of that pricing family which will initiate a

sales item through the AMP process30 when putting any other Cheerio on sale. New items are

often in need of high merchandising exposure as well as frequent promotional sales opportunities

to become successful.

27 Hot cereals are defined as any of the oatmeal products or cereals that are traditionally heated before consumption. 28 Value offering can be defined as a package that offers a greater price perception . Warehouse boxes or bagged cereals will traditionally fall into this category. 29 In the cereal category a destination item would pertain to an item that is exclusive to a certain location, usually a niche product or one that is generally more difficult in nature to procure. Items such as Gluten Free or Organic cereals would be common destination items. 30 When pricing products into a family in the Advertisement, Promotions and Marketing software each time any of the products in the family are promoted the entire family of similar products will fall onto the same advertised sales price. The advertisement may only picture one item, but all similar products will be priced accordingly.

Chapter 6 Category Role

This chapter will provide clarification of why different categories are represented in the

manner that they are. Information will be provided about eight different manners that categories

traditionally become allocated in and the different concepts of marketing that correspond with

each assigned category role.

The category role is "to identify the importance of the category to the retailer. This is the

role the retailer wants the category to play within their store. A category can be used to bring

customers into the store, increase foot traffic, support routine shopping needs, be a destination

for seasonal/occasional purchases, a one-stop shop, or for convenience. Retailers may assign

different roles to categories within their stores depending on the customers they want to attract."

([email protected], 2012) (For a category role flow chart refer to appendix 2)

When managing a category this is a very important area of focus . All definitions

of category role are as vague as the one above, which tends to imply that this is a one-time

project-assigning the role and then leaving it alone. However, this is a mechanism that needs to

be revisited many times throughout the year for each category and subcategory. As discussed in

previous chapters there are subcategories that get broken down. We will use a tree as an analogy

for the category. A tree has branches, and then leaves, pine cones and a tree trunk. Applying this

analogy we can use frozen foods as an example. Frozen Foods may be the tree; the pizza

category could be the branches, with family pizzas being the leaves and snacking microwavable

pizzas being the pinecones.

Each category may possess different opportunities for the store. The first step is deciding

what role this category should have within the organization. The most traditional roles that

categories or subcategories play in the overall scope are: routine categories, impulse categories,

occasional categories, and convenience categories. However there are many other roles that a

category may play within the organization: seasonal, traffic builder, consumer loyalty, etc.

Returning to the frozen foods example above, the overall frozen foods department is seen

as a basket builder. That means that the average customer who purchases frozen foods items

tends to have a larger ring size3 1 because they generally have a shopping cart with them, and

because these are a semi non-perishable resource, they can stock up larger quantities. Looking at

the subcategory of pizzas, this could fall into many roles such as convenience, traffic builder and

price perception32 roles. The pizza category has oversaturated the marketplace. There is always a

brand of frozen pizza on sale and consumers are educated enough to know that there is always a

pizza on sale. Most consumers are not so brand sensitive that they will not purchase an

alternative product. However as we work our way down the tree, the microwaveable pizzas fall

into the convenience category, as there are very limited brands and they are not often consumed,

but they do provide a convenience for children or for a specific occasion. One way in this

example that an item could play a destination role would be if the department lists locally

manufactured products or niche items that no other stores else carry.

31 Ring size is retail terminology which defines the dollar value that each customer spends when they purchase an order. All individual transactions are totaled up daily and divided by the amount of customers to establish a daily ring size. 32 Price perception role is an item that consistently is priced at a greater price reduction than all competitors. Similar to an EDLP where the consumers understand the value of an everyday low cost item, but differing in the approach as these items have a floating retail price because when another competitive item is advertised this product will be reduced to remain the lowest price product in the market place.

Chapter 7 Category Assessment

This section will describe the need for data analysis and the tools that are available within

The Overwaitea Food Group to run the necessary queries.

Category assessment can be defined as simply as it sounds. It is the process of assessing

the category to seek opportunities to increase revenue through sales growth. To perform a proper

assessment of a category one must dig deeper. Assessing sub-categories, brands and particular

SKUs becomes a very important part of this process. As a Category Manager it is very important

not to allow personal feelings for suppliers or personal tastes and beliefs in a product to control

business decisions. Almost all business decisions need to be fully supported through quantitative

and qualitative research. If the tools are appropriately used, then a truly impartial process for

each item can be made.

This step in Category Management is where previous decisions are reviewed to ensure

there are no alternate methods that can improve the category position in the market place,

remembering that the role of a Category Manager is to strategically align the category with the

objectives of increasing the overall company revenue or profitability. In order to clarify the last

statement, the reason that the overall company ' s position is emphasized and not the category's

revenue or profitability, is that there are categories that are set to either lose money or not make a

lot of money as a strategic plan to drive traffic or fend off competition. Soda pop for example is a

loss leader33 . In the current market place retailers are not making money off the large suppliers in

the soft drink category. If a Category Manager were simply to look at the cost and prices of the

items in this category it would be easy to surmise that the retail pricing would need to go up so

33 Loss leader can be defined as those items that are advertised below cost to drive customer transaction;a cost to the store undertaken to try and sell other items with enhanced profitability.

that the product line can at least hit a break-even point, because after all, the objective is to

increase revenue and profitability. However; that narrow perspective needs to be expanded. One

should consider what the competition is doing, what the relevance of the potential loss of sales to

the company is and whether the foot traffic will diminish if the prices are raised. There are

certain items in every category of which consumers are price conscious and the price sensitivity

of these items is increased to such a level that if the price were to be raised the consumer may

take their entire weekly shopping elsewhere. If a retailer were to raise their prices beyond the

market on Coca Cola, Ketchup, Milk, Eggs or Bananas the customer will shop elsewhere. There

are many processes that Category Managers at OFG can use to assist with finding out what is

right for their department. Consulting with the lead financial analyst could be a tactic, but there

are many other tools readily available. The POS data that is available helps determine the sales

levels of each item. This system is so intricate at this point that it can be determined what

percentages of consumers who spend certain increments of money on their shop purchase each

item in the store. As an example, a report can be run to advise how many people who purchase a

Coca Cola 12 pack of pop spend over $200 in total, and the POS data will be able to retrieve this

information. This data can also be utilized for multiple purchases, through POS reports, CPMs

can find out who purchased a 12 pack of pop along with a bag of chips, or who purchased those

two items together with salsa. This may all seem redundant, but the reason for the example is to

show that we can run enough data to assist our comprehension as to the importance of each item

in the role that we have chosen for it.

Some of the tools that OFG utilizes include AZTEK, POS data and AC Neilson,

QlikView, Crystal, 931 and 933 reports. As a company CPMs also have access to community

profiles to allow for store by store demographic concentration.

AC Neilson is used to set benchmarks and to see how all channels in grocery are

performing. This information can be gleaned at a category level, a brand level and a product

level. Information can be based on total Canadian sales or Western Canada sales exclusively.

However, a main drawback of AC Nielsen is that the information cannot be driven down to a

store specific level, that the information is always at least a month behind schedule. This system

allows measurement of the performance of each category, brand or product versus the rest of the

retailers in the marketplace. Looking at AC Nielsen can have some significant impact if a

category is observed as underperforming in the market place. There might be a clear reason. It

could be that the item is just not a focus for the company, or the problem could be of a more

substantial nature such as pricing issues or product exposure. This information only tells a

portion of the story and Category Managers must utilize all resources available to paint the entire

picture.

The Aztek system works jointly with the POS system. What becomes observable when

reviewing this system is the quantity of items that are sold at each retail price. This allows

decisions to be made as to the best pricing strategy for each product. This is not a simple process.

Just because more units of an item are sold by reducing the price does not mean the right choice

was made.

The 931 and 933 reports that have been previously referenced provide information that is

very useful to the department. From these reports CPMs can see what the costing, retail prices

and sell have been through the year. From these reports each item in the entire department can be

reviewed to check on individual sales, profit, and units sold. This can also be reviewed from a

category or subcategory perspective so that accurate decisions can be made on poor performers

or on high performing SKUs. From these reports we can determine the needs of the store and

how to spend any additional display space or where to trim the displays down. If when reviewing

a certain item on these reports it is noticed that there is an item holding down four spaces on the

schematic but only moves an average of 3 units weekly in each store, it may become quite

evident that the facings 34 are not justified and this space can be better utilized for new innovative

items. Extra space could also be used to expand further on other lines that require additional

holding power.

QlikView is another POS generated system that is extremely beneficial for Category

Managers at OFG. This system is designed with functionality that allows many different levels

of data analysis. Information can start at a broad level company view; can be broken down to

banner35 specific information or all the way down to store specific. Information can be reviewed

about areas from sales to profit in this system based on categories, subcategories, vendor lines,

product lines or individual SKUs. This information can be used this to assist with the

understanding of sales, units, profit margin per item, sales lifts generated from reducing retails ;

penny profits, date specific information as well as current or two year trends. Category Managers

can compare data from specific days or weeks versus any metric from previous time frames that

are chosen. There is virtually no limitation as to what can be learned about the products that are

carried within the stores. The only limitations to QlikView are the same as with Aztek or POS

data, this information can only tell the story for what has already sold within the company. There

is no information on new lines, innovations or items that a store may want consider that have

been selling in other retailers . For this information Customer Product Managers must conduct

34 Facings is a retail terminology for how many of the exact items are side by side on the shelf. Typical facings will be the width of a case in grocery so that items can be put on the shelf in a cut case to reduce handling individual units. 35 Banner specific is the division of a company into alternate banners. In this context, information can be reviewed by Overwaitea Foods, Cooper Foods, Save-On-Foods, PriceSmart Foods or Urban fare .

alternate research such as AC Nielsen or Home Scan to observe the success or failures that other

retailers have had with these items.

Chapter 8 Category Scorecard

This chapter will explain the use of category scorecards, where they can be sourced from

and how they are useful for explaining the contribution of a department or category.

"Category Balanced Scorecard development requires identifying the appropriate metrics for

category business development. The identified opportunity gaps are used to establish the

scorecard targets. The scorecard should include metrics for sales, profitability, turns, and

consumer loyalty." (Jerry Singh, 2000)

Category Managers in OFG mainly use scorecards that can be taken off of the AC

Nielsen site. Access with emloyee number and password is required, not just a generic AC

Nielsen site. Once the site is accessed the CPM number and password are used to access all the

necessary vendor scorecards. These scorecards provide valuable information that is important to

understand when having meetings with suppliers. This information (scorecard) will be broken

down into subcategories by vendor. An example of this would be pulling a General Mills vendor

scorecard. General Mills is a company with a portfolio that expands across several departments

throughout the store and printing one scorecard would not highlight any relevant information. By

utilizing a Category Managers password the AC Nielsn data becomes specified to the established

categories of responsibility. However, that is not detailed enough. What area of General Mills

needs to be researched? The next input required is the category such as vegetables or cereal,

assume for this instance that cereal is being reviewed, there then becomes a need to expand

further and obtain a scorecard based on children's cereal or adult cereal. Once the inputs have

been completed there is a mechanism in place to complete the desired search. This scorecard is

essentially no different than the AC Nielsen reports that have been discussed in alternate sections

of this paper. The AC Nielsen report provides market information, based on either Western

Canadian or the total Canadian marketplace compared with the stores sales. This information can

provide a snapshot that allows a vendor and a Category Manager at a quick glance to decide if

their product is performing to market standards. Again, there are further reports, background

information and additional analysis required in order to fully understand the subcategories

success or challenges.

This is one version of a scorecard. All reports can be viewed as a scorecard depending on

what the goals and focus of the category are. Scorecards are relevant in any business because

they essentially are how the goals are reviewed. Understanding the goals of each category and

subcategory is a very important process, which is why this step follows along the 8 step process

of Category Management as detailed by AC Nielsen. First defining the category, next assigning

the role and the third step is running the analysis to assess the department, category or

subcategory. Understanding what metrics are important in each area becomes crucial. A few

examples that may interest a Category Manager include: revenue, units sold, profit, sales per

square feet of merchandising space, profit dollars, profit margin as a percent, days of supply,

inventory turns, customer counts, basket size, customer satisfaction, customers retention or

penetration to the market place. CPMs should attempt to have a strong relationship with

suppliers to support and create common goals and internal scorecards far greater than the

simplified AC Neislon version.

There may also be targets and goals from certain suppliers that carry special clauses such

as incentive bonuses and payouts for the company should the sales targets, unit targets, lift

targets or other strategic goals be met. If any of these targets are established, expansive review of

the key metrics would need to be completed on a routine basis to completely understand the

business and know what the performance levels are in order to maximize the opportunities for

success. Many times mistakes are made when establishing GIP 36 or exclusivity contracts. 37 The

primary mistake is that CPMs will occasionally see the large payout at the end without fully

understanding the potential loss of profits during the established time frame. By entering into a

deal that provides large payouts based on performance such as growing sales by percentages as

high as 25% with no new product offerings companies essentially form a partnership to provide

additional merchandising activity for the supplier' s products, many times at reduced pricing,

much reduced than previously has been done. When this is done profit are lost throughout the

year. CPMs need to fully analyse the situation to understand if the payout will fully

compensateion for all lost profits. However a CPM must also look at opportunity costs. What is

the impact on the items that are being advertised less frequently by a competing supplier or that

may become completely eliminated? Would the return be greater by continuing with the original

strategies with all exisiting vendors? All these items need to have full profit analysis research

completed prior to executing any exclusivity or GIP targets .

In summary there is no one version of scorecards that will work as a stand alone tool to

provide a crystal clear portrait of the department. Many reports such as the AC Nielsen vendor

scorecard, financials statements, Qlikview, Crystal, Aztek, 931 and 933 reports as well as daily

sales sheets may be necessary to gain all the required information for an area of interest.

This is as critical stage as any in the process because goals need to be established in order

to succeed. Without a clear understanding of targets and goals failure becomes inevitable.

36 GIP is growth incentive plan . This is where targets of sales growth are mutually agreed upon and once goals are met there becomes an incentive payout for the company. 37 Exclusivity contracts are when a supplier offers a CPM an incentive for the company based on severing ties with a competing vendor or limiting the availability of certain products to create larger than anticipated sales growth .

Chapter 9 Category Strategies

This chapter will discuss the strategies that retailers must decide when looking into

departments, categories, product lines, or individual SKUs. This step closely ties in with

previous steps including category assessment but provides further analysis to delve into the

measurement of each strategy. This is the application of the previous steps and how successful

the implementation was.

"Category strategy development is the step in the category

business planning process when strategies are developed to deliver the category role and the

category performance targets . The purpose of this step is for the retailer and supplier to develop

strategies that capitalize on category opportunities through creative and efficient use of the

resources that are available to the category. Strategies may relate to marketing and product

supply strategies." (Rao, 201 0)

One of the debatable concepts surrounding the eight steps of Category Management

involves the order of which the steps are performed. Many companies have altered the eight

steps by deleting steps that they don't find beneficial to their operation or have simply altered the

flow of the process by reorganizing the steps. The development of category strategies essentially

ties in with steps 1 and 2. Once the category has been defmed and the role of the category has

been established the strategy of the category and subcategories would now become the next

logical step. The rationale for this would be that it is fairly hard to assess a category if the

strategy of said category is not understood and documented.

There are several different strategies that a category could take on within the store. Each

strategy can cause extreme swings as far as sales profitability and success of the category. The

most common strategies that retailers concentrate their focus on include: traffic building,

transaction building, profit generating, cash generating, excitement creating and turf defending.

Each one of these roles is very pivotal in the overall operation of the company, but some of them

may make a category look like a weak financial performer. For this reason it can be assumed that

the strategy must be implemented prior to the assessment.

Traffic building strategies are those items that have either been put in your flyer at a great

advertised retail price or that customers know that will have the lowest retail on an everyday

basis. In order for a product to become the traffic builder the chosen item needs to be a customer-

centric38 item. If the focus is not on the consumer it does not matter what price point is offered;

the purchase ratio per customer will not increase and additional traffic will not be driven. As an

OFG Category Manager there are many resources discussed in previous sections that can assist

with measuring the success of items. As a reminder, the POS system works directly with

QlikView and Aztek which can support any theories that may have been established concerning

the sales of specific products. As an example data can be pulled to see how many customers

come in the store on each day of the week and at what times when Heinz ketchup I L is on sale as

opposed to Western Family ketchup. If continually retailing Heinz Ketchup at an aggressive

retail produces 10% more frequency of shoppers than taking a loss on the item would be

beneficial to the store and this item would be considered a traffic driver.

38 Customer-centric items are those items that are focused on by the customer. Customers have a strong sense of product pricing strategies when dealing with items that they frequently purchase.

Similar measurement through the POS systems can be generated to assess

whether certain items result in a larger basket size by the consumer. Any particular item can be

measured to see what type of shopper generally purchases certain items. A few examples of this

include: the average consumer who shops for coffee pods for a Tassimo Machine spend on

average just over $120 every time they make a purchase. These are generally the higher end

consumers with more disposable income. Another good example of transaction building is the

frozen foods department; those who tend to shop for frozen foods are shopping with a shopping

cart and filling their pantries.

Next, there are profit generating departments. These pertain primarily to the high impulse

items that are either infrequently advertised or belong to a highly innovative category. Examples

of this would include: General Merchandise such as toys, books and batteries, as well as personal

care items such as shampoos and hair care. These are the items that are generally priced higher in

each retailer and are often a way to compensate for the items in the store that are far less

profitable.

Cash generators would be those items, usually with a high retail ring, that do not deliver

high profitability. Commonly these items will also fit seamlessly in the traffic and transaction

building categories as well. Case lot sales are a prime example of a cash generating strategy.

These offers promoted at OFG 2 or 3 times annually will have a negative impact on the bottom

line but they are a great opportunity to ensure that our customers are being taken care of with the

best retail prices available on the market. The only problem with items or events such as these is

the fact that they tie in with very little scan margin which can actually create a net loss when

factoring in all expenses.

The excitement creators are those items that are either unique to an establishment or those

events that a company does a better job at than their competitors. Items in this field would

pertain to events such as Sunrype apple month, owning BC39 , Save-On-Foods recent inclusion

into the Guinness Book of World records for the most pumpkins carved in one spot in history, or

the new restaurants offered in Save-On-Foods Calgary. These are the items or events that the

local communities cannot stop speaking about and will come directly to certain stores to see. As

Category Managers excitement can be created as well. Generally this will consist of transaction

building because it will usually come with an expense. An aggressive sale in the flyer that is

unlike what a competitor has done will cause a stir in the community like none other. The

problems with running a feature of that nature are twofold, first the consumers are going to

expect to find a promotion of equal or better offerings at another point in time and secondly the

competitors are always paying close attention and they will want to have an equally successful

campaign of their own. Category Managers should also be cognizant of the bottom line which

generally gets affected when running an overly aggressive promotion. Another form of

excitement that can be generated by Category Managers is the listing of new items and

promoting them accordingly. If a company is not the first to market on new innovation,

especially when there is national media exposure, getting an item in the flyer so the consumers

understand that this product is now available in the company will cause excitement.

Turf defending is the last strategy. This is the everyday product that the consumers

require when they come to shop. These are not the "sexiest" items on the shopping list, but they

are necessary for the consumer to complete their one stop shop. Items include light bulbs, pet

food, and single non popular SKUs throughout the store. These are those items that customers

39 Owning BC is Save-ON-Foods initiative to always offer more local British Columbian products than any competitor in the world.

expect that the store will carry when they need them; they are purchased with less frequency than

most but are also not flyer items. These are the items that you do not generally advertise because

there is not a huge sales lift when you do. Take for example the foil rings kept under stove

elements. Even if advertised for 50% off the consumers are still going to purchase them only

once a year when they need them.

There is not a "one size that fits all" approach when deciding on the best appropriate

strategy. Each category, subcategory, product line and individual SKU may have a different

strategy under the category umbrella. To fully understand the relationship between each item and

what strategy they belong to, it is imperative to run all the data through AC Neilson, Aztek, and

QlikView. This may sound like a daunting task and it would be if a CPM was expected to do all

of this work on their own. Most suppliers already have this information readily available to them

since they own their product line and they have already completed the analysis of each of their

SKUs to best understand what strategy works best for their items. Utilizing the information from

key suppliers is crucial. Once again it must be stressed that relationship building with suppliers is

a very crucial step in Category Management.

Chapter 10 Category Tactic

This chapter discusses the importance of overall corporate processes pertaining to

optimization of assortment, schematics new product listings and pricing strategies. Readers will

be exposed to advantages retailers can receive by the tactics they choose and the effects of

corporate positioning.

This step simply expands on previous steps. If the marketing strategies are in place the

Category Managers now need to focus on what is required to align department goals with those

of the company. AC Nielsen quoted "How do Category Managers know that their assortment,

price, promotion, merchandising, and supply chain decisions support their retailers ' overall go-

to-market strategies"? (Heller, 2006)

A Quantum research document suggests, "The first issue to address is the assortment of

the mix. What process do retailers need to go through when contemplating assortment changes?

The increasingly competitive nature of the grocery industry has enhanced the relevance for

retailers to optimize their assortment to reduce the impact of an expanded market place. This

process not only can dramatically increase margin and sales, but can also help localize store-

level assortments and increase the efficiency of customer shopping experiences. When retailers

offer too many choices, it can cause headaches for shoppers and supply chains alike, force

unnecessary markdowns, and ultimately will take a toll on margin." (Retail, 2012) The only

problem with this theory is the concern of eliminating SKUs from the mix that have brand

loyalty. When assembling the mix there are numerous factors to contemplate. Allotment

variation can be expensive on the warehouse and supply chain as suggested. The big concern is

who retailers are competing with. Traditionally the stores that are able to succeed when dealing

with low assortment levels are the EDLP stores. 40 The concept of most EDLP providers is lower

SKU levels to reduce the RSP41 frequency. Most EDLP providers essentially still provide an

occasional high low opportunity by offering promotional activity on products, but this will occur

less frequently than in traditional retail chains. The way the lower SKU level saves money for

the company is by reducing the handling of the product. By having fewer SKUs there are less

pick slots to fill in a warehouse, which maintains warehouse simplicity, less handling at store

level because the employees will fill a larger quantity of one item to the shelf, less flyer activity,

fewer signage maintenance issues, fewer IT42 issues and there is less pressure on operating

systems. The greatest cost savings that occurs for retailers choosing the EDLP approach is

volume buying incentive opportunities. The more a retailer purchases of one SKU the greater the

reduction in the cost of goods. So, the main detriment to this style of pricing is trying to compete

with Walmart, Costco and other EDLP companies that have mastered this system by reducing

inventory levels and maintaining a lean cost structure.

Retailers need to understand their customer demographics when choosing the assortment

strategy. Are they serving a niche market? Who are their customers? In an article by Gilon Miller

(Miller, 2012) he shared his ten fundamental rules to choosing product assortment. (Refer to

Appendix 3 for the Ten Fundamental Rules for Choosing Product Assortment, by Gilon

Miller)

Invariably there are infinite strategies of assortment mix in retail and choosing the correct

strategy comes down to effective research of the demographics for each location and

marketplace to ensure that the customers are given what they need.

40 EDLP (Everyday low prices) Walmart, Costco, and other warehouse style retailers. 41 RSP (Retail Sale Price) 42 IT (Information Technology)

The pricing strategy can also be complicated. Though companies traditionally have a

procedure in place that identifies the corporate pricing strategy, each category can have

segmented pricing strategies. There are certain items of the overall product mix that data

research indicates consumers will switch the location they shop at if the pricing is non-

competitive. These prices are traditionally the ones the customers relate the most to and can

cause several emotions during the customers shopping experience. Grocery items of this nature

would include items such as: milk, bread, eggs, pop, chips, toilet paper, frozen pizzas, bananas

and ice cream. Items that are considered to have low price sensitivity would be those items that

are purchased far less frequently and customers do not relate to the pricing as they probably have

not made a similar purchase for a year or more. Examples of these items could include: light

bulbs, general merchandise, oven cleaners etc. In 2013 many retailers have expanded well

beyond choosing a pricing strategy and trying to adequately implement it. There are several

software companies that have developed price optimization software that links competitive

pricing strategies to POS software to help choose the most appropriate price to attain the goals of

the department. OFG chose Revionics43 as a price optimization tool. The system is developed to

a point where subcategories can be assigned individual tasks. Data can be input into the system

to direct the item or family of items to become drivers in different opportunities. These

subcategories or product lines can be chosen from any of the categories defined in category

strategy and need to relate to goals that the CPM has for the given items.

Promotion and merchandising work hand in hand. The next idea after choosing the

pricing strategy concerns the promotional activity ofthe product. 44 How often should the item be

43 Revionics is a brand of software utilized to generate the optimum regular price on all items based on strategies chosen by CPM's 44 Promotional activity is the frequency that the item is advertised at a reduced sales price offering.

advertised and what pricing should it become offered at? Assuming that the idea is to generate

additional profit for the company the idea would be to run some calculations based on previous

sales history to determine optimum price that will generate enough of a sales lift so the penny

profits are covered offby selling enough additional units. This math can be completed either on a

profit wheel or the pricing calculator that has been defined in previous sections of the paper. As a

quick reminder, the information is retrieved from QlikView or Aztek, which get the information

from the POS. Regular sale price and regular units sold are entered into the pricing calculator.

Next data pertaining to expected sales that we anticipate based upon the data retrieved as well as

anticipated sale price are input and the calculator provides the number of units actually needed to

sell to have profit equaling what there would be if to the item was not advertised at all. This

would be an ideal system, but as previously indicated there are times when retailers take a loss

on an item to increase revenue and hopefully attract customers that may make an additional

purchase while in the store. When choosing promotional activity, consideration needs to be made

with respect to merchandising activity. Some items need additional display space to maintain

stock levels for the customers, some items need to get the attention of the customer to drive

additional sales and some items have additional display space paid for by suppliers. Retailers

also need to decide where the items are going to be displayed, for how long, and how elaborate

they will choose to build the display.

Chapter 11 Category Plan Implementation

This section describes how Customer Product Managers must ensure that their creative

vision for their department align with corporate goals and the goals of the suppliers they do

business with. The idea is to create a shared vision that encompasses goals from all parties so

that the journey has shared goals and values with measurable performance indicators and

timelines.

Once all previous steps have been defined and areas of concerns have been addressed it is

time to ensure that all supplier plans coincide with the category plans. Ensuring that there are

regular meetings scheduled with key suppliers will assist with this step. In addition to the

regular meetings with the vendors it is best to have a special meeting set up with key vendors

prior to the beginning of the fiscal year to discuss the yearly plans, strategies and goals. By doing

this the company and key suppliers have the opportunity to align goals and work through any

potential problems prior to implementation. Working with the key suppliers will also assist

CPMs as the suppliers generally share information pertaining to unsuccessful tactics that they

have seen elsewhere. This is also a great time to discuss the plans and assumptions that CPMs

have concluded in previous chapters. It is a good time to discuss pricing and promotion

strategies, merchandising opportunities and schematic changes. After having the yearly meetings

with all key suppliers it then becomes time to implement the chosen strategies. Implementing the

strategies begins with a strong plan and requires support from all levels. The plan is only derived

in the office with the support of the office team as well as the suppliers, but it needs to be

implemented at store level. Sometimes it can be a challenge getting support at store level and

unless the stores can become aligned with the overall vision, the project or plan will fail to

materialize. The store employees are integral in achieving the goals. Appropriate implementation

of strategy can either become a success or cause grief to employees, therefore upon

implementation of any strategy whether pricing, advertisements, assortment mix or

merchandising it is always important to ensure that upon completion of implementation there is a

full review of the strategy. Checking the supplier scorecards, assessing the profitability of the

department, category or subcategory is integral to this step. Even if the strategy is smoothly

implemented there is a common error in assuming that it will become a success. Many plans fail

so CPMs constantly end up back at the drawing board to contemplate new strategies that will be

required to once again be implemented, evaluated and updated. The Category Management

process is quite alive with daily changes. As customer demographics, wants, needs and desires

change, so do the goals and requirements of the retailers .

Chapter 12 Category Review

This chapter will guide readers through the final step of the traditional "Eight Steps of

Category Management" by AC Nielsen. In this unit the tools that are available to analyze the

success of the implemented strategies will be explained.

"The final step in the business process is the review of the progress and of the actual

achievements against the targets set for the category. Review aids in the taking of decisions at

the right point of time. Category Management is considered to be a "scientific" approach to

relating in the mature markets, largely because it is date driven and fact based. The successful

adaptation of Category Management at pantaloons shows us how the returns on the particular

product/category can be maximized by keeping the focus on the customer and creating systems

and processes within the organization to aid such a focus." (R.yuvarani, 2009)

The first thing to establish when looking into any item in a new category as a Category

Manager is that the process never ends. There is no finish line. Every time that it may appear that

processes are wrapping up a new curve ball will appear. The innovation never ends as companies

are always trying to evolve their brand and their company for the same reason that OFG has

implemented Category Managers; to increase revenues and profitability for the company. If the

process started correctly with a need to make a change to the category, whether introducing a

new item, a pack change, or an overall change to the schematic layout, and all the steps were

followed, the implementation will finally get to the review of the category. Essentially this is

where the work originally began and will need to begin all over again, this time assessing the

changes that have been made to decide whether the new strategy was correct. As an introductory

user of the 8 steps of Category Management, the process can be thought of as starting with the

review. Unless originally completing a review there is little chance that a change would be

successfully implemented, hence the need to create a continuous process.

There are different levels of reviews that can be completed. Some reviews take a matter

of seconds for a quick decision, an example would be the replacement of an existing product

with a new line that is a similar but updated product and has the same packaging dimensions.

This would be a simple transformation. Category Managers must have reviewed the new product

and decided that it makes sense for the business to put forward a plan to implement this product

into the category. As simple as it sounds there are still many steps and challenges that need to be

addressed. The first step is filling out a new line notification form with all the relevant

information filled out accurately. This information contains product size and box dimensions,

new flavor, product name, product cost, product retail, product description, UPC number and

variant number. The form must also include where the anticipated item will go and what item

will be eliminated from the existing schematic or planogram. After delivering this notification

form to the schematic clerk that is responsible for the category, the clerk will take some time to

review the information to ensure that nothing was missed. While waiting for the process to be

confirmed, CPMs can then have a meeting with their merchandising clerk to ensure termination

of the old item out ofthe system, "discontinuation," and activation ofthe new item. Another step

is meeting with the product buyer that is responsible for the category to ensure that they cut off

all purchases of the old SKU and create an original PO (Purchase Order) for the new SKU. When

the new SKU arrives in the warehouse OFG has a policy wherein there is a forced distribution of

one case to each and every store in OFG so that they have the item in advance for the schematic

that will be released by the schematic clerk. After the schematic clerk releases the schematic to

store level there is an approximate lead time of three weeks for stores to implement the

schematic.

As observed there is quite an extensive process involved in changing one item in a

schematic, therefore these changes should be well thought through to ensure that changes are

made as infrequently as possible. The way to achieve this is by working with suppliers to come

to an understanding as to when their innovation is going to hit the market and try to get

competitors to list their new lines at a common time. There is a new line fee that compensates for

portions of the work done in the office and at store level to implement said changes, but these

fees are often not significant enough to cover the costs and any savings that can be made

contribute to the bottom line of the category. New line fees are a debated concept considering

that they are very infrequently applied in the United States of America. Suppliers will advise of

their concerns regarding new line fees on a regular basis. There is, however, valid justification

for these fees in Canada. The US traditionally practices rackjobbing. 45 In Canada most retailers

operate in a unionized environment which prevents the use of suppliers when performing

schematics. The cost of a simple new line replacement can be excessive. There is the labor of the

CPM putting the plans in motion which will generally exceed one hour of time, as well as the

wages of the Aztek group building the schematic which will be in excess of 3-4 hours because

OFG 46 has multiple schematic sizes for each schematic based on overall space in each store.

Every store then has to have the price change department print new labels for the new item and

then there needs to be a grocery clerk in each of the 144 stores implement the schematic by

removing the old product scanning it as discontinued,

45 Rack jobbing is when suppliers have hired clerks that are required to stock shelves and implement schematics on behalf of the suppliers. This saves the stores a great deal of cost when new schematics occur. 46 When scanning product as discontinued OFG will receive full cost recovery on the affected product, however all profits are sacrificed in the process .

Completing a full category review is important when the innovation expands beyond

initiating a schematic change for entering a few items to replace a few discontinues. A complete

category review becomes necessary when the innovation is so dramatic that the entire planogram

needs alteration. Another reason for a complete category review could be if a category or

subcategory is lacking in the market place or the section has become antiquated. In General

Merchandise, many times a complete category review becomes initiated because what was last

year' s innovation often becomes this years "old news. " Cereal aisles, air fresheners and

shampoos often trigger category reviews as these items tend to change semiannually due to

companies always seeking innovation or completing package changes to keep their shelves fresh

and current in the consumers' minds. (Refer to Appendix 4 to review the 8 steps of Category

Management flow chart)

Chapter 13 Vendor meetings

This section will share the practical process that is involved with hosting a vendor

meeting. Recommendations will be made about preparation techniques as well as what

information traditionally is open for routine discussion at each different style of meeting.

When hosting a vendor meeting it is imperative to arrive fully prepared. A CPM should

never allow a vendor to schedule a meeting without an established agenda. With all the planning

and computing aspects of the position, time is of the essence. Vendors should be required to

arrive with all pertinent paperwork including AC Nielsen data, Aztek data and a full plan of what

they expect to accomplish with their meeting. Some meetings are simple in nature, consisting of

monthly, quarterly or yearly review of statistics and what level of targets they would like to

achieve for the following time period. Some meetings are more advanced , consisting of the

planning piece for periods as great as one year in length. Generally these meetings have the

vendor arrive with sales data based upon the previous year sales and what they would like to do

to maintain similar sales patterns for the following year. Vendors typically attempt to repeat the

same flyer offerings as they had the previous year to accomplish equivalent sales. If the vendor

wants to attempt to earn greater sales they could try to add merchandising frequency or attempt a

different pricing strategy. A recent trend by suppliers involves implementing an EDLP strategy

where the flyer activity is greatly reduced while offering a more competitive price structure on

an everyday basis. Some companies may bring data that indicates they had over-invested in

merchandising activity without reaping the rewards. Sometimes sales lifts are not as great as

forecasted and this can impact future flyer opportunities.

The enjoyable meetings are when a new product line or launch is requested. These

meetings are very similar to a " Dragon' s Den" television show. 4 7 The vendors will arrive with

samples of their product to try to persuade CPMs into believing in the product. Next the vendors

present sales data from alternate business locations such as competitors. If the item is to become

first to market48 vendors should provide forecasted sales opportunities based on similar items. It

is always preferred that the vendor has a suggestion of what item in the category is under-

performing and it is even better if this item is a product that belongs to their portfolio. The

difficulty in this stage is that many vendors will arrive with many more innovative products than

items they plan to delist. The concern then becomes deciding on what items to consider for

delisting. 49 A great concern for a CPM with regards to the delisting of an item is choosing the

correct product that does not contain brand loyalty. There are many items that though they may

not have high sales, do cause consumers to switch markets if they cannot complete their shop

with a particular item. Biases are also included in these meetings and CPMs need to remain

cognizant at all times ofvendors who may suggest the removal of a product line from a

competing supplier. There are times when the data presented may contain a high degree of bias

and the CPM is responsible for deciphering this. A CPM can alleviate some of the bias concerns

by doing additional research on their own prior to the meeting. By printing off vendor scorecards

for the presenting supplier, as well as close competitors, a CPM can take a few moments to

establish sales opportunities or suppliers that have products in a state of decline. Once a product

is fully reviewed with the vendor it is important for the CPM to ask all required questions to fully

47 Dragon's Den is a reality television show where entrepreneurs arrive and pitch their business proposals to millionaires with the anticipation that they may invest as Angels or partners in their company. The main difference is that most of these entrepreneurs require additional capital to grow their business and the vendors that are proposing their ideas to CPM's merely require shelf space and flyer activity. 48 First to Market is exactly as it sounds, the first retailer to introduce the new product to the public. 49 Delisting is the removal of a product without the discontinuation from the supplier. Essentially the store discontinues the item.

understand the needs that they may have for the supplier. Obvious question after deciding that

the product may have opportunities should include: package size, case size, how many cases

need to be ordered at a time for delivery to the warehouse, forecasted sales, anticipated cost and

margins for the new product as well as many other individual concerns. A CPM would be best

advised to never confirm with a vendor that they will take the new product on the initial meeting

as there are many steps to ensuring that the product will be successful or even relevant to the

market. Personal tastes and preferences sometimes need to be cast aside to ensure that the overall

good of the company will prevail.

Should a CPM decide that a new product or an entire line of products should become part

of the schematic all the steps detailed above will need to be implemented. Before this phase can

even occur, CPMs will need to utilize effective negotiation skills with the vendor. Areas up for

negotiation can include but are not limited to: listing fees , reclamation process 50 , product cost,

what items should be discontinued, terms of payment and case size. Many times vendors will

arrive with the figures all detailed in a contract form but this should not impact the CPMs

decision to ask for a better offering. Most meetings will include the vendor telling the CPM that

there are not many funds for listing fees, but it is quite evident that this becomes a cost of doing

business and they will need to supply listing fees to contribute toward the fees associated with

the launch of a new schematic. Most companies have established policies that can assist with the

negotiation process but great gains can be made by increasing the terms of payment and earning

a greater return on reclaim fees. Generally negotiations should include a case of product to be

shipped to each store for initial set up. These meeting are an opportunity for CPMs to truly

utilize all the skills they have to try earn a greater profit margin for their category.

50 Reclamation process is when a product becomes dated or damaged and needs to be removed from the shelves . The negotiations will include what percentage of fees involved will be passed on to the vendor.

Chapter 14 Recommendations

This chapter will allow the author to provide recommendations pertaining to areas that

could be open for improvement opportunities. These are areas that do not seem to be covered or

addressed at this current time but there may be some need for inclusion in the future.

Upon review ofthe literature and key findings there seems to be a lack of information in

certain areas .

Recommendation 1

The first recommendation would be for the AC Nielsen group. The eight steps of

Category Management seem to be misaligned with the needs of the business. According to AC

Nielsen the eighth and final step of Category Management is the review process.

Recommendation would be to reallocate the review process to become both the first and the last

step of the process. No changes should be implemented until there is a complete review of the

business needs. It is virtually impossible to understand the need of the overall business without

pertinent information and a thorough analysis of both the KPis 51 and the strategic needs of each

business unit. (Refer to Appendix 5 for proposed "Nine Steps of Category Management"

flow chart)

Recommendation 2

There also needs to be substantial change to the review process. When trying to fully understand

the category prior to implementing any changes, one key process does not seem to be discussed

in detail by AC Nielsen. There is insufficient evidence of any processes relating to the training of

51 KPI ' s are Key Profit Indicators

SKU rationalization. Fully understanding what items should be included in or excluded from a

schematic is not just a simple step that involves hard line sales figures . AC Nielsen provides

sales data as discussed in previous sections of this paper, but where AC Nielsen cannot help a

category manager is in deciding on items that should be carried and that do not have sufficient

levels of data based on a lack of sales history. This could be a new line of products, innovation,

or items that are not carried by the traditional retailer. The reason that this can become a concern

is because the same information will be provided by data research companies to product

managers from all companies. Suppliers and vendors will also provide the same information to

all stores, as their main priority is to sell the product lines that they are responsible for. Through

SKU rationalization a Customer Product Manager needs to evaluate the products on an entirely

different level. There needs to be consideration about items that are not based exclusively on

sales or profitability. In many categories there are items that need to be stocked due to special

needs of consumers in the marketplace. A good example would be gluten-free items. When

reviewing the sales data for many gluten-free items, many Customer Product Managers would

immediately surmise that many products should be removed from the schematic. However; when

taking into consideration the total overall basket size that these shoppers spend on an average trip

to the store it would prove to be a poor decision to remove the products that these consumers

depend on. Many shoppers want to have a one-stop-shop and those customers that have

particular dietary needs cannot simply substitute alternatitive products because a store decides

not to carry the products that their diet demands.

Research has shown that customers only used 340 unique products each year even

though there are millions available; retailers need to implement processes to assist with decision

making as to what those key items are to reduce stagnant allocations. As indicated in a study by

Tata Consultancy Services, 35%--40% of all inventories are slow moving goods that account for

less than 5% of overall revenue. One KPI that most retailers use as a measurement is inventory

turns and through proper SKU rationalization companies can dramatically reduce inventory

levels, which in tum will increase the inventory turns and free up working capital. (Servies,

Unknown) Further to reductions of inventory levels, retailers can then utilize available space for

faster moving goods or new innovations that will either bring in new customers or possibly add

additional units to the existing customer's baskets. Some key reasons for SKU rationalization

include: reduction of carrying costs involved with holding the excess inventory, greater

warehouse efficiencies, decreased freight charges, increased sales due to listing the best items,

which will also result in an increase in margin. (Ridge, 2011)

A 2009 study by Kate Vitasek of Supply Chain Visions suggests that retailers need to not

only focus on the aforementioned back end approach to SKU rationalization of simply reducing

inventory, but need to look at a front end approach of reducing the quantity of new listings.

While retailers fully understand the need to list new innovations to ensure the customers remain

interested in the product mix, one key factor that receives little credence is the fact that nearly

95% of innovative products fail to achieve forecasted numbers while only 10% of new lines

generally remain on the shelf following the first three years of the product life cycle. (Banker,

2009)

There are software applications such as FortnaDCModeler used by Fortna that assist with

the rationalization process. Measurements that FortnaDCModeler and similar software systems

measure include: the inventory turns of each individual SKU, the financial impact of each SKU

on the business, and the impact on the stock levels at the distribution centers. (Fortna) Again,

there is no evidence of this program measuring the significance of the reduction of SKU s that

will cause consumers to choose an alternate location to shop. Studies show that many items are

purchased in conjunction with an additional item. By eliminating the complementary product a

customer can be swayed to shop at a competitor where they can make one complete purchase.

Analyzing the way items are linked together is the market basket effect. (Fisher, 201 0) In a

classic case of SKU rationalization failures, Walmart reduced the levels of SKUs in 2009 only to

reconsider many products because they had originally failed to utilize a market basket approach.

As observed, SKU rationalization is imperative for the survival of business but there is not an

easy answer. Customer Product Managers must utilize all available tools when deciding on the

addition or deletion ofSKUs. Any decision made will affect consumers and the best approach is

to establish a product line that will serve the needs of the majority of consumers while ensuring

that the SKU s listed are of a profitable nature.

Recommendation 3

Key recommendations for the Overwaitea Food Group would include placing a greater

focus on communication of roles and responsibilities between Langley office employees and the

retail operators. At store level, employees, including management, are not aware of what really

goes on in the background. OFG has developed a plan to convert retail employees into CPM's

and if there is follow through with this strategy, there should be posted job descriptions that not

only clarify the role of Customer Product Managers but should also include how said positions

affect store level operations. Store managers are often unaware of many functions that are

completed by CPMs. Store managers are not trained on how VBis are earned. 52 Most store

managers are aware that VBis are earned from volume buying but they are not educated to

understand that these VBis are calculated based on the volume ofunits sold at each location.

52 VBI~s Volume Buying Incentives as defined in previous sections.

Often store managers are under the assumption that feature items that sell below cost are going to

create a negative scan or loss of profit. Though this is occasionally true there are many times

when there is going to be scan backs received on the back end and store managers should be

made aware of this to ensure that they are all promoting the products to the best of their ability.

Langley office employees are na!ve to think that managers should implement a plan because they

are instructed to do so. Most managers will ensure that the plan is implemented but if they

believe that they are losing profitability by doing so the support will not be there which will

cause a reduction of units sold. Store level managers are critiqued on their financial performance

and the more knowledge that they receive the better job they will do.

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The Jim Pattison Group Investments and Partnerships . (2013). Retrieved December 23, 2013, from http:/ /jimpattison.com/.

unknown . (2012, June 15). Our Company\ofg teamsite. Retrieved December 23, 2013, from http:/ /www .ofg4me.com/our-company.

Banker, S. (2009, August 29) . A Front-End Approach to SKU Rationalization. Retrieved February 16, 2014, from http:/ /logisticsviewpoints .com/2009/08/26/a-front-end-approach-to-sku-rationalization/.

Fisher, J. (2010, March 19). SKU Rationalization Demands Market Basket Analysis (aka Customer Buying Patterns). Retrieved February 16, 2014, from http :/ /it.toolbox .com/blogs/forecasting- configurable-products/sku-rationalization-demands-market-basket-analysis-aka-customer- buying-patterns-37559 .

Fortna . (n .d.) . A Case for SKU Management: The Implications of SKU Proliferation . Retrieved February 16, 2014, from http://www. fortna .com/whitepapers/ Article_ Case%20for%20SKU%20Management_Fina I_E N .p df.

research, A. (2007, July 4). SKU Rationalization, a New Metric for Retailers . Retrieved February 16, 2014, from http:/ /www .supplychainbrain.com/content/technology-solutions/event- management/single-article-page/article/sku-rationalization-a -new-metric-for-retailers/.

Ridge, B. (2011). SKU Rationalization . Retrieved February 16, 2014, from http:/ /www.blueridgeinventory.com/solutions/sku-rationalization .

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Appendix l)Training Programs

Program Objective

Stage 1:

Stage 2:

Stage 3:

Stage 4:

Day01

Business Summary

Key Stakeholders

CPM Training Program- Framework

- Develop a program which will allow new CPMs to develop core competencies.

Introduction

Skill Development (what/how) >»Delegation List

Strategy (why)

On-going Excellence

Desk & Phone I Business cards I Computer Profile (AMP-A Series-Aztec-AVC Nielson- QlickVIEW)

STAGE 1: Introduction/Business Overview

Merchandising Department Role {Grocery/Fresh/Drug Store)

Corporate Business Strategy

Banner Strategy

Merchandising Strategy

Grocery industry- Overview, trends, competitive market (discount/hi-Lo)

SCPM's

Store connection- Distro and Communication

Merchandising Clerk

Merchandising Services

Supply Chain (Buyers)

Pricing Department

Analysis team

Aztec (Schematic's)

Marketing (Flyer)

Product Integrity (Recalls)

Customer

Vendors

How the customer shops ...

Across channels (competition)

Trip Types- convenience I fresh/ stock up/full basket

Customer decision tree

Grocery- in the store (20 minutes)»> schematic (30 seconds)

Business Systems AMP

Business Analysis

Financial Analysis

Cat- Management

A-Series (New listings)

Portal (VBI scans)

OFG Display APP

AC Nielson Reporting

Aztec System

Qlickview Reporting

Qlickview

Crystal Reporting (932/911)

OFG Merch/AC Nielson Planning Model

Targets- (Customer)- sales, margin & share

Category definition and Role

Category Assessment

Category Scorecard (shopper/financial/market/productivity)

Category Strategies/Tactics

Vendor Relationships Broad based to detail/Meetings/Sales and Spend

Negotiations

New CPM Assessment Financial/Accounting knowledge

vii

MS Office Suite (Word/Excel) knowledge

Consumer/Marketing (Trends) knowledge

Supplier Relationships

STAGE 2: Skill Development (What/How)

Skill Development

AMP Training- AMP Applications+ Business Rules:

Build offers

Break Offers

WF Shielding

Establish regu lar retails/Pricing zones

Merchandising zones

Points and Smart Offers

(Three Weeks- build and load offers)

Promotion Planning Vendor Relationships (meetings/sales & spend I category)

Product/Schematic

Weekly flyer planning (AMP Reservations+ Pl-P12 Grocery Merchandising)

Display Planning Pl-P12 - Week and Period Planning

Buyer Meetings

VBI -Scan Back Management

Forecasting

lnstore Promotion Planning (Lift Calculator)

Role of Product Mix+ Schematics

New listing Process

Discontinued Process

Change Impact (cost I size changes)- pricing, schematics & supply

Chain

viii

Sales Reporting

Analysis

(Basic Reporting)

Partner Portal

Customer

Category Management

Vendor Relationships

Category review

Promotional Planning

Pricing Strategies

Product/Schematics

Reporting (Flyer reports)

QlickView

Crystal (931/911)

AC Nielson Reports (supplier, category & %promo)

Aztec reports

Inventory reports- short+ period end

VBI reports

Category review

Portal -Overview

Supplier Package Review

A-Series- CPM Approval (New listings, cost/pack changes)

Scan Backs- CPM Approval (flyer/instore)

STAGE 3: Strategy Development (Why)

Sales Reporting Analysis

STAGE 4: On-going Excellence

2} Category role flow chart

(Author, 2014}

3) Ten Fundamental Rules for Choosing Product Assortment

1.Make sure you Ktualty hilw ill deaf uiOftmlnt ~- Thls s,houfd be an intte.ral pan. of yoorovet4ttl s ~ V

l.stidl to l'O'K stratecy once you haw dKidecf on it. - M•ko your '""<IV r<flt<t souocf plaMI,.. 3.5od<. -.---lbfl--- prior .,.,c:haiNiit.lot..........,. .... tions, JIHOonllno---- People >Mim thtie ~ Jnd ~ ~ are: b'.!lit, bKomi,. an exttemety vahabW commodhy in thl! onltne worid. acaKdin& to

K.ommerre COf'JJUIWrt. Sanv MciCenlie, 20-ytJr veteran of the tetall .-M online fodustties..

~ c: t2 Q) • • Allolyte ....... ntly. E - ~ depend on your S.JitipeoJ:R Of ~ ~ tot s~ V) ~ Q) '--- 0 :::s V)

0::: V) - <t - S.bperimont wtdlyOut- ond ....... fron\111< .-. DM't Je.tw.U5.ottrnent dKisk>t1s to WI aod errot. rtl ~ ~ u c: :::s -Q) -o E 0 ~ .... -..-ol,....._to.......,.., - Thl<y m.v tJe. smart, and wry cap;11bie at data itwlySis, btJt at tM rtl '-

end of thl! dayj their ~ is not vou.rs.

-o a.. c: tlO :::s c: u.. ·-V) 0 0 - 7.Use ~~ tool to know yout competitors.' ~ 0

usortmeftb at •• times.

...c: u

- 6.Piace """"lmj>ott>n<o on buylnc dodslons that auto tho -10<\', thonon ....,...,._,_,to<y,

t-- 9.MMe ...... tM rfllttpr<>duct ••1M ~custom« .. priority.

10. -•boflP'octlce._-to_...,.

'--- .lnw.riably there are infinit1 stratet;'tes of assottrnent mit in ret. if

and choosing t:he corrKt smtqy C'OIT)H down to effectlw: fesearth of the d«l"t''Ifl'"Jpt.ic.s tor each loation and ~ ~ pl.lce to ensurl! tNt the ci..I:Stomers ~~ Jiwn what the s ~ OHd.

{Miller, 2012)

xii

4) 8 steps of Category Management flow chart

(Author, 2014)

xiii

5) Proposed alternative to 8 steps of Category Management

(Author, 2014)