The final curtain?

When Sainsbury’s chief executive Sir Peter Davis announced last week that the chain was axing its entire staff of category managers, it appeared that one of the most talked about, controversial and costly experiments in British marketing had exceeded its shelf-life.

Category management was introduced to the UK in the mid-Nineties from the US. It had been seized upon by Procter & Gamble as a way to build relationships with increasingly powerful retailers and was developed by consultants The Partnering Group. Its initial success in simplifying ranges and making choice easier led to it becoming enormously popular, and another consultancy practice, Roland Berger, introduced it to Europe.

Together, retailers and manufacturers would exploit the latest technology to capture information about the desires and psychology of the nation’s shoppers, and use it to drag themselves out of the recession which had dogged them in the early years of the last decade.

Out went the buyer-led deals where suppliers would be beaten over the head until they submitted to a low-cost bargain, providing discount goods which were then thrust at shoppers whether they wanted them or not.

Category management promised to supercharge all the supermarket categories – from laundry detergents and household cleaners to tinned vegetables and ready meals – by planning the mix of products and pack sizes on the shelves.

Using some 50 “templates” such as “loyalty,” “spend index” (how much each customer spends) and “competitor status”, consultants claimed they would create an intricate matrix from which would blossom a new understanding of the product category and how to increase margins while satisfying customers’ desires.

But critics say the dream has crumbled. Even supporters admit it is in need of a serious rethink.

Too many planners

Howard Bentley, Sainsbury’s business planning manager for trading, claims category management remains at the hub of Sainsbury’s business, though he admits that the implementation of it has changed beyond recognition.

The problem in the past was that too much emphasis was placed on planning the strategy, and very little on implementing it.

“When Sainsbury’s introduced category management in 1996 we were very committed and our plans were considered world-class. What is actually happening is the plans are not being implemented. Too many people are creating the strategy and not enough are implementing it,” he says.

Indeed the adoption of category management has coincided with the decline of this once great British retailing institution.

To combat the problem, Sainsbury’s says it has restructured the trading and technical team. It has appointed “category strategy managers” to create and plan the strategy, while the former category managers have become trading managers in charge of implementing the plans. Some 75 jobs have been lost in the restructuring between the technical and trading sides of the business.

Another problem is that, since category management’s introduction, the buyers’ role has extended, he says. With 180 different categories, it has become unmanageable. In response, Sainsbury’s has incorporated 29 “supercategories” such as bakery and produce, which means sections of the store can be looked at as a whole instead of by individual product ranges. The term “supercategories” was introduced by Alan Mitchell (see below), although he uses it to refer to ranges which cross categories, such as Tesco Finest.

“Departments were very parochial in their outlook – super categories will bring all those people together as a team,” says Bentley.

Others agree that Sainsbury’s failed to integrate the system properly, making it an ineffective marketing tool for the chain. But they say the system is too expensive, without any sustained uplift in sales to warrant the effort involved.

One source questions whether Sainsbury’s buyers and preferred suppliers have taken on the category management disciplines sufficiently well to keep the company’s buying strategy customer-focused. His concern that the trading department is not focused on what shoppers want derives from a previous marketing strategy when Sainsbury’s customers were asked what they wanted from a store. Two hundred preferred products were then selected to appear in stores nationwide, but traders resisted the move because it “disrupted” their buying strategy, he says.

“My main concern is that the buyers are continually being moved around. The emphasis is on their negotiating skills not on their knowledge of products,” he adds.

Gerald Corbae, associate partner at consultants Roland Berger, which introduced category management to the UK as part of the “Efficient Consumer Response Europe” programme in the mid-Nineties, says: “In terms of buzzwords, like every management fad, it is towards the end of its life-cycle. Has it lost its validity? No. A category manager who really understands his category adds more power than a sales-oriented buyer.”

Expensive techniques

Paul Cousins, director of marketing consultancy Catalyst, says category management has led to partnerships between suppliers and retailers but adds that this does not come cheap.

“There are huge amounts of money involved, most of which has to be put up by the manufacturer, all in order to pretty much maintain the status quo,” says Cousins. He says introducing category management involves major reorganising and a blip in rising sales as products are moved around. Then after a settling-down period, sales generally revert to what they were originally.

The idea of category management is to fundamentally change shoppers’ behaviour. But it has become jaded and retailers need to take braver steps than simply moving products around the shop, he believes.

Regional differences

He says stores in London are laid out differently to those in northern England as consumers shop differently, but neither are by any means radical in their approach to consumer-led strategies. Stores in the US tend to provide an in-store theatre environment whereas supermarkets in the UK are more concerned with efficiency.

Cousins believes that UK retailers need to create an “occasion” for consumers to shop in. “Rather than dictate to consumers, you need to create an environment which they want to keep returning to,” he says.

But the decision by Sir Peter Davis – himself a former Sainsbury’s marketing director – to revise the whole category management experiment has raised a difficult question for the retailers and marketers: what next?

Big supermarkets linking up with the brand owners such as Heinz to work out the best range of products on the shelf has already led to problems. One supermarket shelved category management after being threatened with legal action by a disgruntled supplier left out of the information-sharing chain. Category management does sound like a recipe for the biggest players getting together to cut out their smaller rivals.

But category management has turned out to be too expensive and complex to handle, although the practice is spreading into Europe and is making headway in Germany and France.

“The challenge for British retailers is to take it to the next level, from being a one-off project to being a new way to do business with suppliers and plan strategies.”

The dream of overcoming the adversarial relationships between retailers and suppliers to ignite sales growth has not died, but it remains a dream. The search is on for another way forward.

Category management was too expensive and remote from consumers.

Alan Mitchell says supermarkets are at last beginning to listen to their customers

Category management emerged from two powerful trends. The first was the retailers’ quest to maximise the returns on their shelf space by putting exactly the right products in exactly the right displays to achieve the highest possible sales and margins.

The second was the shift in power from manufacturers to retailers. Retailers grew impatient with manufacturer marketing activities which benefited Brand A’s market share versus Brand B’s, but which merely cancelled each other out when translated into overall retailer category performance.

The promise of category management (heavily promoted by the European Efficient Consumer Response movement) was that it would unite both retailers and suppliers in fact-based decision-making – based on financial statistics and careful consumer research in the mutually beneficial goal of category growth.

Some of that promise has been realised. But overall, category management has proved to be a severe disappointment. The cumbersome manuals and templates which were dreamed up by the EECR movement’s consultants turned category management projects into gruelling marathons, eating up companies’ time, money and IT resources. Furthermore, because the manuals were in the public domain, there was little competitive advantage in proprietary category management know-how.

And like an exercise in spring cleaning, most of the benefits (say, of range rationalisations and new store layouts) were one-off.

But the real flaw in category management was that it was a marketing nonsense. It offered precious little help to retailers in their key challenge of differentiation and brand building.

Category management theory distinguishes between “destination categories” which attract and excite shoppers – wine or fresh produce – and “routine categories” – for example soap powders. But destination category-based differentiation strategies never bore fruit. Most retailers, unsurprisingly, chose similar destination categories, and shoppers rarely noticed or valued the difference.

When it came to brand building, category management was a disaster. Effectively dividing stores into 120 different category fiefdoms is not a good way of building a single, clear, coherent and differentiated retail brand.

Finally, despite endless talk about decisions being driven by the consumer, the fundamental assumptions behind category management remained producer-centred. Categories continued to be defined in terms of products’ attributes – “what came out of suppliers’ factories” – not consumers’ needs.

Not surprisingly, the initial enthusiasm among retailers and manufacturers for category management is waning. Now, retailers have switched to experimenting with “supercategories” (for want of a better word).

A “supercategory” is a range of products spanning many traditional product categories (such as coffee, colas, or culinary products) to focus on the needs of a particular type of shopper: the discount shopper, the gourmet shopper, the healthy-eating shopper. It is an attempt to manage consumer categoriesí as opposed to product categories, and to look at consumers’ experience of shopping in the whole store.

Supercategories are therefore designed around marketing – as opposed to space management – priorities.Tesco, for example, hopes that its Value, Tesco Finest, and Organic ranges will each appeal to a different group of shoppers, and that together this mix will help it to stand out from competitors such as Sainsbury’s and Asda. Likewise with Sainsbury’s Taste the Difference, Economy and Be Good To Yourself marques.

Old-style category management won’t disappear completely. The core analytic techniques and merchandising skills it exploited are still valuable. But as one of the great hopes of retail marketing and a supposed key to transformed manufacturer/retailer partnerships, category management has reached its sell-by date.