Retail Category Management and Social Justice After Covid
The covid-19 pandemic strained supply chains and forced grocery retailers to quickly adapt, assess and rationalize what they were selling. Wholesalers were caught in the crossfire, their tried and true methods of inventory management built for efficiency, speed and productivity, not for the 180 degree change in consumer spending habits as vast sectors of the economy shut down. As the economy stabilizes, it’s worth considering how grocery stores decide to sell and how industry trends, relationships and broader macroeconomic factors influence what we see in stores.
Most grocery chains have a cyclical product review calendar that they share with trade partners, such as brands, product brokers and wholesalers. This schedule, usually called a category review calendar, parses out which types of product segments the purchasing personnel are evaluating on any given month. The schedule is usually set seasonally, with product launches aimed to be on shelf before their key selling season and all the pre-work to be done 4, 5 or up to 9 months previously. This pre-work includes supplier meetings, product samplings, data evaluations, product decisions, plannogramming and assortment planning, and communications to all stakeholders, including brands, wholesalers and store operations personnel, who are tasked with following through on these program decisions. If the average store has well over 100 product categories across multiple departments, then on any given month, the retailers staff will probably be taking meetings on 5-10 of these categories. A category is any obvious group of similar items that are merchandised together, such as yogurt, chips, salad dressings, kombucha or plant based meat analogues.
The retailer’s staff involved in the process is usually a group effort with a team leader typically called a category manager or category merchant. Instead of reporting up to a store manager or store operations teams, category managers usually work out of the headquarters office and report up to a director of purchasing or chief merchandising officer, with some variations on this organizational chart. A category manager usually has a couple of support staff, as they are tasked with handling a range of categories, from a handful to a whole department’s worth. The support staff typically assist with data analysis, vendor onboarding, program negotiations and communications.
Much of the work in category management is data driven. Food systems researcher Raj Patel is correct when he writes, “Outside of an intensive care unit, there are few environments so obsessively monitored and reconfigured as supermarkets.” This three dimensional space of the grocery store includes display sections and endcaps which are rotated out weekly or bimonthly and long runs of shelved aisles which stock thousands of unique sku’s and are assessed once or twice years on a category basis. Plannograms are 2 and 3 dimensional maps of store shelves that can drill down to the upc level, evaluating a range of metrics for each item, category, shelf set and department. Metrics could include gross margins, unit velocities, basket affinities, dollar sales, average retail price, average cost, as well as the delta’s, or year over year changes of each of these metrics. Other factors include seasonality, store layout and adjacencies, as well as industry trends and product attributes that work across categories, such as Organic, Non GMO, gluten free, vegan, grass-fed, Fair Trade, keto, paleo, etc. Depending on the goals and strategies of the category managers, and whether they are tasked with maintaining or increasing gross margins, increasing dollar sales, gaining more customers or competing on price with other stores in the area, each products performance and space is evaluated to figure out what should stay and what should be discontinued.
One of the most important and fulfilling jobs in category management is evaluating products and meeting with suppliers, including product tastings, facility visits and reviewing pricing, promotional programs, ingredients and packaging claims. This step could involve collaborating with the company’s own store brands team to develop private label offerings. The private label industry is a vast network of brokers, importers, manufacturers and trade groups that support retailers in developing and sourcing their own in house brands. The product evaluations also extends to third party, consumer packaged food brands, from industry behemoths with deep pockets for trade spend and consumer insights, to emerging start-up’s and mission oriented brands aiming to launch the latest innovation or trend starter. Many retailers, despite their P&L’s being beholden to incumbent brands whose trade promotions and placement fees literally keeps the lights on, also take risks on working with smaller, local and unique suppliers that will add to the ambience and brand reputation of the retailer, as well as the marketing and promotions vehicles used to differentiate the stores, show value and acquire and retain customers. Once meetings are finalized, decisions are made and communicated, taking into account the performance metrics of what’s on shelf, as well as the space requirements and program offerings of incoming products.
There is normally a high level of complexity involved in how retailers evaluate and decide what they are selling. Once the pandemic came into full swing and restaurants were shut down, people started getting sick and dying and stores became lifelines for communities and hazardous zones for employees, much of this cyclical work hit a hard pause. Retailers scrambled to find additional supply of in-demand products, from toilet paper, canned soup and frozen foods, while scrapping plans for new product launches and marketing initiatives that no longer fit the new reality. Wholesalers that supply the retailers, working off of just-in time inventories that kept their facilities productive due to low backstock and the assumption of frequent reorders, were slammed by the collapse of any rational supply and demand forecasting. Out of stocks of popular items and overstocks of products that were no longer desired or promoted, caused wholesalers to rapidly slim down their assortment, in a process called sku rationalization, that reverberated with brands and suppliers. Instead of carrying multiple, complete lines of products, wholesalers decided to sell best sellers and lowest common denominators that would keep shelves full. Innovation and product development took a backseat to making sure customers had enough to eat and stores could handle the evolving assortment while also cleaning shelves and staying safe. Hundreds of grocery store personnel died due to Covid-19, untold thousands were sickened, and whole sectors of the food industry, particularly meat processing plants and food processors became known as super-spreaders for their lack of safety protocols and production speed up’s to meet the new demand curve. There were no major retailers that suspended purchases from such suppliers.
As restrictions have eased, stimulus checks have been cashed, SNAP benefits have expanded and retail seems to be entering a new normal. Many retailers had very strong sales during the early months of the pandemic due to panic buying and in home dining growth, with some of the country’s largest chains setting sales records (while somehow justifying cutting hazard pay and closing stores), so this year a number of chains are seeing relatively slower sales and customers returning to categories that were not as popular during the pandemic. Retailers have started launching new products and evaluating categories again, with some chains setting new product strategies or taking the opportunity to reorganize their operations and procurement teams. AI and automation have taken on new levels of visibility, as retailers struggle to meet consumer preference for convenience while managing cost inflation and navigation a workforce unwilling to tolerate low wages and unsafe working conditions.
The root words of “retail”, are to re-tailor, to renew, change, rearrange, evolve. Retail is a fitting framework for an economy coming out of a catastrophic pandemic, in an industry whose workers bore the brunt of the impact and kept millions fed. As the industry churns forward, this innovation and evolution must include justice and equity, as surely as it means keeping shelves stocked.
