Transcript PRIVATE LABEL PROFITABILITY & CATEGORY MANAGEMENT …

CATEGORY MANAGEMENT
&
PRIVATE LABEL PROFITABILITY
W. Frank Dell II, CMC
DELLMART & Company
May, 2001
Agenda
 Category Management
– Introduction
– Distributor Program
– Supplier Program
 Private Label Profitability
– Introduction
– Activity Based Costing
– Net Profit Applications
DELLMART & COMPANY
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Objectives
INTRODUCTION
 Provide an overview of category management and
its process
 Identify strengths and weaknesses
 Outline a supplier’s approach
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Definitions
INTRODUCTION
 Category
A distinct, manageable group of products/services
that consumers perceive to be interrelated and/or
substitutable in meeting a consumer’s needs.
 Category Management
The distributor/supplier process of managing
categories as strategic business units, producing
enhanced business results by focusing on delivering
consumer value.
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Charter for Change
From
Push
Salesperson
Buyer/Seller
Cost Averaging
Deals
Sales Drivers
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INTRODUCTION
To
Pull
Business Team
Account Management
Cost to Serve
Pay for Performance
Profit Drivers
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Charter for Change
From
Data Protection
Data
Shelf Management
Win/Lose
Fast
DELLMART & COMPANY
INTRODUCTION
To
Data Sharing
Knowledge
Assortment Management
Win/Win
Fastest
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INTRODUCTION
Does Category Management Work?
Copps Corporation - Wisconsin, USA
 Snack Category 3 year increase 87%
– Year 1 33%
– Year 2 22%
– Year 3 15%
 Candy Category 2 year increase 111%
– Year 1 60%
– Year 2 32%
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INTRODUCTION
Brand Management
 Started in the 50’s & 60’s
 Brand General Manager
Product
Development
Brand
Management
Promotions
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Advertising
Profit & Loss
Responsibility
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Supplier Migration
INTRODUCTION
Brand Management
Category Management
Snap, Crackle & Pop
Vs
Tony The Tiger
Vs
General Mills
Kellogg
Vs
General Mills
&
Breakfast Alternatives
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DISTRIBUTOR
Components
Collaborative Trading
Partner Relationships
Scorecard
Strategy
Business Process
Information
Technology
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Organization
Capabilities
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Elements
DISTRIBUTOR
 Manage the category as a strategic business unit
 Develop strategic category plans based on category
goals, competitors and market conditions
 Determine price, merchandising, promotion and
product mix
 Collaborate with suppliers
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Process Activities
DISTRIBUTOR
Category Definition
Category Review
Category Role
Category Assessment
Category Scorecard
Category Strategies
Category Tactics
Plan Implementation
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DISTRIBUTOR
Definition
 What products are in a category?
 How will categories be grouped?
Segment
Sub-Category
Segment
Category
Segment
Sub-Category
Segment
Sub-Segment
Sub-Segment
Sub-Segment
Sub-Segment
Sub-Segment
Sub-Segment
Sub-Segment
Sub-Segment
Source: ECR Category Management
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Category Role
DISTRIBUTOR
Destination
To be the primary category provider and help define the retailer as the store of
choice by delivering consistent, superior target consumer value.
Routine
To be one of the preferred category providers and help develop the retailer as
the store of choice by delivering consistent, competitive target consumer
value.
Occasional/Seasonal
To be a major category provider, help reinforce the retailer as the store of
choice by delivering frequent, competitive target consumer value.
Convenience
To be a category provider and help reinforce the retailer as the store of choice
by delivering good target consumer value.
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DISTRIBUTOR
Assessment
Market
Market Share
&
Benchmarks
Distributor
Contribution
&
Productivity
Category
Sub-Category
Segment
Brand
SKU
Consumer
Buyer Profile
&
Purchase Behavior
Supplier
Share
&
Efficiently
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Distributor Scorecard
Consumer
Retention Level
Purchase Incidence
Satisfaction Rating
Share
Category of Department
Category of Market
Sales
Category $
Growth
Sales/Sq. Ft/Week
Profit
Gross Profit $
Gross Margin
Gross Profit Sq. Ft/Week
DISTRIBUTOR
Current
_______________
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Target
_______________
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_______________
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_______________
Private Label
Sales
% of Gross Profit
Gross Margin
_______________
_______________
_______________
_______________
_______________
_______________
Product Supply
Days of Supply
Inventory $
Turns
GMROI
Service Level
_______________
_______________
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_______________
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DISTRIBUTOR
Consumer Strategies
Category
Category
Roles
Roles
Destination
Category Strategies
Procurement
Acquisition Strategy
- Best Quality/Reliability
- Best Cost & Terms
Transaction Strategy
- All EDI & EFT
Acquisition Strategy
- Best Quality/Reliability
- Best Cost & Terms
Routine
Occasional/
Seasonal
Transaction Strategy
- Majority EDI & EFT
Acquisition Strategy
- Best Quality/Reliability
- Best Cost & Terms
Transaction Strategy
- Some EDI & EFT
Acquisition Strategy
- Low Cost
Convenience
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Distribution
Marketing
In-Store Service
DC/Store Receiving
- Auto Replenishment
Transportation
- DSD, Backhaul
DC/Store Handling
- Cross Dock
- Sale-Ready Packaging
Attract Strategy
- Traffic Building
- Image Enhancing
Build Loyalty Strategy
- Transaction Building
- Turf Protector
Micro marketing
Full Service
- (If Necessary)
DC/Store Receiving
- Auto Replenishment
Transportation
- DSD, Backhaul
DC/Store Handling
- Minimize Handling
- Reduce Shrink
Build Loyalty Strategy
- Transaction Building
- Turf Protecting
Semi-Service
- (If Necessary)
Transportation
- Reduce Transit Time
DC/Store Handling
- Reduce Shrink
- Sale-Ready Packaging
Attract Strategy
- Traffic Building
- Excitement Creating
DC/Store Receiving
- Auto Replenishment
Build Loyalty Strategy
- Transaction Building
Self-Service
DC/Store Handling
- Minimize Handling
- Reduce Shrink
Uniform Marketing
Non-Differentiated
- (From Competition)
Cluster Marketing
Cluster Marketing
Differentiated
- (From Competition)
Non-Differentiated
- (From Competition)
Self Service
- (If Necessary)
Non-Differentiated
- (From Competition)
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Distributor Strategies
Category Strategies
DISTRIBUTOR
Category Strategies Characteristics
Traffic Building
High Share, Frequently Purchased, High % of Sales
Transaction Building
Higher Ring-up, Impulse Purchasing
Profit Contribution
Higher Gross Margin, Higher Turns
Cash Generating
Higher Turns, Frequently Purchased
Excitement Creating
Impulse, Lifestyle-Oriented, Seasonal
Image Creating
Frequently Purchased, Highly Promoted, Impulse,
Unique Items, Seasonal
Turf Defending
Used by Retailers to Draw Traditional Customer Base
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DISTRIBUTOR
Distributor Tactics
Category Tactics
Category
Roles
Destination
Routine
Occasional/
Seasonal
Pricing
Shelf
Presentation
Promotion
Complete Variety
- Sub-Categories
- Segments
- Brands
- SKUs
Leadership
- Best Value
(Per Unit or Use)
- Entire Category
Prime Store Location
- High Traffic
- High Exposure Time
High Cube Allocation
(Cube to Time Supply)
High Level of Activity
(If Necessary)
- High Frequency
- Long Duration
- Multiple Vehicles
Broad Variety
- Sub-Categories
- Segments
- Major Brands
- Major SKUs
Competitive/Consistent
- Equal to Competition
(Per Unit or Use)
- Sub-Categories
- Segments
- Major Brands/SKU
- Reduce Shrink
Average Store Location
- High Frequency
Average Level of Activity
(If Necessary)
- Average Frequency
- Average Duration
- Multiple Vehicles
Timely Variety
- Sub-Categories
- Segments
Competitive/Seasonally
- Close to Competition
(Per Unit or Use)
- Sub-Categories
- Segments
Good Store Location
- High Traffic
Non-Inflammatory
- Within Reach to
Competition
(Per Unit or Use)
- Major Brands/SKUs
Available Store Location
Assortment
Select Variety
- Major Brands/SKUs
Convenience
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High Cube Allocation
(Cube to Time Supply)
Seasonal/Timely Activity
(If Necessary)
- Multiple Vehicles
Average Cube Allocation
(Cube to Time Supply)
Low Level of Activity
- Multiple Vehicles
Low Cube Allocation
(Cube to Time Supply)
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Retail Category Portfolio
DISTRIBUTOR
Sales Dollars
High
Low
High
Flagship
Cash Machine
Maintain/Grow
Core Traffic
Under Fire
Rehab
Gross
Margin
Percent
Low
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Retail Category Portfolio
DISTRIBUTOR
Market Growth
Low
High
High
Sleeper
Winners
Questionable
Opportunity Gaps
Retailer
Share of
Market
Low
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DISTRIBUTOR
Consumer Based Category Roles
Reach
High
Low
High
Staples
Niches
Necessities
Fill-ins
Frequency
Low
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DISTRIBUTOR
Before Organization
VP Merchandising
Buyer
Buyer
Buyer
Retail Pricing
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Administration
Space
Advertising
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DISTRIBUTOR
After Organization
Product Supply
Space Allocation
Marketing Services
Price/Data Integrity
Advertising Coordination
Retail Pricing
DELLMART & COMPANY
Category
Management
Retail Merchandising
Category Analysis
Allowance/Cost Control
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DISTRIBUTOR
Responsibilities
Responsibilities
Retailers
Wholesalers
Negotiation with suppliers
86.4%
84.6%
Determine investment buys
83.1%
76.9%
Determine promotions- items/schedule
71.2$
73.1%
Sales/profit/market share goals
69.5%
57.7%
Develop strategic alliances
66.1%
53.8%
Budget development
64.4%
50.0%
Strategic category planning
61.0%
46.2%
Competitive store analysis
61.0%
34.6%
Optimize by store clusters
44.1%
26.9%
Develop shelf plan-o-gram
42.4%
26.9%
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DISTRIBUTOR
Category Definitions
NUMBER OF CATEGORIES RETAILERS WHOLESALERS
1 TO 99
20.0%
16.7%
100 TO 199
30.0%
16.7%
200 OR MORE
27.5%
25.0%
Average Number
191
148
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DISTRIBUTOR
Review Frequency
Retailer
Wholesaler
10.00%
20.00%
Sporadic
Annually
Semi-annually
Quarterly
Monthly
Weekly
0.00%
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30.00%
40.00%
50.00%
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What’s Really Happening?
DISTRIBUTOR
1. Official approach leaves out consumer
2. Wide gap between results and expectations
 Merchandisers see CM to lift sales
 Cornell study ranged from 3 to 8 point lift in
EBIT
 Executives see CM to raise margins
 Neither see it for what it was intended:
framework for understanding the
consumer
 73% of CM practitioners rate experience
“somewhat” or “not at all” successful
3. Official approach is too complicated
4.“One-size-fits-all” is not working
 Only 15% claim to be following the guidelines
 40% don’t even see need to assign roles
 CEO at large chain: “We’d have to hire 14
full-time people just to fill out and maintain
the templates.”
 Half do not employ Activity-Based-Costing
 Personnel talent a problem
DELLMART & COMPANY
 Many of the few that claim success can’t
support it with metrics
 Industry current-state is too diverse. Take
merchandising approaches: high/low, everyday low, premium, limited selection, semiwarehouse, superstore, etc..
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SUPPLIER
Scope
Alliance
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SUPPLIER
Sales Evolution
Available
Category
Management
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Sales
D.P.P.
Share
Gross Margin
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Perspective
Differences
Supplier
SUPPLIER
Check your bias at the
door
Retailer
Store
Brands
Bring your knowledge
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Principles
SUPPLIER
 Consumer is the common focus
 Mutually agreed objectives, strategies, tactics and
scorecard measures
 Rewards support collaborative goals
 Relationships and trust are earned, not given
 Information sharing is essential
 Win/win is critical for success
 Multifunctional access and communication
 Openness to change traditional attitudes and
relationships
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Supplier Steps
Preparation
 Create team
 Develop plan
 Collect information
 Develop tools
 Package program
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Coordination
 Target customers
 Present plan
 Establish goals
 Organize team
 Develop scorecard
 Establish schedule
SUPPLIER
Execution
 Share information
 Perform analysis
 Develop plan
 Implement plan
 Monitor results
 Modify plan
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Objectives
INTRODUCTION
 Provide introduction to Activity Based Costing (ABC)
 Identify Net Profit Applications
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Why Net Profit?
INTRODUCTION
 Gross Margin ineffective management tool
 Simple relationship - cost Vs retail price
 Not a predictor of profit
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What is Net Profit?
=
+
=
INTRODUCTION
Sales
Cost of Goods Sold
Gross Margin
Direct Revenue
ABC Costs
Net Profit
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Definition
ABC
 ABC is a cost allocation or assignment methodology
 Cost assignment based on:
– Activities - Tasks within a process
– Drivers - Factors creating costs
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ABC
ABC Vs DPP
ABC
DPP
Sales
Yes
Yes
Cost of Goods
Yes
Yes
Direct Revenue
Yes
Yes
Headquarters
Yes
No
Warehouse
Yes
Yes
Transportation
Yes
Yes
Store
Yes
Yes
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ABC
Allocates All Costs
 Headquarters
–
–
–
–
Management
Merchandising
Finance & Accounting
Human Resources
 Warehouse
–
–
–
–
–
Management
Labor
Benefits
Space
Utilities
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 Transportation
– Labor
– Equipment
– Supplies
 Stores
–
–
–
–
–
Management
Labor
Benefits
Space
Utilities
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ABC
Primary Processes
Product-In
Buying
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Distribution
Product-Out
Store
Operations
Administration
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Costs Follow Product Flow
D
istrib
utio
n
C
e
nte
r
D
ire
c
tSto
re
D
e
live
ry
D
ro
pShip
ABC
W
ho
le
sa
le
r
Sto
re
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ABC
Greatest cost is Display Space
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ABC
Sales By Department
Edible
29%
All Other
31%
Gen. Merch.
1%
HBC
4%
Dairy
15%
Non-Edible
9%
Frozen
7%
Edible
Non-Edible
Frozen
Dairy
Bakery
HBC
Gen. Merch.
All Other
Bakery
4%
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ABC
Gross Margin By Department
Edible
20%
All Other
40%
Non-Edible
7%
Frozen
7%
Gen. Merch.
1%
HBC
3%
Dairy
18%
Edible
Non-Edible
Frozen
Dairy
Bakery
HBC
Gen. Merch.
All Other
Bakery
4%
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Net Profit By Department
ABC
All Other
11%
Gen. Merch.
2%
HBC
3%
Edible
29%
Bakery
5%
Dairy
30%
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Frozen
10%
Non-Edible
10%
Edible
Non-Edible
Frozen
Dairy
Bakery
HBC
Gen. Merch.
All Other
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ABC
Superior Private Label Categories
Private Label products achieved results superior to branded in
the following categories:
Baby Food & Formula
Baking Cups/Paper
Baking Needs
Bottled Water
Candy
Coffee Creamer
Pasta
Powdered Milk
Spices/Seasonings
Sugar
Vegetables
Bleach
Charcoal
Diapers
Pet Suppliers
Tobacco Products
Fz Fruit
Fz Potatoes/Onions
Fz Prepared Vegetables
Other Frozen Foods
Rfg Butter
Rfg Cottage Cheese
DELLMART & COMPANY
Rfg Dips
Rfg Sour Cream
English Muffins
Adult Incontinence
Cold/Allergy/Sinus Liq
Cold/Allergy/Sinus Tab
Cosmetics - Nail
Eye Care Products
First Aid Treatments
Food Care Products
Hair Conditioner
Hair Spray/Spritz
Home Health Diagnostics
Internal Analgesics
Mouthwash
Shaving Cream
Weight Control Liq/Pwd
Auto Fluids/Antifreeze
Film
Plastic Bottles
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PLMA Model
DELLMART & COMPANY
APPLICATIONS
47
Success Factors
APPLICATIONS
 Logical presentation
 Reasonable assumptions
 Demonstrate knowledge of business
 Promote benefits
– Consumer sales
– Customer profits
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New Products
APPLICATIONS
 Life blood for retailers and
suppliers
 Primary driver of growth
 Replacement Vs
Cannibalization Strategy
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Approach
APPLICATIONS
 Select items for replacement
– Low sales
– Matching consumer target markets
 Collect customer and competitive data
 Run model
 Present
– Current sales and net profit
– Projected sales and net profit
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Retail Space
APPLICATIONS
 Most coveted merchandise
element
 Interacts with pricing
 Shelf space is greatest item
cost
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Balance Space
Too Little
 Consumer can’t find
 Reduced sales
 Lost sales
DELLMART & COMPANY
APPLICATIONS
Too Much
 Lower profits
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APPLICATIONS
Diminishing Returns
$10.00
$5.00
Sales
$1
2
3
4
5
6
7
8
Facings
 Excess space does not increase sales
 Minimum - Case plus order cycle
– Minimizes stocking labor
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Approach
APPLICATIONS
 Determine minimum units and facings
 Identify net profit
 Test & evaluate alternatives
– Increase unit sales
– Increase facings
 Present
– Current sales and net profit
– Projected sales and net profit
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Retail Pricing
APPLICATIONS
 Price discussions should not
be taboo
 Price too high
– Lost sales
 Price too low
– Lost sales
– Lost profit
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Retailer Goals
APPLICATIONS
High
Low
• Gross Margin
• Quality Ratio
• Price Image
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Consumers




APPLICATIONS
Recall up to 200 item prices
Frequently purchased items
High consumables
Translates to 500 - 1,000
items creating store’s price
image
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APPLICATIONS
Value is King
Price
Value
=
Quality
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Approach
APPLICATIONS
 Compare product quality
 Load model
 Test & evaluate alternatives
– Change retail price
– Hold constant and change unit sales
 Present
– Current sales and net profit
– Projected sales and net profit
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Promotions
APPLICATIONS
 Most frequently used
promotion tool
– Advertising
– Display
– Price reduction
 Private Label underrepresented
– Accrual funds
– Lack targeted program
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Why Promote?
APPLICATIONS
 Create merchandising excitement
 Attract customer
 Foster consumer trial
 Load pantry
 Reward loyal consumers
 Present value proposition
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61
Promotions are Difficult
APPLICATIONS
Selection
Price
Execution
Competiti on
Profit
Stores
Holiday
Advertising
Weather
Buying
Season
Theme
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Many Promotional Factors
APPLICATIONS
Adv ertising
(ABC)
Price
Discount
Display
POP
Season
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63
Promotion Conclusions
APPLICATIONS
 Low Private Label share
Private Label
Natl. Brand
 Moderate Private Label share
Private Label
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Natl. Brand
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Approach
APPLICATIONS
 Research past promotions
 Load model
 Test & evaluate alternatives
– Change price
– Change index
 Present
– Current sales and net profit
– Projected sales and net profit
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65
Summary
APPLICATIONS
 Net Profit is the ultimate sales tool
 PLMA Net Profit Model
– Easy to use
– Provides great flexibility
– Great learning tool
 Coach customer to increase profits
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