From the demise of the traditional wholesale industry to the rise of the supermarkets 20 years ago, category management is becoming essentially the only way to deal with the most powerful link in the food supply chain.
According to the system, a good category manager should offer both the supply base and the retailers support and guidance to manage individual categories through clear customer insights, while ensuring that the economics of the business are sustainable and encourage innovation.
Putting growers and suppliers at both an advantage and disadvantage, the system establishes a distinct distance between primary producers and the multiples, via a middleman. Many feel that category managers are understandably swayed towards the heavyweight power of the multiple on one side, which will naturally be more forceful than a grower, making the relationship rather one-sided. It seems that the grower or supplier has been held at arm’s length and the supermarkets have turned full circle - from shortening the supply chain through cutting out wholesalers, to lengthening it again with the distance created by category management.
“It is the piggy-in-the-middle syndrome,” comments one grower. “And the distance does open up the option for multiples to be more forceful and take a stronger stance. Some of them may not do it, but it is definitely happening in some quarters.”
This distance ensures the supermarkets have the chance to stand back and observe the marketplace. If they want to pick out the best producers, they can do so without having to take them on and work with them directly first. However, many believe that there is still a need for the grower to have direct access to the multiples to retain some control over their produce. “Category management works in some instances, but it generally narrows the supply chain too much and it narrows choice for the consumer,” says one multiple supplier.
The fresh produce industry has not taken on category management as well as other sectors in the food supply chain. There are quite a few constraints within the fresh produce category, as a consequence of the business being so fast-moving and the obvious drawbacks associated with handling living and short shelf-life product. The very limited role of branding within the area also presents problems for category management.
“Category management is still perceived as a ‘nice thing’ to do and not a necessity in fresh produce - however, if you can truly add value to both supplier and retailer then in our view it is a must,” says one industry source. “A category manager should have an in-depth understanding of the marketplace and shoppers, and great communication skills to ensure that all parties benefit from the key insights.
“These skills are then used to drive the category planning process. A category must be managed holistically; all parties involved in supplying or affecting the category must buy into the vision of the category. If they do not, initiatives and strategies are unlikely to be delivered or executed cleanly.
“We aim to offer the best products and innovation for their shoppers at competitive prices at all times. In essence, that means we must offer clear direction for the categories that we operate in, and are able to flex our product ranges to adhere to customer needs and wants - to then be able to deliver our joint strategies and drive the category forward.
“For the supplier, we also have to prove that this process works and will drive sales for our suppliers and us by genuinely benefiting the end customer.”
But some totally disagree with the category management process and believe that, as a whole, it has been a negative experience for the fresh produce industry. “Business models were historically a maximum 15 to 20 per cent exposure to any one account and, if there was a parting of the ways, although it affected the business in the short term, the opportunity was still there with the other accounts to make up that shortfall,” explains one insider. “When you are reliant on predominantly one account, in the end, who is running the business?
“One major issue that has come out of this has been the surplus stock situation, where a category manager cannot be without product and has had to try and balance the ups and downs of the order cycles. With no other opportunity to move excess product to other customers, the supplier ends up nine times out of 10 with a lesser return than anticipated.
“It is fair to say that the UK was always perceived as being a fair market, never paying extremely early-season high prices, but prices that taken over a season would work out at a reasonable return considering the quality standards that were required for this market.
“It is interesting to note that since category management, that perception has changed,” he adds.
But there are some undisputed pros to the category management argument. Some growers are pleased that they do not have any direct dealings with supermarkets and the fact that supply management is taken off their hands is a relief. Growers can also build up a relationship with just one person, rather than a faceless national supermarket.
One source believes that category management can work well for both sides of the supply chain. “It can be incredibly tough if the relationship is either ‘push’ driven or simply ‘deal’ driven,” she says. “We genuinely try to bring value to the process by ensuring that all parties do have a voice and are able to contribute to the process and the end result.
“It is a cliché, but when people are really involved in the outcome they take ownership of the process that gets us there. So in our business, we focus everything on the shopper and their changing habits. If you are first to understand a shift in need state and have the confidence that you, your customers and suppliers are able to interpret that into a piece of shopper-led category development then, invariably, all parties buy into it as they can see the long-term benefit.”
But one insider disagrees. “Before category management, the role played by the supplier was to have a low cost of sale and that has increased significantly,” he says. “The combination of this plus rebates that have to be paid for means that it is the captive supplier that ultimately picks up these costs.
“Realistically, it has to be added on to be taken off but, with retail price pressures as they are again, it is the supplier that takes the brunt of this.”
But are cracks showing on the retailers’ side of the supply chain? Some insiders are watching the consolidation in the area of category management closely and believe that a change is on the cards, with the common belief that retailers are eager to take away the power they once pushed on category managers.
There has been a decline in the number of category managers to deal with each fresh produce category and, recently, their numbers have been decreasing further. “It seems to have gone full circle,” says one grower. “Having concentrated the supply chain down to deal with just a few category managers, retailers are now cutting them out completely in some instances, in the guise of local sourcing. And we are back at the beginning, with the grower dealing with the multiple directly.
“I think it is a good thing, as it is breaking the power of category management. It is dangerous for one person to have complete control. The multiple always has the ultimate sanction, but it does give growers a bit of the negotiation power back.”
What’s more, some supermarkets have been breaking the power base created by category management by going to traders, according to a source. “I know of some retailers going to traders to source produce, which is an unfortunate development because of traceability issues,” says one grower. “Supermarkets never sit still and now they seem to be undoing what they have previously done, so category managers won’t have the power anymore. I think retailers have become aware that category managers exercise too much power. Now they are following the wild element by going back to a wholesale trader organisation that does not have the reassurances of a traditional retailer.”
And insiders fear that product is hitting the shelf to reach a price point, as opposed to delivering final customer expectations. “Consumers in the main rely on their chosen supermarket to sell them a product that will deliver their aspirations in respect of flavour,” says one insider. “We all know from experience that a disappointing purchase can stop an individual from trying that line again for three weeks.
“You also get the sheep syndrome, where one supermarket has to outdo the other on length of season, even if the product is not up to it.”
Many feel that the category management process needs to be more flexible and reflect the business that it works within. But one category manager believes that her business has got the process right, although she stresses that it needs to be seen as part of the work that the company does and not as an objective in itself.
“There is nothing that I would change about the way we are working right now, but I know that our approach to category management will need to evolve as the business and market develops in the future,” she says. “If I had to change one thing at a stroke, it would be the collective ability of the industry to promote and market the benefits of produce with one voice.
“We aim to deliver category management successfully in the ranges that we operate in and to ensure that we are adding value to suppliers and retailer, by constantly challenging whether we are truly delivering the best possible shopping experience and offers for the end consumer. Produce is an important part of the weekly shop for our customers, but there are so many customers out there who are still afraid of cooking from scratch and are unsure of how to get their kids to enjoy eating fresh vegetables on anything like a regular basis, so my longer-term goal, as category manager, is to help the industry develop propositions and products that help families and shoppers to enjoy fresh produce more regularly.
“Marketing agents, retailers and suppliers want clear strategic direction on the categories that they operate in, as the risk involved in changing formats and ranges can have a huge impact on all involved. I see it very much as my role to minimise the risk associated with any of these decisions and to ensure that all partners have full visibility of the issues inherent in the agreement.”
One grower believes that category management is clearly one-sided. “I can see how some producers need the stability that category management can offer, but as a system, I would rather it was not there, on balance, but then that is from a grower and a supplier perspective,” he says. “There are more advantages for the supermarkets as the system takes a lot of cost out of the equation for them. Before category management, supermarkets had to make decisions about whom to source from - now price issues may be swept aside by the indirectness of the system. But it works both ways.”
And as the ever-changing fresh produce industry moves along, change looks imminent. “With category management in its present format, we appear to have lost the opportunity of putting your case forward directly to the supermarket buying team and you are, in turn, reliant on a third party not of your choosing to put that case forward,” says one insider.
“By the looks of things, the system is evolving so that suppliers will have that opportunity, which can only be for the benefit of the trade.”
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