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Personalisation or category management?

Has personalisation replaced category management as the ‘best way’ to serve shoppers?

Background

Has personalisation, i.e. creating one-on-one relationships with shoppers, replaced category management, i.e. long-term business relationships between manufacturers and supermarkets, as ‘the best’ way to serve shoppers? What’s more important today – numerous one-on-one relationships with shoppers or the relationship between a manufacturer and supermarket?

This quick blog suggests that changes in shopper demands, i.e. personalisation, does not change the category management mindset. What has changed is how manufacturers and supermarkets best serve shoppers.

Category Management

Category management can be defined as a business model where manufacturers and supermarkets work collaboratively in long-term mutually beneficially relationships towards the common goal of maximising shopper and consumer satisfaction.

As outlined in my book, Category management 2020, I suggest that category management is an evolutionary way of thinking, not a process. Many others will suggest that category management started around 1990 and was a new approach for manufacturers and supermarkets to better serve shoppers.

Fundamental to the concept of category management is manufacturers and supermarkets collaborating to meet shopper demands. By meeting shopper demands, both the manufacturer and supermarket should maximise their sales and long-term financial results. Depending on the relationship dynamics either the manufacturer, supermarket or both could have the responsibility for understanding shopper demands for any particular SKU / brand / category. Importantly both parties should share this information (insights) to ensure both parties can then meet shopper demands.

Personalisation  

For the supermarket industry personalisation is when manufacturers and supermarkets tailor the shopping experience, including the products offered, to the shoppers’ individual requirements.

Due to the long-term increasing power of shoppers, many in the supermarket industry are now focused on delivering a personalised experience to shoppers. Some would suggest that the supermarket industry is offering a personalised experience to ensure they are competitive vs new entrants, especially Amazon.

Personalisation has led to a change in thinking in the supermarket industry. The industry is now building unique one-on-one relationships with an individual shopper. Historically, brand marketing / category plans etc focused on target markets or group of shoppers.  Rashid and Matilla describe the change as:

‘It means that mass marketing is replaced by mass customization’.

(Study on the scope and opportunities of category management for aligning the supplier-retailer business strategy, S Rashid, H Matilla, South Asian Journal of Management, 2011)

This change in thinking has changed how manufacturers and supermarkets ‘best serve’ shoppers. The shopper is still driving business decisions, e.g. range, price etc. Now this is achieved by using technology to better understand the individual and then deliver a unique, personalised experience.

Manufacturer / Supermarket relationship dynamics

The move towards personalised experiences, including products, shall change the manufacturer / supermarket relationship dynamic. These changes will increase the importance of collaboration between manufacturers and supermarkets i.e. category management mindset. The following section highlights just 2, of the many, changes that personalised experiences will create.

For ease of use, Woolworths has been used as an example.

Range Personalisation

After many years of range rationalisation to maximise sales / profits supermarkets are now up-ranging (increasing number of SKUs stocked). Some may suggest that this is due to the success of Amazon and their substantially larger range. Personally, I believe it is a move towards offering personalised ranges. The initial step (short term) is store specific ranging.

“Moorebank will transform the way we serve our NSW grocery customers. The new facilities will advance our localised ranging efforts, with the ability to hold over 30% more products than existing facilities,”

Woolworths CEO Brad Banducci (ASX update, 23/06/20).

The shelves aren’t made of rubber so each store will carry a similar number of SKUs to today. What will change is that the range will be tailored to meet local demand. This will require manufacturers and supermarkets to collaborate on new SKUs / ranges to meet local demand. Historically these SKUs would have been labelled ‘low volume’ and not met the ‘hurdle rate’. In the future, these SKUs will be ranged in the correct stores. Additionally, supermarkets could range SKUs just online. For example, shoppers may prefer home delivery for large, bulky, heavy items in the future. The challenge for manufacturers and supermarkets will be to ensure these low volume SKUs can be profitable for both parties.

Even with new automated DCs (distribution centres) some low volume SKUs may be D2S (direct to store) supply chain. To manage this larger range, with each SKU potentially having its own unique supply chain / distribution / planogram etc shall require greater collaboration between manufacturers and supermarkets.

The next step (medium term) will be allowing shoppers to customise their products. QSR (quick serve restaurants) operators, such as Domino’s already allow their shoppers to choose what style base, sauce, toppings etc for their pizza. Similarly, supermarket shoppers will want products tailor made to their requirements. Many supermarkets already offer some personalised SKUs, e.g. cakes including decorations. In the future it is predicted more supermarket SKUs will offer personalisation. New technology, such as 3D printing, may be necessary to achieve this outcome.

Key to offering these new personalised ranges will be collaboration between manufacturers and supermarkets. Both parties will probably have to invest in new technology, complete NPD (new product development) etc to allow shoppers to personalise their order. Also, both parties will need to share information in real time, to ensure stock availability, for orders placed by shoppers.

Real time supply chain

Due to shoppers’ demand for instant gratification other industries have already re-engineered their supply chains. For example, fashion retailers offer ‘fast fashion’. They have been able to minimise lead times from new designs being showcased on the catwalk to stock being available in store. It is predicted that a similar change shall occur to the supermarket industry.

Many in the supermarket industry (including myself) believe the next big change will be decreasing supply chain lead times. Today it is usual for full-service supermarkets, such as Woolworths, to complete category reviews for most products every 6 or 12 months. This means manufacturers and supermarkets may not be offering the SKUs / brands shoppers demand for months. In comparison new online marketplaces, such as Amazon, allow stores to change their range / pricing etc instantaneously to meet shopper demands. The move towards ‘real time ranging’ has already begun. This has occurred because shoppers today expect instant gratification.

Manufacturers (growers) and supermarkets already use ‘real time ranging’ in fresh produce. Depending on numerous factors, including plantings many months before and the weather, availability and pricing can change literally every day. To meet shopper demand buyers and replenishers have to adjust the category plan daily. For example, if red tomato supply is limited then other SKUs, such as truss tomatoes, could be temporarily ranged into more stores, given more shelf space etc. Similarly, if growers have a spring flush (large increase in availability) then supermarkets may have to adjust distribution / pricing etc to help move the stock.   

A simple example of real time ranging could be increasing ranging / shelf space for healthier food alternatives in January. Many shoppers have a new years’ resolution to lose weight, creating increased demand for healthier food options. So, why not meet that demand with increased ranging / shelf space etc for health foods during January? In the short term, a ‘simple’ step could be increasing health food ranging for online only SKUs. Plus, there could be a possibility to do some joblots to force distribution in store.

As the industry moves towards real time ranging closer collaboration between manufacturers and supermarkets will be required. The old ‘set and forget’ category plans will be replaced by real time plans with regular changes to ranges, distribution, prices and planograms etc. Implementation of the ever-changing plan will require manufacturers and supermarkets to collaborate regularly.

Summation

Shopper demands will continually change over time. These changes do not require a change to a category management mindset. The fundamental principle of manufacturers and supermarkets collaborating in long-term mutually beneficially relationships to best serve shoppers shall remain.

The change in shopper demands to expect personalised experiences will change the category relationship dynamic. Manufacturers and supermarkets are going to have to collaborate more, to meet shoppers demands for personalisation. New, innovative ranges will have to be developed. Investments in new technology to create and manage these ranges will also be required. The move to personalised ranges will increase the importance of regular (daily?) collaboration between the manufacturer / supermarket to manage larger more complicated ranges. Another major change is that ‘speed to market’ will become more important. Shoppers now expect instant gratification, so manufacturers and supermarkets need to respond faster to changes in shopper demand.

Much has already been written about disruption in the supermarket industry. Shopper demand for personalisation is just another challenge for the industry.

The information provided in this blog post was general in nature. If you require more information I offer a free initial consultation by completing a contact us form.