Skip to content
Category Plan

RIP Category Plans

Background

Firstly, in my book (Category Management 2020, Category Management is a way of thinking) I argue that a category management mindset is more important than the data available, process used etc.

Disruption is the new normal in the supermarket industry. Recently COVID, weather events such as floods in Australia plus a war in Europe have disrupted the supply chain. The supermarket industry has responded by trying to continue to use the traditional category review process with category plans. In many instances timelines / promotional programs / ranges etc have been changed due to the disruption. However, the traditional process remains. Is this process and associated category plan the best approach?

Category Plans

When category management models were initially adopted by manufacturers and supermarkets, during the 1990s, different templates / processes were created. These models could be labelled ‘how to’ models as they explained ‘how to’ do category management to the industry.

Different manufacturers and supermarkets have different processes labelled category management. For example, hard discounters, such as Aldi, will generally have a tender process to award supply contracts. These contracts are normally for 1 to 2 years. Full-service supermarkets, such as Woolworths supermarkets Australia, tend to have a formal category review every 6 or 12 months. Irrespective of the exact process used the following ‘how to’ models generally explain the process completed.

A commonly used category management method was developed by TPG (the partnering group). The following diagram is TPG 8 Step Model.

TPG 8 Step Process

There are numerous other how to models. Nielsen (Category Management: Positioning your Organisation to Win) had a 5 step method and IGD 6 step model.

Personally, I believe ‘how to’ models, when originally used in the 1990s’, were great models for the industry. Overtime these models have been updated to reflect changes in the industry. However, today these models have limitations due to changes in the industry / disruption. For example:

  • relationship dynamics are slowly changing in the industry. For example, new online supermarkets, such as Amazon, may not have formal category reviews or category plans with suppliers.
  • manufacturers may deal directly with shoppers (D2C, direct to consumer).

Recent disruption

Recent disruption to supply chains has also highlighted a major issue with the current category category management process – the category plan. Category plans are agreed to months before in-store date. Also, category plans generally last for a year. This means manufacturers and supermarkets may be locked into a category plan that does not respond to changes in shopper demands.

In comparison new online platforms, 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.

COVID supply constraints

COVID led to changes in supply availability, CODB (costs of doing business) and shopper demands. An obvious example in Australia was some shoppers literally had physical fights in store over toilet rolls (ABC news). Australia manufactures toilet rolls, so supply was not an issue. Due to FOMO (fear of missing out) shoppers started to panic buy toilet rolls. The category plan, agreed to earlier, had to change. Supermarkets responded by implementing limits (number of toilet roll packs per transaction) and changing ranging (e.g. delist 20 packs and offer 8 packs). These changes did not necessarily maximise shopper satisfaction or loyalty.

Generally speaking, COVID has also led to a situation where manufacturers and supermarkets are unable to implement plans successfully. However, due a category plan that was agreed to previously many activities were still attempted. For example, I have seen major promotions (e.g. half price) at a time when there was limited product and staff availability to execute. Why? This promotion was probably ‘locked in’ 6 weeks or more in advance and due to ‘the system’ was not able to be cancelled. Poor execution of category plans did not necessarily maximise shopper satisfaction or loyalty.

Weather events

Many countries have experienced extreme weather events in 2022. Unlike COVID it is possible these events will continue indefinitely. For example, SA, QLD and NSW Australia experienced flooding between January to March 2022. Flooding led to a situation where manufacturers and supermarkets were unable to produce product and/or deliver product.

Again, weather events led to supply chain disruption. For example, during the floods some staff physically could not get to the store. However, category plans were still implemented. When I visited stores that were impacted by the QLD floods gondola ends with price promotions were still being implemented to drive sales with limited (if any) product availability. Temporary purchase limits were implemented in flood affected stores. As reported by news.com.au this led to shopper dissatisfaction.

Extreme weather, from flooding to drought, is a regular occurrence throughout the world. This will continue to affect availability / supply indefinitely.

War

More recently the war in Ukraine has disrupted supermarket supply chains. What is different in this instance is that major food and drink manufacturers, generally speaking, have ceased export of Russian made products (fooddive). Also, internationally retailers have decided to delist Russian products. For example, major Australian liquor chains such as Dan Murphy’s delisted Russian vodka (AFR). Obviously, these decisions were not in the category plan but were implemented quickly to show support for Ukraine.

Inflation

The culmination of COVID, extreme weather and war have dramatically increased the CODB (costs of doing business). This level of price inflation that has not been experienced for many, many years. For example, the FAO Food Price Index (FFPI) averaged 159.3 points in March 22 – the highest level since its inception in 1990. In Australia, there are regular reports about food price inflation. For example, news.com.au reported Coles was selling a head of lettuce for $5.50. High levels of inflation make category plans with agreed pricing, including promotional pricing, difficult to execute.  

Opinion

As an industry a great deal of time and effort is put into category reviews and creating category plans. Unfortunately, these category plans cannot always be implemented. This creates a frustrating situation which could lead to an adversarial situation between manufacturers and supermarkets. Either party could argue the other has to maintain the original agreement / initial category plan. More importantly this could lead to a situation where the level of trust between both parties decreases. As an industry we should consider an alternate category management model that minimises the risk of adversial relationships.

Real time ranging

The fundamental difference with real time ranging is that the category plan (product, pricing, promotions, planogram etc) can be altered in real time to meet shopper demands and manage disruption in the supply chain. In comparison many other categories are locked into a ‘set and forget’ category plan that is reviewed every 6 months or longer. To make any changes, e.g. ranging / distribution, is very difficult. Buyers will often say ‘I will review it at the next category review’, ‘operations will not allow a relay’ etc. Similarly, manufacturers will argue they have stock on hand, including raw materials, based on the category plan so the plan cannot change. This is a trading (internal KPIs) mindset. New online supermarkets, such as Amazon, allow stores to change their offer instantaneously.

Due to shoppers’ demand for instant gratification other retailers 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.

Real time ranging example – Fresh Produce

I must stress that manufacturers and supermarkets already use a ‘real time ranging’ approach in fresh produce. Depending on numerous factors, including the weather, availability and pricing can change literally every day. In store shelf space / planograms (POG) can also be adjusted daily to meet shopper demands. For example, on warm / sunny days demand for salad SKUs, such as tomatoes and lettuce, will increase. To meet this increased shopper demand buyers and replenishers (at head office) can increase forward orders so farms (manufacturers) can adjust picking schedules / on farm labour. Stock availability could be limited, depending on plantings made many months before and the weather, so supermarkets may have to adjust ranges / distribution or sell prices to manage shopper demand. For some SKUs, e.g. cherries, availability may only be for some months during the year. This approach to category management is different to other categories, such as grocery, as the category plan is very flexible and changes regularly.

Importantly with real time ranging manufacturers and supermarkets understand the category plan is flexible i.e. a different mindset. With a different mindset both parties can work together to manage disruption whilst meeting shopper demands. For example, in extreme cases, such as flooding, promotions in affected stores could be pulled at short notice. Both parties can then focus on a solution to deliver stock to flood affected stores.

Summation

Disruption is the new normal in the supermarket industry. Recent events such as COVID, extreme weather and war have highlighted the need for the industry to respond quickly to disruption in supply chains and shopper demands. The traditional category management process, with a 12 month category plan, may not be apt. The industry needs to embrace a more flexible approach to better manage disruption and meet the ever changing demands of shoppers.

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.