The Need for Shelf Examination

Category captains are the "gods" of grocery store shelves. They are consumer goods companies chosen by retailers to decide on everything from product assortment and placement to pricing. Earning this title, and its considerable benefits, requires mastering the art of category management and investing in the technology needed to provide retailers with the best analysis.

However, category captain arrangements are raising antitrust concerns. Even the man credited with inventing category management says he never intended the concept to be used the way it commonly is today.

The crux of category management is the idea that because different kinds of products need different marketing strategies, they should be divided into categories and operated as independent business units. The father of this idea is Brian Harris, a principal with The Partnering Group in Cincinnati. Harris helped a Midwestern retailer, Schnucks, implement the first category management system in the late 1980s. Later, the retailers began leaving the job, and the expense, of category management, to the suppliers.

"It was incredibly time consuming to crunch the numbers," says Stuart May, principal with Millennium Marketing, Fairfield, Connecticut. "It was the domain of only the largest manufacturers."

Taking Action

As category management got better and cheaper, more CG companies adopted the technology and got in on the action. It's now an international standard practice, and its history of delivering consistent sales and profit is without dispute, Harris says.

Being a category captain puts CG companies in a position to help their retail customers achieve their sales goals, while at the same time helping meet their own product goals, says Joe Teller, manager of the category management department for Swedish Match North America. Nevertheless, it's important that category captains be objective in order to retain their credibility, he says.

Success for the category also means success for the category captain's brand. But captains must be prepared to sacrifice their own products, even to the point of removing them from the shelves, if that is what the data demands.

"Everyone lives or dies based on what the data says and how their product is performing," says Teller, whose company uses an efficient item assortment solution from JDA Software Group.

Biased Views

Category management was meant to be used strategically and help retailers differentiate themselves from the competition, Harris says. Instead, it has been left to the suppliers and used to make tactical shelf decisions, which, given identical data, don't vary much between suppliers. Due to the inconsequential variance, some complain that category captains have led to a homogenization of the store shelves, with each retailer looking nearly identical to its competitors. Harris says he is opposed to the idea of category captains and that nothing in his concept has ever recommended or required their use.

"You only get one point of view," Harris says of retailers who depend on category captains. "That point of view is always going to be a little bit biased."

Getting Involved

Harris' vision of the future calls for retailers to get more involved in category management. He also foresees development of technology that automatically compares product performance against sales goals, enabling category management to be a done on an ongoing basis, like brand marketing, and not done once and abandoned.

Even if a supplier isn't the category leader, often they have category management capabilities so they can be a "validator," or a supplier that ensures the category captain is making good recommendations.

"We really are the small guy and purchase niche brands," says Chuck Yeager, business manager for Excel Marketing, a division of Central Garden & Pet. "We're not the category leader. We keep the category manager honest."

Each retailer has its own protocol for category information, said Yeager, whose company uses Bristol Technology's DataAlchemy category management system. The key is to have a system that is flexible and can interface cleanly with the systems of most retailers.

A Matter of Trust

Validators play an important role because category captains wield such power. According to May, you can't always trust the captains to be completely objective.

"We rarely see good, objective analysis coming from the category captains," May says. "Typically, they are brand biased toward the category leaders."

Beyond simple bias, there are some real legal concerns involving antitrust law that could make being a category captain dangerous. In a ruling against it, U.S. Tobacco Co. lost legal appeals of $1.05 billion due to its conduct involving category captain arrangements.

The American Antitrust Institute held a roundtable discussion on category captains this past June. A report from that event was expected to become available on the institute's Web-site at: www.antitrustinstitute.org.