Category Management
Role of Beef in the Meat Case
Over 13 per cent of the dollar value of retail grocery sales is represented by the meat, fish and poultry category (Progressive Grocer/Supermarket Business 59th Annual Consumer Expenditures Study).
According to research by the Beef Information Centre, 90 per cent of customers who purchase and eat meat buy beef, the highest percentage of all the red meats.
When those two facts are considered together, it’s clear that beef is a destination category for customers and that the selection and quality of beef in the meat case plays a key role in customer sales, satisfaction (leading to repeat visits), and overall store profitability.
Beef Sub-Categories
The category “beef” includes a wide range of products that cover many cooking methods (grilling, stewing, roasting etc.) and budgets (special occasion dining to low-cost meal preparation).
Two beef sub-categories in particular – grilling steaks and ground beef – draw customers into the store and to the meat case, for dramatically different reasons.
Grilling steaks represent a high-end eating experience and are a major customer draw, particularly during summertime grilling season. While price is decidedly a factor in drawing customers and has a large impact on sales volumes, quality is equally important in the grilling steak category. The quality of the eating experience impacts the volume of repeat customers.
Ground beef is viewed as a key ingredient in cost effective meal preparation and sales in this category are largely driven by price. Ground beef quality is less of a variable.
Drawing Customers through the Selection
Positioning of both grilling steaks and ground beef in the meat case can be utilized to draw customers through the entire beef selection, thus increasing the possibility that they will pick up additional items and increase meat department sales. Since grilling steaks and ground beef are major draws to the meat case, if they are positioned at the beginning of the meat case, customers with those items in mind to purchase will likely stop shopping once they’ve picked them up. Placing grilling steaks and ground beef elsewhere in the meat case draws customers through the department and ensures that customers see all the other options as well.
“It is just as important to place categories in a store as it is to place the store. Location, location, location.”
Fundamentals of Category Management
Category management is the process of managing categories as strategic business units, producing enhanced business results by focusing on delivering consumer value.
Through defining categories within the meat department, determining consumer expectations for that category within the overall store strategy, and measuring the financial performance of the category, enhanced results for the performance of each category can be achieved.
Category management therefore is an ongoing analytical process that creates strategic business units. Category management defines benchmarks, assortments and tactics that will improve productivity, ensure execution at store level and increase both volume and profitability of a category to meet the category objectives.
Category Definition
The first step in Category Management is defining the categories you intend to track and measure.
While most retail stores track the performance of departments within the store (e.g. the meat department), to understand which items within a department are contributing to (or taking away from) profitability, categories within the department must be further refined.
A simple definition of categories within the meat department might be done by protein, e.g.:
However, within each protein category is sub-categories that fulfill different roles for the customer. Each of these sub-category roles makes its own contribution to business performance.
Category Role
Taken to this level, each category fulfils a role within the meat department and within the store. Examples of category roles are:
Destination – customers come into the store specifically to purchase that category.
Routine – customers pick up the category every time or almost every time they shop.
Seasonal – customers buy the category, or more of the category, at a specific time of year.
Convenience – customers are prompted to purchase the category when they are looking for a convenient or fast meal.
Category Strategy
The overall sales strategy for the meat department is generally determined by the overall competitive positioning strategy for the store. For example, if the store positions itself as having the lowest prices, then the meat department must have competitive prices on its products. If the store positions itself as having the best products, then price may be less of an issue and the meat department focuses on offering the highest quality meat.
While always keeping the store’s competitive positioning strategy in mind, different sales strategies may be appropriate for different categories within departments. Examples of strategies that could be used for different categories with the meat department include:
Turf protecting – prevents loss of customers to other stores – most appropriate for products in the routine category, such as ground beef.
Traffic building – draws customers into the store and the department – special sale pricing on popular categories is an example of a traffic building strategy.
Image enhancing – high quality meat is an example of an image enhancing strategy – most appropriate for categories that are viewed as special occasion purchases, such as grilling steaks.
Transaction building – a special promotion on one product that can increase sales of that product or a product that is often used in conjunction with it – for example, reduced price of roasts when bought in a package of three, or a promotion on corned beef that could enhance sales of cabbage, and vice versa.
Excitement creating – Communicates a sense of urgency or opportunity to the customer. Featuring a new product or sale pricing a special occasion product are examples of excitement building strategies.
Example of Category Roles and Strategies
Category Products, Placement and Pricing
Defining the role that each category plays in the customers’ shopping decisions (destination, routine, seasonal, convenience) and the strategy that the meat department wants a particular category to fulfill (turf protecting, traffic building, image enhancing, transaction building or excitement creating) helps guide the decision on what products to stock, how they should be placed or displayed, and the pricing strategy.
Products
The overall store competitive positioning strategy is one of the most important factors in determining the products, or categories, that will be stocked. If the store’s strategy is to be seen as the lowest priced, then the emphasis should be on low price categories such as ground beef and simmering steaks, with fewer high-end products such as grilling steaks. In a store positioning itself as low priced, there is little value in carrying a high number of stock keeping units (skus). If the store’s strategy is to position itself as a high quality market, then a broader variety of special occasion products like grilling steaks and oven roasts should be offered. A store positioning itself as having everything the customer requires would carry a higher number of skus in the meat department. For more information see Assortment Review.
Placement
The role and strategy will also guide the product placement. A routine category should be placed well down the meat case in the direction of traffic flow, so it draws customers past other products that they may decide to purchase on their way to the product that they routinely buy. Likewise when it’s seasonal or a traffic-building special price, a category should be placed well down the meat case to draw customers through the department. Placing a similar product ahead of a turf-protecting loss leader, such as lean ground beef ahead of consistently low-priced regular ground beef, can increase sales of the similar product. Further information can be found in the section on Plan-o-grams.
Pricing
Undercutting the competition on the price of all products is the simplest pricing strategy – and also the most likely to erode department and store profits.
If the store’s competitive positioning strategy is not to be lowest priced but rather to have the best products or the best customer service, then pricing strategies do not need to be based on undercutting. However the meat department and the store must actually live up to its promise of better products or service, or customers will migrate to the store that does have the lowest prices.
Even if a store’s positioning strategy is to be the lowest priced, it is not always necessary to undercut the competitor’s price on every product. Some products are more price sensitive than others – volumes sold will fluctuate more dramatically with price changes than on other products. Consumers are generally more aware of the price of these products.
Representing an average of just two per cent of a store’s stock keeping units (skus), price sensitive products are most likely to fall into the Destination Category – customers come into the store specifically to purchase that category. These are the products upon which a traffic building or turf protecting pricing strategy should be focused. This pricing strategy on price sensitive products may create low profit and low gross margins for these products, however this core group of easily recognized, price sensitive products conveys a value image for the retailer, creating a halo effect of trust and fair pricing for the entire store.
For information on tracking the effect of pricing on volume of product sold and the impact on financial performance, see Measuring Category Financial Performance.
The bulk of a store’s skus are not price sensitive and can be priced for profit. Price integrated with other category management tactics is the best overall strategy.
Measuring Category Financial Performance
Now that you have defined your categories and their roles within the meat department, the next step is to measure the category’s financial performance. Only through measuring financial performance can you determine whether or not a category is performing its role adequately and contributing to the overall financial objectives of the meat department. How individual products within each category are contributing to, or taking away from, the financial performance of the category can also be measured, leading to more effective product, placement and pricing decisions.
The following examples look at meat costs and meat prices for beef cuts by the time they reach the meat counter. Yield costs and labour costs are already factored in. The Beef Information Centre has downloadable spreadsheet financial tools available that can help calculate yield costs.
Gross Margin
Gross margin is simply the price at which product is sold minus the cost to put it on the shelf (purchase cost plus labour, packaging etc.).
Number of Turns
The largest single cost for a retailer is inventory. How quickly a retailer can sell and liquidate the profit to be made from an inventory purchase is a critical factor. Number of turns is the measure of how many times a unit of a particular product is sold in a given period of time. For example, annual turns is the number of units sold in one year.
Gross Margin Return on Investment
Combining gross margin and annual turns creates one of the most valuable measures in the retail business – Gross Margin Return On Investment (GMROI).
Gross margin X annual turns = GMROI
GMROI is the return that retailer makes on dollars invested. GMROI gives a clear perspective on the contribution each product makes to each category within the meat department.
First, Determine Your Category Roles, and the Products Within Those Categories
Using the category roles described in Fundamentals of Category Management, one example of a category and the products within that category might be –
Convenience Category Role
- Beef grilling brochettes
- Beef grilling kebobs
- Beef satay strips
- Beef fondue slices
- Beef fondue cubes
- Beef stir fry strips
The following table shows the financial performance of products in the Convenience category for a selected period of time (e.g. weekly or monthly).
Total revenue = (Average Price) X (Turns)
GMROI = (Average Price) – (Average Cost) X (Turns)
Product
Description |
Average
Price
($) |
Average
Cost
($) |
Gross
Margin
(%) |
Turns |
Total
Revenue
($) |
GMROI
($) |
| Beef grilling brochettes |
10.99 |
6.99 |
36 |
525 |
5,769.75 |
2,100.00 |
| Beef grilling kebobs |
12.99 |
6.99 |
46 |
550 |
7,144.50 |
3,300.00 |
| Beef satay strips |
16.99 |
6.99 |
59 |
175 |
2,973.25 |
1,750.00 |
| Beef fondue slices |
9.99 |
6.99 |
30 |
1,500 |
14,985.00 |
4,500.00 |
| Beef fondue cubes |
8.99 |
6.99 |
22 |
2,100 |
18,879.00 |
4,200.00 |
| Beef stir fry strips |
11.99 |
6.99 |
42 |
1,000 |
11,990.00 |
5,000.00 |
|
| Averages |
11.99 |
6.99 |
39 |
975 |
10,290.25 |
3,475.00 |
| Totals |
– |
– |
– |
– |
61,741.50 |
20,850.00 |
|
| Category margin |
– |
– |
39 |
– |
– |
– |
Clearly gross margin and turns must be examined together to get a clear picture of the contribution a particular product is making within a category. Beef satay strips have the highest gross margin (59%) but the fewest turns (175) and the lowest GMROI ($1,750.00). Beef fondue cubes have the lowest gross margin (22%) but the highest number of turns (2100) for a GMROI of $4,200.00.
Lowering costs can increase volume sold, or turns, but will also reduce gross margins. Beef stir fry strips have fewer turns than beef fondue cubes (1000 vs. 2100) but a higher gross margin (42% vs. 22%) and a higher GMROI ($5000 vs. $4200). A balance needs to be sought that delivers the best margin and the best volume.
Tracking the financial performance of each product in each category as in the sample above will demonstrate each category’s contribution to the financial performance of the meat department, and the performance of each product within the category. Comparing monthly, quarterly and annual records will give the meat manager a clear picture of what’s happening in the department and will contribute to business and merchandising decisions.
A product financial review spreadsheet is available here.
Analyzing each product’s GMROI is necessary to be able to carry out an assortment review (see below).
Assortment Review
Your store’s competitive positioning strategy (best prices, best selection, or best service) should be the first consideration when determining the product assortment your department will carry. The meat department of a store with the value proposition of best selection will obviously need to carry a large assortment of products. The meat department of a store with the value proposition of best service may want to focus on fewer product selections that are higher in quality. And the meat department of a store with the value proposition of best prices will want to focus on an assortment targeted to the budget shopper.
A meat department that has been measuring its category financial performance will quickly see which products are contributing the highest Gross Margin Return on Investment (GMROI).
GMROI needs to be assessed over several financial performance cycles before a decision is made to either de-list it or expand a product’s position in the product assortment, as there are many factors that can affect volume of sales. Special featuring or a special sale on a product may temporarily increase sales, while special featuring or a special sale or even seasonal usage of a competing product may temporarily decrease sales (e.g. turkeys outselling roasts at Christmas). Weather conditions can also impact volume of sales, such as a spell of cold weather decreasing sales of grilling steaks.
If financial performance of a product consistently does not meet financial expectations, the meat manager may decide to no longer carry that product. This does not mean that volume of sales previously attributed to that product will necessarily be lost. Customers who previously bought the de-listed product may replace it with a similar product (e.g. beef fondue slices rather than beef satay strips), thus increasing the volume of sales of the similar product. Equally, adding a new product may not increase overall sales as the new product may “cannibalize” sales of other products.
Achieving the best assortment in the meat department is one of the most challenging tasks for the meat manager. The combination of a clearly defined competitive positioning strategy and a measured and analyzed category financial performance will greatly assist in determining the best assortment.
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“This form allows us to be able to quickly measure the gain or loss by making the recommended category assortment changes.”
Assortment strategy may be the reason for your shoppers being at your store!
(Click icon to download form in MS-Excel format)
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The Consumer Decision Tree
It’s no secret that consumers are pressed for time.
Grocery store customers want their shopping experience to go as smoothly and quickly as possible.
Retailers benefit from assisting customers in making their decisions about what to purchase as quickly as possible. The more the customer is confused by the choices presented, the unhappier that customer will be. Making the shopping experience smooth and easy may not increase sales during the current visit to the store, but it will help keep that customer coming back for future visits.
In general, it takes longer for customers to shop the meat department than any other grocery category.
A typical consumer decision tree in the meat department may look like the following:
- What protein do I want to buy (beef, chicken, pork, fish etc.)?
- What cooking method do I want to use (grilling, stewing, roasting etc.)?
- How much do I want to buy (family pack, individual cut etc.)?
How the consumer decision tree may be arrived at is another challenge. How do we properly define the consumer in how he or she will purchase within a department or shelving segment at store level? Many factors are going to be made based on the consumer’s individual traits. Identifying those traits then becomes key to the decision tree. Some of those traits are as follows: Ethnicity, Income level, Gender, and Season.
To assist the customer in making their purchasing decision as quickly as possible according to this decision tree, products should be grouped first by protein type, then by cooking method, then by package size.
Enabling customers to easily see all offerings of the type of product they have chosen to purchase will help them make their final purchasing decision quickly, which contributes to a positive shopping experience. A positive shopping experience encourages customers to return to the store in the future.
“Understanding how consumers shop a category – what factors lead them to purchase a specific product – can inspire better marketing.”
Source... In-Store Marketer
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