Not All Products are Created EqualManaging Products to Increase Profitability
Category management is based on the premise that not all products are created equal. The goal is to increase revenue by optimizing how you inventory and display product. Category management is a relatively new retail tool having been introduced to grocery stores in the 1980s. According to Nielsen’s Consumer Insights, “Category management is a process that involves managing product categories as business units and customizing them to satisfy customer needs.” Since its introduction, MBA, BA, diploma and certified educational programs have emerged in this field, leading to specialized careers and businesses solely devoted to the art of category management. It is critical to maintaining relevant products and increasing profitability in liquor stores.
Consider the following:
- Product placement – Where in the store and where on the shelf should the product be placed and how many spaces does it need for proper representation.
- Seasonal listings – Get it in and get it out!
- Market trends – Who is buying what right now, and for how much?
- Local flavour – Who is your target audience and what do they want?
- Regular customers – They may not buy top-selling products, but they are consistent and loyal… as long as you don’t disappoint them.
- New & delisted products – What’s new, and who wants it? What’s not selling, or is no longer available?
- Promotional offers – Look for limited time offers, limited availability, value adds, special and/or one-time buys.
- Programming and displays – Savings, prizes, etc. are often based on targeted sales numbers.
Focused category management will result in increased sales and market share, improved purchasing opportunities, and decreased stock-outs, thereby improving your return on investment. You will also maximize shelf space and better understand product performance.
Liquor store chains typically have a dedicated category manager and/or team. However, in most (non-chain) liquor stores, managers, GMs and owner operators wear multiple hats, including category manager. Luckily, you can rely on your product representatives (reps) for valuable assistance. Reps are a wealth of knowledge and have special tools to assist you. When collaborating with reps, select ones you trust to have your location’s best interest in mind. Even when collaborating with a trusted partner, be sure to review data, ask
questions, provide input, and approve plan-o-grams and shelf-set plans. Also ensure you organize and implement action items.
Good category management resists biases towards a particular supplier’s products and targets strategies that have a positive impact on the category as a whole, while offering the best product experience to the customer.
Data, Data and More Data
Good information leads to good decisions. A good POS system should offer multiple ways of compiling, organizing, and manipulating the most important product and sales data needed for category management. This data includes:
- Product volume and sales – Note top sellers and bottom sellers.
- Seasonal products – How much sold?
While this data alone will help create a foundation for category management, adding additional data from your reps will serve to make it even more powerful. Request information on market trends, regional and local product sales, new or delisted products as well as impending LTOs, LTAs and special promotions. Reps can also assist you in conducting a gap analysis to develop a better process.
Combining this data offers an overall view of product, direction, and profitability.
Focused category management will result in increased sales.
Create a solid foundation for data gathering and product management in the backend of your POS.
- Define product groups – beer, wine, spirits, coolers and ciders, tobacco, food, etc. A group houses one or more categories.
- Define Categories – craft beer, VQA wines, vodka, etc. Categories house an assortment of product. Product is categorized on the basis of similarities in consumer tastes and preferences.
- Sub-Categories – varietals, singles, seasonal, size, etc. Sub-Categories are optional and break product down into further categories.
Groups and categories vary from store to store. They typically coincide with the store’s retail model or theme. Strategically, groups, categories and subcategories (if used) allow for maximum flexibility when compiling the necessary data needed for good category management. Too few categories limit the range and sample size of data. Too many create thin or watered down data.
While collaborating with reps on larger projects will save much time and effort, a basic plan should be part of regular operations. Because liquor stores rely heavily on seasonal products, a quarterly plan works well. Ideally, Q1 planning leads into Q2 execution.
Analyze top-selling product data, by category, to determine your target product(s) for programming. Any time you can program around top-selling products, do it. Ensure the product has adequate representation on the sales floor. This will save time stocking shelves. Consider bridge buying on LTOs if you have the budget and storage capacity.
Review bottom-selling product data, by category, to help determine which products to delist. These products are not suited for programming. If it doesn’t sell, don’t build a promotion around it.
Group and/or category percentage of sales figures show whether the category is growing or contracting. If coolers and ciders represent 4 per cent of sales, and the category is well represented, cutting product listings in coolers and ciders and adding product to a better performing category could potentially be a better investment.
The category management process is fluid, repetitive, strategic and a longterm philosophy. It can be challenging, but the rewards are high. It keeps you connected with customers, develops and reinforces your brands, helps manage spending, optimizes product placement, grows sales, and provides a decisive edge in a competitive marketplace.
Stacy Mueller is a liquor retail consultant and can be reached at email@example.com. Visit www.liquidprofit.ca for information on her services