Auto Service World
Feature   May 1, 2000   by Auto Service World

MARKET FEATURE: Category Management: Is It the Future of Your Oil and Chemicals Business?

It may not be tomorrow, but the experience of category management in the thin-margin world of the grocery industry makes it worth considering for the aftermarket.

Is category management the right approach for the traditional aftermarket? It may very well be that its strengths in providing an effective, efficient approach may provide benefits worthy of consideration.

An argument could be made that most jobbers’ approach to the retail oil and chemicals business is haphazard, relying on their own staff’s concepts of what sells and how, or the push-me-pull-you world of successive reps restocking shelves without a clear concept of what the true dynamic of the store’s retail customer base is, and without enough information to make those judgements.

This was clearly the case decades ago in the grocery retailing industry. With margins continuing to slide to single digit levels, inventory management needs and finite shelf space led to the creation of the whole concept of category management.

What started out simply as a way to look at more than just short-term shelf filling evolved into a sophisticated approach that combines the expertise of trained category managers with detailed information on store sales and industry trends. The outcome has been an industry which has grown and prospered, through highly efficient use of its resources and effective targeting of product selections, despite profit margins that would make most jobbers throw their hands up in defeat.

While many product categories might be the future subject of category management, the retail strengths of the concept might most easily be applied to the oil, lubricants and chemicals products so often a part of traditional jobbers’ showroom displays. The concept’s ability to build profits in thin margin categories is another good reason–if there is a place in the aftermarket for the concept at all, that is.

“I would say undoubtedly that there is,” says Bill Jaichner, manager of category development for Castrol North America. “I think that the way to approach it is to apply certain parts or principles of what you would consider category management.” He says that effective allocation strategies based on product movement and market conditions, and on which brand is most prevalent in which geographic regions are the most obvious, but the priorities of the retailer drives the decision-making process.

Capturing data on the customers of a given location that show their buying habits, brand preferences, response to promotions, and response to new products is crucial to the whole process. The category manager can then bring his own detailed expertise to bear, combine it with detailed industry trend data, and optimize each store’s approach, whatever definition one may attach to that.

The benchmarks can be established in terms of what is most important for the retailer. One may view the category as a traffic builder. Or something else might be define the scorecard: inventory turns, lowering days of supply, driving GMROI, dollar profit, or average gross margin.

“It’s a proven process, where it has delivered superior business results by really focusing on consumer needs. What that is going to help you do is to lower your inventory costs (and improve your turns), look at which brands you are selling and which grades, and ensure an ‘in stock’ position.”

Jaichner, who cut his teeth on category management in the food sector, says that a lot of the concepts are simple, even if the tools–data and analysis–seem complex. And the benefits can be just as simple.

“In the grocery sector, out-of-stocks can comprise 8-10% of sales. Just by having products on the shelf you’re going to raise your sales,” he says. Getting that message across is simple. Getting the message across that putting the responsibility in the hands of a third party to address issues like this is not.

“I believe that there is a place for category management in the industry,” says Mark Coxhead, national sales director, Valvoline Canada. “But there’s still a great deal of training to be done, from the street on up.” He says that this training will be required to really get the concept to take hold with the industry.

“The major retailers want (category management) but they are reluctant because they want to control the shelf.”

“As business becomes more competitive, I don’t see why it’s not going to come to pass,” say Ross Ayrhart, national sales manager, Consumer Products, Wynn’s Canada. “It’s a race to see who is going to perfect it.” Ayrhart says that, just as there was a lag in the food industry between the concept being developed and it being widely embraced, there will be a lag in the automotive aftermarket from acceptance by retail “Wal-Mart” players to the traditional auto parts store’s acceptance. “When the WD sees that it has been effective for the auto retailer, then he’ll buy into it.”

“I am certainly a huge supporter,” says Owen McManamon, president, Pennzoil-Quaker State Canada, adding that the company already has people on staff trained in the concept. He says too that it uses a category management approach in much of his company’s work in the field already–considering driving business to the garage with promotions and signage–though this is only part of what they do.

McManamon says that retailers need to be able to offer them the information to make judgments about what’s working and what isn’t. “We should be able to recommend taking one of our own products off the shelf if it’s not working for them. On the jobber side, we still need to understand what they need; it may be through category management. We need to partner with the jobber and the installer to reach the consumer.”

What is clear from comments such as this is that category management is a concept that has wider application than just maximizing the productivity of shelf space.

Regardless of the view held–whether wide or narrow–it is clear that two pivotal issues can drive the success or failure of category management. Both are, ultimately, about people and about trust.

The first issue is about the acceptance of the concept. In many industries, even at large mass merchandisers, there continues to be much resistance to relinquishing control of a product category in a physical sense by allowing an outside party the right and responsibility to recommend inventory levels, mix, planograms and product additions. The biggest hurdle for many, however, is the realization that they must also release their in-store sales data. It seems obvious that this information would be required if a category manager is to create the highest performance for the category for that particular location.

“The change that needs to come around is that there needs to be a trusting collaborative environment,” says Jaichner. “It’s incumbent on myself and Castrol to present ourselves and instill in the retailers that we are here to help their business. We are here about category first. Getting them to understand this is one of the main impediments. They have to see us as a business partner. Once we get that dialogue going we can apply the principles of category management to help.”

Lack of trust and cooperation can doom category management attempts. Inadequate support from a company’s Management Information Systems department has been flagged as the number-one reason for unrealized potential. Category management lives and dies not by advertising, POP, or even attractive displays, but by information on sales and customers.

“Most of the advanced retailers are tracking their sales activity. Some are a lot more sophisticated than others are. Some can deliver a nice package. It’s one of the key issues and one of the challenges. There has to be a fair degree of trust, in essence, to open up their books to you. There are not enough retailers willing to do that, and that obviously makes it pretty difficult.”

The importance of sharing information cannot be overstated. Jaichner says that it’s coming soon, and predicts category management to make major inroads into automotive channels in one to three years. When that happens, the expertise of the distribution chain can be leveraged against the product expertise and insight, as well as broader market data, of the category manager.

The outcome an
d the benefit can be stated simply: the better you understand your customer, and the better you are able to meet their needs, the better your business is going to do.

In an increasingly competitive world, any approach that has the potential to do that will quickly move from “competitive advantage” to “necessity.”

Whether the aftermarket adopts category management or “enhanced line review” (a concept that looks strikingly similar), or something else yet to be named, remains to be seen. What is not in question, however, is the need to continue to be more efficient each year, and to be increasingly more astute about targeted marketing in the oil and chemicals market–and many other categories, too.

And that is the promise of category management.

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