Foodservice Category Management. Better Insights. Enhanced Collaboration. Maximum ROI
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1 Foodservice Category Management Better Insights. Enhanced Collaboration. Maximum ROI
2 Changing Dynamics in the Foodservice Industry The foodservice industry today is in a state of intense competition and change, as manufacturers, distributors, and operators, must respond to evolving consumer tastes, rising commodity costs, social media and other new consumer marketing channels, and a challenging economic climate. Independent and small chain operators have been particularly affected by these pressures. For example, since the economic downturn began independent restaurants in aggregate have suffered more than chains and endured a period of declining customer counts, leading to declining unit counts. 3-Year Change (YE December 2012 vs. December 2009) In the midst of these challenging economic times, operators Total Independents Restaurant Traffic 1 (000) 104,490 (1,345,210) Restaurant Units 2 (000) 6,647 (-629) of commercial and non-commercial independents and small chains are increasingly turning to their broadline distributors, group purchasing organizations (GPO), and cash-and-carry/ club-store formats to help them stay profitable. Chains 1,449,693 7,276 During the same time as the economic pressures have forced street-side operators to become more efficient in 1 The NPD Group, Inc./CREST their procurement of supplies, pressures have also grown 2 The NPD Group, Inc./ReCount on distributors to replace lost margin by developing more strategic relationships with their manufacturer partners and finding ways to control expense lines. Initiatives have included redistribution/logistical consolidation, information sharing, and sourcing strategies. In turn, this has placed increased stress on manufacturers as they look to grow their businesses. To succeed in today s environment, manufacturers must ensure the conversations and relationships with their distributor partners encompass a broader strategy that includes tactics to grow revenue and profits for the total product category and for targeted operator segments. Questions manufacturers and distributors should be asking include the following: How can we profitably grow this category? Do we have an aligned vision of what the category looks like in one year? Three years? Do we have specific strategies and initiatives we both believe in and support? Do we have the right team with required skills to support this growth? Have we created a process where all decision-making levels have the right tools and market-level information to develop, measure, and track strategic and tactical initiatives? What are the underlying motivators that cause loyal customers to lapse? What are the relevant consumer trends that affect category usage? Category Management has once again become a hot topic in foodservice, as many broadline distributors are looking to dig deeper into their internal and external market information to enhance and measure their sales optimization strategies. Many are beginning to share data with manufacturers and are undertaking Category Management initiatives of their own. Importantly, several of the largest broadline distributors have agreed to participate in a revolutionary sales tracking service called SupplyTrack, being launched in June by The NPD Group, that will create meaningful benchmarks
3 and a basis for analysis. All of this creates an opportunity and need for a comprehensive approach for manufacturers and broadline distributors to use in working together to develop strategies that meet the needs of their customers while profitably growing their own categories and brands. Category Management as a Platform for Collaboration Category Management principles have successfully transformed the business planning environment in many different channels of trade. These channels include traditional retail (e.g., food, drug, and mass) and B2B sectors (e.g., medical supply, home improvement, automotive, etc.). The Partnering Group (TPG) has been at the forefront of this transformation in these key industries and is now committed to helping to broadly implement similar principles in foodservice. Category Management, in its evolved state, is an insights-driven process that provides the collaborative environment required to deliver sustained category growth and competitive advantage in the marketplace. Today s Category Management process has the potential to leverage market-level and internal information and the skills and abilities of a multi-functional team focused on a common set of goals. This process requires a much broader view of the category and the engagement of multiple stakeholders. Quite often, this work also demands a new set of skills and abilities to synthesize and deliver a category plan that truly grows the category and provides a positive net gain for everyone; distributor, operator, manufacturer, and ultimately, the consumer. While some traditional foodservice Category Management principles have existed, their impact was limited by the fact that the industry lacked a market-level and operator-level measurement tool to benchmark and track performance. In addition, efforts were often singularly focused on SKU rationalization and did not include a more formalized approach, in which manufacturers and distributors cooperated to develop insights-driven strategies. The TPG Category Management process is a proven approach designed to support collaboration between manufacturers and distributors desiring to work together to profitably grow their categories. By having a common source to measure the market, a common set of category goals and objectives, and a willingness to work jointly to develop plans that deliver results, both parties will reap the benefits of a more streamlined and effective business process. The result of a strong Category Management program is a Strategic Platform that provides a framework for planning, decision-making, and resource alignment. It also produces results that maximize ROI and efficiently leverages multifunctional resources to drive better results for all concerned. TPG s Category Leadership Process (CLP) Driven by Insights The Partnering Group has extensive experience in establishing and promoting best practices in Category Management for consumer packaged goods and several other industry sectors for the past 23 years. TPG s proprietary Category Management approach is its Category Leadership Process (CLP ). While each industry requires its own set of adaptations to the process, there are common themes and concepts that can be leveraged. In particular, effective Category Management starts with a set of fundamental business questions that drive the direction of the insights-identification phase. These questions are developed around the key operator and consumer decision factors that provide the framework for the information that is needed. Best practice research and analysis incorporates market-level information,
4 operator segment trends, consumer insights, operator insights, and additional internal data to create actionable insights. Examples of learnings/insights are as follows: A category is not at fair share for the distributor in total, regionally, or at the Operating Company level The average selling price in a region is higher/lower than for the remaining market The category is under-penetrated in specific operator segments Demographic changes have greatly expanded the type of flavors that foodservice consumers expect an operator to offer Restaurant patrons are trading down and the convenience segment has benefited and is looking to expand its foodservice offering Consumers are growing more likely to purchase certain menu items The process should employ market-level information and primary research with both operators and consumers, where necessary, to provide a complete assessment of the factors driving category trends. Research with foodservice operators, in particular, is crucial to developing a firm understanding of category needs and with resources like Datassential s Opera panel, it is possible to speak directly to a wide range of operator decision makers. Also critical is benchmarking and tracking category, brand, and item performance at the total, region, and operator segment levels. Incorporating consumer perspectives will help drive category growth through new product development, menu optimization, and marketing/merchandising at the unit level. The NPD Group offers consumer-based insights from CREST and sales tracking data from SupplyTrack that can often provide useful information for this process. These insights are pulled into a library that supports the CLP process and are used in business planning across multiple functions; product marketing, customer marketing, innovation, merchandising, procurement, and sales. Ideally information and insights should be available and used at every level where decision makers are measured against the performance of their business. Second, category definitions and roles are created, establishing alignment for distributor and manufacturer. This step ensures we are defining the category the way operators and consumers actually view the category, versus how we sell and distribute the product. Additionally, this alignment allows all parties to understand the value of a given category in regards to the total portfolio. Equally important is alignment on a vision for the category. Where do we envision the category will go over the next three to five years, and what are the implications of this vision? How will changes in consumer tastes and choices impact the category and our strategic direction? Next comes the core development of the plan, including the development of strategies and initiatives. While CLP addresses optimal assortment and other supply-side challenges, it also focuses on delivering other insights-driven demand-creation strategies and initiatives that will grow the category. These strategies are tailored to specific foodservice operator segments, in order to establish actionable next steps. The ultimate goal is to drive insights into specific initiatives that deliver competitive advantage for the operator, while growing the satisfaction and loyalty of their consumers.
5 Finally, in order to optimally deliver key results, both the distributor and the manufacturer must commit to supporting the initiatives, by allocating appropriate resources toward development, implementation, and tracking. As part of the process, detailed implementation plans are created to support initiative development and launch. Initiatives can include the following: Tools, information, and resources needed to maintain a common view of category sales, at the level addressed in each initiative Establishment of the type of street operators that require focus and, when possible, a list of potential targets in specific markets Approach to managing sales leads using distributor (DSR) and manufacturer (brokers, internal sales) resources Tools, such as Datassential s Optimize TM, to help a manufacturer, distributor, or a broker sales rep recommend the optimal product and menuing options for a specific type of operator in a geographic region Tools to deliver category information directly to the operator How To Begin Foodservice Category Management First, assess your current relationships with key business partners and objectively identify opportunity areas and gaps that are affecting your results. Next, document your organization s key business questions and determine what you need to do to optimize your category and improve total business results. Third, review your organization s market, operator, and consumer knowledge; resources and capabilities; and desire to advance your business and relationships into its desired future state. Ensure you include your current Category Management platform and organization in your evaluation. Finally, when you are ready to transform your organization to meet the evolving needs of the marketplace and build capability, take the next step forward on your Category Management journey and contact The Partnering Group or The NPD Group. Additionally, after building organizational capability, the Category Management Association (CMA) offers certification for practitioners. Category Management Innovation Board TPG s experience is that breakthrough ideas occur when industry leaders collaborate to develop best practices. To facilitate this collaboration in the foodservice industry, The Partnering Group will form the Category Management Innovation Board, which will be comprised of foodservice distributors, manufacturers, and other industry thought leaders. The NPD Group has agreed to participate on this Board as an unpaid consultant. The mission of the Category Management Innovation Board is to establish best practices for adopting an effective and universal Category Management language, process framework, and metrics that enable all industry stakeholders to interact more efficiently and effectively while enabling distributors to create their own unique strategies and tactics.
6 About The Partnering Group Founded in 1990, The Partnering Group (TPG) is an international strategy and general management consulting firm. Our mission is to provide proven enterprise-wide collaborative solutions for multiple business sectors worldwide. TPG led a major shift in the CPG industry with its focus on driving value through collaborative marketing, merchandising, and fulfillment of products across the entire value chain and is recognized for Best Practices in Category Management & Assortment. An industry leader in the Retail sector, TPG also successfully leads consulting projects in the business-to-business (B2B) sector, including Foodservice, Club/Cash and Carry, Medical Products and the Home Improvement channel. For more information, visit Follow us on or on LinkedIn at: About The NPD Group The NPD Group provides global information and advisory services to drive better business decisions. By combining unique data assets with unmatched industry expertise, we help our clients track their markets, understand consumers, and drive profitable growth. Sectors covered include automotive, beauty, consumer electronics, entertainment, fashion, food / foodservice, home, luxury, mobile, office supplies, sports, technology, toys, and video games. For more information, visit and npdgroupblog.com. Follow us on About Datassential Datassential is a privately held market research company focusing on food insights. Datassential s syndicated service, MenuTrends, is the largest, research oriented database of menus in the industry. In addition, Datassential conducts over 250 custom foodservice studies each year for manufacturers, operators, and distributors covering a broad range of areas attitudinal studies, market sizing, pricing analysis, and brand equity tracking. Our Opera TM panel provides easy access to over 30,000 foodservice decision makers, across all segments, enabling in depth analysis into the key drivers of category purchasing. Optimize TM provides menu assortment recommendations, by region and channel, to operators based on consumer preference ratings. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and/or retrieval system, without permission in writing from the copyright holder.
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