Selling into retail has many challenges. To have a better understanding of where you fit and what you need to accomplish you should have a great understanding of your category, where you compete in the store. This year we are helping you define different industry terms. We share insights into the terms and how they are important to suppliers in the industry.
Category is the group of products your product(s) are merchandised with. Categories can be defined differently from one retailer to another. There are broad categories such as baking and subsets like sweeteners. Within retail and food service individuals in the merchandising group are responsible for the sales, margin and over and above dollars generated in each category.
Retailers are focused on categories and measure growth from one to another and look more favourably on items that contribute to the overall growth of the category and a margin percent higher than the category average.
Your performance relative to the category defines your relationship
When retailers are managing tens of thousands of SKUS they need to measure performance. Most prefer to put items into categories and compare results from one to another and within the category. Categories are expected to deliver a certain sales and profit, for the space they occupy in the store.
Different categories have different purposes. Some are positioned to drive price image relative to the market. You will see a lot of promotion tied to everyday pricing or specials. Other categories are more focused on delivering margin dollars and pricing is less sensitive. You should understand the strategy your customers have for the categories where you compete. It might be different for different products, if you sell into multiple categories.
You can learn about your customer’s overall performance when they report results. You should also ask your category manager about category specific sales. Many will share that number with you. You can compare your sales to the category. Any items growing faster than the category will be perceived to be a win.
Each category will also have a margin target. Similar to sales, some merchants will share the category margin with you. If they are looking for 30% and your item delivers 32% they will see this as a win.
If you can deliver higher than targeted margin and outpace the category year over year sales growth you should be heading towards a good relationship. Once they share the numbers with you keep it part of your presentation, meeting agenda. Retailers focus on the items they need to improve so a gentle reminder that you are contributing to their success is a good thing.
You can’t determine where you fit, but you should know
It is easy to say put items in categories to measure results. It can get complicated after that. Retailers are broken up into departments and they do compete internally to deliver results. For that reason, the definition of categories can get blurry.
I remember when I was at Loblaw we had some ‘dynamic tension’ around where certain items should be listed. I was responsible for a number of perishable departments. When we found items that could be merchandised there and had long shelf life, we fought for them. They reduced our department shrink and usually contributed to overall margin. In other words, they made our life easier.
An example could be fruit roll ups in produce. These are 100% fruit, have an 18 month shelf life and delivered decent margin. They were also a good traffic builder during back to school.
They are also not a fresh fruit or vegetable, which is really what produce is supposed to be. In the end we lost the item, then believe it or not the grocery people wanted to merchandise them in produce (our space!) because they sold better…Sometimes retailers focus more internally than they do on consumers.
All that to say you cannot make up the rules for your customers. They will define what goes into a category. Each retailer has their own definition. You should know the answer to the question, “where does your item sell best?” You might not always get your way but you should know.
If you are developing a really new item, you might even create a category. That is exciting but it is also work. You need to educate customers and consumers when you are doing this. You need to have some good reasons for why your product should be merchandised in a particular space. Often this can be related to your target market and experience you have had in specialty markets. Many of the plant based protein items are blazing a new trail. Do they belong in meat? Do they belong in natural food? Perhaps they should be in produce?
What this means for suppliers
Your products have to deliver sales and margin. They will be compared to the targets and results for the category where they are listed and merchandised. Suppliers need to know the targets and results to assess performance.
You can have great produts but if they do not help grow the category and deliver results they will not stay on the shelf. It is also important to understand the promotion expectations in your category. If your competitors are in 4 ads per year and your sales are falling behind you know what your customers will be expecting.
Retailers conduct category reviews. This is a process where they list all the items and assess sales, margin, promo activity, comparable unit costing and retails. Suppliers can create their own process of category review. This can be very effective to understand what is happening and what your customer is looking at. We recommend you do a category review once per year. It is amazing what you will find!
If you have any questions or require help figuring out your category, you can always send me an email peter@skufood.com or call me at (902) 489-2900.
Peter
Canada unveils new packaging regulations for 2026
Health Canada has introduced new labelling guidelines for products that contain more than 15% of the recommended daily amount of sugar, saturated fat or sodium. Suppliers will need to research these new guidelines to understand if they need to make changes to the front of their packaging.
Packaging is one of the biggest challenges for producers and processors. With sustainability, regulations, functionality and consumer appeal to consider there are a lot of variables. Finding a good expert in packaging regulations is a great asset to have!
Where is Peter Speaking?
Learnsphere Supply chain 123- Sept. 28th
Alberta/Manitoba Consumers & Customers – Satisfying Both
Learnsphere Supply chain 123- Oct. 12th
Alberta/Manitoba Getting on the Shelf: Building Relationships with Customers
Learnsphere Supply chain 123- Oct. 26th
Alberta/Manitoba Getting off the Shelf: Consumer Marketing
FCC Peer groups in fall of 2022
It has been a real privilege to work with FCC in 2021/22 to launch the pilot program for their food and beverage industry peer groups. We had some incredible discussions with processors about our industry and they really did learn some very valuable insights from each other. We discussed so many topics from customers to ecommerce to distributors to co-packers and so much more.
We are excited to let you know FCC plan to continue with the program and if you are interested this could be a great program for you in the fall of 2022. Check out the details and if you have any questions just let me know!
