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The Power of Category Management: Lessons from Food Service (part 1)

food serviceA great vertical to illustrate the power of effective category management is the food service industry.  Today in food service, there are opportunities to improve the transactional relationships between suppliers, distributors, brokers and restaurant operators by developing a category management framework that will improve the guests’ dining experience, evolve the relationships into collaborative strategic partnerships, reduce costs and improve profit margins.

The food service industry’s need for category management is being driven by a few of the distributors and some of the larger restaurants chains.   Specifically, the key drivers of this necessary change are:

  • The growing need to source more strategically and locally
  • SKU optimization / increasing inventory turns
  • Satisfying changing consumer needs and dining occasions
  • Maximizing sales and profits by both the distributor and restaurant operators
  • Economic challenges and slowing industry growth.

Lessons from the use of category management in retail are applicable.  Retailers began to focus on category management in the early 1990s when driven by the proliferation of new SKUs, lack of partnerships and trust between retail buyers and manufacturers, minimal understanding of consumers’ shopping behavior and lack of agreed upon performance metrics. With a focus on the shopper, retail category management has resulted in data sharing, improved inventory management, more effective supply chain and a more collaborative partnership between suppliers and retailers.

What Does Category Management Look Like?

Category management consists of 8 basic components

  • Category definition: agreed upon terminology by suppliers, distributors etc.
  • Category roles: within your company/brand portfolio, distributors, restaurant operators
  • Channel insights: QSR, FSR, Lodging, On-Premise etc.
  • Consumer insights: consumer need states and dining occasions
  • Category metrics: key performance indicators, scorecard
  • Category growth: strategies and tactics development
  • Implementation of strategies/tactics
  • Measure and Review.

The Opportunity to Lead Your Respective Categories

Some suppliers that have retail category management knowledge have begun to take the lead within the food service industry and are partnering with key distributors and operators to develop the category management framework.

Retail category management including shopper insights became required of all suppliers who wanted to be successful with the grocery, club, office superstores and more.

The food service industry holds great opportunity for category management because it’s so complex and distributed.  Consider these operational realities:

  • Frequent disconnects between restaurant operators, suppliers and their distributors
  • Route to market complexities: multiple distributors, distribution centers and direct delivery
  • Limited time menu offers requiring new SKUs and discontinuance of others
  • New and custom product innovation requests from the restaurant operators
  • Longer shelf life requirements
  • Resource Requirements: people, supply chain, manufacturing etc.
  • Minimal sharing of transaction data and agreed upon KPIs.
  • Pricing and margin pressures on all parties.

In my next blog post, I’ll talk about the benefits of Category Management, and some recommended action steps for every business.  Meanwhile, if you are struggling to manage customer engagement across various channels, a category management approach may work for you.  Just let us know, and we’ll help you Stay #TopRight.

 

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