Canadian Vending

Features Business Operations
Category Management 1

Understanding and askingthe right questions to begin


March 31, 2008
By Canadian Vending

Topics

For some time now, consultants, suppliers and manufacturers have been
trying to get the vending operator to see their business in terms of a
portable retail operation. Machines represent small retail spaces, and
the products contained within fill an emotional and physical need for
the consumer.

Understanding and asking the right questions to begin

Editor’s Note: At the National Automatic Merchandising Association Spring Expo a strong focus was given to category management, and how it affects the vending industry. Over the next three issues of Canadian Vending, we will present a series on what category management is, and how its implementation can benefit vending operators.

For some time now, consultants, suppliers and manufacturers have been trying to get the vending operator to see their business in terms of a portable retail operation. Machines represent small retail spaces, and the products contained within fill an emotional and physical need for the consumer.

Advertisment

categoryCategory management is a concept that has been employed by the retail industry since the 1980s. Originally designed with the supermarket business in mind, on the surface it involves grouping similar products together that fulfil the desires of the consumer. The large retailers learned that if they could create some pattern of merchandising efficiency through different product classifications, they could increase sales and profit.

In the vending industry, the perfect example is the modern convenience store – typically the direct competition to the vending operator. Each section of the c-store is divided into neatly packaged “departments,” and managed individually.

With a maximum shelf space of 18 feet per vender, operators must be asking themselves what they could be doing to make themselves, and their machines, better merchandisers.

“Vending is a retail business,” Brad Bachtelle told a group of international operators at the NAMA Spring Expo. Bachtelle has been working with the vending association for a number of years, and has developed a program to help direct operators with this shift.

“For years we thought we were in the service business. (That is) false. We get our money from product sales … every dollar of revenue we get is from selling products. That’s no different from a store that people drive to,” Bachtelle said.

“We must embrace the ‘retail’ skill set if we are to survive and thrive as an industry.”

In order to embrace the idea of category management, operators must focus on the products they are selling through their machines – and ultimately develop a plan to ensure the focus remains on the approved selections.

Before the concept can be fully implemented, operators must begin the process of shifting their business model. Category management requires the plan to be driven from the top down, which essentially will remove a great deal of the decision-making power from route drivers and warehousing staff.

Bachtelle warned this is where resistance is likely to happen, but the assumption that “the route driver is closest to the location and closest to the customer” is wrong. It’s very important that staff “buy-in” is achieved for the concept to work. Traditional roles within the company are liable to change as one individual needs to assume primary responsible for managing the front-end of category management – and that is developing the product selection that will create the foundation of the planograms needed for each machine and location.

“Most route drivers stock machines like my wife shops Costco: ‘I’ll take one of these, some of these,’” he said. “Now, I’m a huge fan of route drivers. But are they trained and skilled in product development? Think about how many grocery stores allow the shelf-stocker to pick the merchandise.”

Operators must stop delegating the merchandising and enlist the involvement of senior management in developing an approved product list.

“Merchandising is simply too important. What do I want my route driver to do? Implement. Their job is to follow the plan.”

There are some basic underlying principles behind the concept, which is going to help with the overall implementation and internal “buy-in” from staff:

• Selling more from our existing machines is good.
• Product variety enhances total consumer demand (and machine sales).
• Selling a higher-demand product will result in increased sales.
• Route drivers in general are untrained in product merchandising.
• Some location product flexibility is necessary.

To ensure the correct product mix and what factors will influence these basic assumptions, a number of questions must first be answered:

1. Which are the leading brands/products according to location, region and price point? Which are the least?
2. How much space is allocated to these products?
3. Could that space be more profitable if dedicated to a different brand?
4. Are there any existing “special requests” or “must have” products, and at which locations?

In order to obtain this information, operators must be willing to commit to a high level of initial data collection, if they do not already have accurate product tracking in place.

Included in this process is the reliance on information from consumer data reports; what is the consumer seeking, why, and what influences that purchasing decision. Market reports from suppliers and manufacturers will also help identify what products are selling, regional differences, and what products are on the downturn.

Profitability and margins for each product must be clearly defined, and which products are benefiting from existing marketing support by the manufacturer.

June: Category Management and Machine Planning
July/August: Category Management Implementation