Category management is imperative for success in a good economy, but even more critical to survival in a bad one. Still, a research study from IHL Group, Franklin, Tenn., says that as many as 20 percent of consumers find out-of-stocks on at least one shopping list item per visit. The retailer loses the sale, and it leads many consumers to quit shopping with the retailer altogether.

 

IHL’s study, “What’s the Deal with Out-of-Stocks,” found that grocery customers leave stores not purchasing at least one item they planned to buy or a substitute product 16.6 percent of the time.

 

“Retailers remain in denial when it comes to consumers’ perceptions of out-of-stocks,” said Greg Buzek, president of IHL Group, about the report. “Consumers don’t care why the product is not available. They come in with money to spend at the stores and have to leave either because the shelves are empty, there is no one to help get a locked item or the staff simply cannot find the merchandise even though the computer system says they have it. Nine percent of all consumers in our study have simply stopped shopping at one or more retailers in the last 12 months due to the problem.”

 

Certainly for big brands, out-of-stocks are an issue, says Nick Lake, vice president of beverage alcohol at The Nielson Co., but in the beverage category the number of out-of-stocks is staying fairly constant. The convenience channel has a greater incidence of out-of-stocks on bigger brands than other food channels, which primarily is driven by economics and space, he says. The reason for this is convenience stores only can hold so many beverages in their coolers, and distributors incur more costs in making stops to restock than they would restocking at a club store.

 

In the current economic environment, beverage companies are placing more emphasis on having their bigger brands and larger package sizes in stock, Lake says.

 

With out-of-stocks being one problem, the decrease in consumer shopping trips adds to how important it is to have a product stocked. Tracking shopping trips across all channels, The Nielson Co. showed in its report “How to Cope During Difficult Economic Times” that total third-quarter shopping trips were down overall on a year-to-year basis. However, the value channels and channels with food faired slightly better. Offsetting negative trip count news was the general trend of higher basket rings per trip, with convenience and gas recording the largest percentage increases in register rings per trip.

 

 

Past the basics of keeping the shelves stocked, beverage companies can adhere to three critical elements of category management that offer help in catching consumers’ attention for both retailers and beverage companies.

 

“First and foremost, you’ve got to manage your consumer, and you’ve got to understand your consumer,” Lake says. “I would bucket that under the notion of targeting. You better know who is walking through that front door, what they are buying, why they are buying it, and when are they buying it. It almost gets you down to the notion of occasion-based marketing.”

 

The second point of peak performance is understanding assortment. “You better have the right assortment on the shelf,” Lake says. “You’ve got to make sure that not only do you have the right variety, but the right mix of pack sizes within that variety. Certainly tied to assortment is obviously having enough shelf capacity to ensure that you’ve got an in-stock position.”

 

The third vital area for category management is promotion. “You’ve got to really understand how you are going to promote,” Lake says.

 

“When I say promotion, I don’t necessarily mean deep discounts,” he explains. “I mean promotions that are connected to consumers.”

 

In fact, Nielson conducted a survey asking a group of supermarket owners and convenience store operators which things they need most from their suppliers. “One of the things that bubbled to the top very, very quickly was that ‘I need my suppliers, my wholesalers and my distributors to bring me promotions that are unique to my store and my consumer,’” Lake says. “That becomes critical.”

 

Promotions so far this year have remained as aggressive as last year, Lake says. To not waste any marketing dollars, it’s important to understand how effective a company’s advertising mix is though.

 

“[To paraphrase] that old John Wanamaker quote, ‘I know I’m wasting half of my advertising dollars; I just don’t know which half,’” Lake says. “That really applies to virtually every beverage manufacturer, both on the advertising side, but also on the trade side with retailers, because a lot of these guys are pumping a lot of money into trade promotion and not understanding which ones are not working and which ones are really driving the needle.”

 

 

Competition on store shelves isn’t a new concept for beverage companies. What has changed with the downturned economy is that beverage companies are competing with each other and with the store’s own brands.

 

Supermarkets, drug stores, mass merchandisers and even convenience stores are increasing their investments in store brands, which often sell for less than branded items, attracting penny-pinching consumers, and offering a better revenue margin for retailers.

 

According to a Nielsen Homescan survey conducted in June and July 2008, price and quality really matter to consumers in the weakened economy. Seventy-four percent of consumers believe it is important to get the best price on a product, the survey found. Two-thirds of consumers agree that store brands usually provide “extremely good value” for the money, while 35 percent of consumers are willing to pay the same or more for store brands if they like them. Just less than a quarter of consumers believe that name brand products are worth the extra price.

 

Competition from private label beverages is really driven by category, Lake says. For instance, private label competition in the beer segment is basically non-existent. But with so many different wines, most consumers wouldn’t know if the wine they are buying is private label, so more room is made for private label. If one of the major soft drink companies launches a new beverage, most retailers are going to be hard pressed to not make room for that new beverage, Lake says. But if an unproven beverage company introduces a new brand, they might not make space, he says.

 

In addition, consumers have been slowing their trading-up purchases, particularly in spirits and beer. “There has been growth happening on the budget segment and really the below-premium segment,” Lake says. “What’s getting squeezed is the middle.”