Fresh Item Management
This white paper provides information on why fresh item management (FIM) is critical to winning in a retailing environment that is consolidating towards value retailing. In addition, Fresh Market Manager (FMM) and Profit Optimization Methodology (POM) are introduced as the preferred FIM technology and organizational behavioral change platforms.
- PROMISE – “Fresh Item Management (FIM) will make me competitive in todayâ€™s environment!â€?
- REALITY – Most FIM initiatives fail to effectively deliver the promised results or struggle to get off the ground.
- PROBLEM – How do I successfully deploy an FIM initiative throughout the organization to position me better for the changing retailing environment?
- SOLUTION – FIM is often approached from an IT-centric perspective, but an approach must also be based on a change management platform to modify the behavior of the organization to accept FIM. In addition, an initial category management phase is required to produce the optimal return on investment.
What Challenges Are You Facing Today?
In the past ten years, value retailers have grown faster than any other retailing format. From 2001 to 2004, value retailers increased their domestic grocery market share from 21% to 25%. By 2015, value retailers will own approximately 35% of the U.S. grocery market and Wal-Mart will control 20% in every state (Source: 2005 McKinsey & Company).
In addition, such center store categories as dog food, paper products, skin care, makeup, cleaning supplies, etc. have become â€œvalueâ€? categories. It is nearly impossible for a traditional grocery enterprise to create merchandise authority in a category once it has moved over to â€œvalue.â€?
From 2002 to 2005, the number of consumers stating that they do not shop at value retailers because of a lack of quality fresh offerings has dropped from 7% to 1% (Source: 2005 McKinsey & Company).
Park City Group believes that going forward; the battle ground between value retailers and traditional grocery enterprises will be in the store perimeter, namely the perishable departments.
An ACNielson study dated 2005 states that grocery trip erosion is continuing while supercenters and warehouses gain ground. They further state that there is opportunity for trip capture. Such trip capture strategies include focusing on the customer to deliver what they want and when (the right product, in the right quantities, at the right time), perform on the perimeter, and differentiate.
What Steps Do You Need To Take To Survive And Thrive?
- Differentiate your brand by creating merchandising authority in high-quality fresh food offerings.
- Get credit for value delivered by strategically using promotions to build category sales, but not over-promoting which destroys pricing power and erodes profitability.
- Bring customer back by delivering the right product, at the right time, in the right quantities to exactly match consumer demand.
- Reshape the organization to deliver by becoming assortment architects and not item pickers.
Taking the highlighted steps above will require an FIM technology component and an organizational change management platform. Doing business the old way will no longer suffice â€“ everyone from the store associate to the CEO must become aligned.
Park City Groupâ€™s FIM technology solution is called Fresh Market Manager and is composed of 3 components:
Each component is required and must be completed in the sequence as illustrated. The first component, category management, is an essential precursor to production plans, forecasting, and computer-assisted ordering (CAO). Simply starting in the second or third components does not solve the problem of delivering the right product to consumers nor help the company plan for the right assortments and variety for each store or store cluster. Going out of sequence and stepping first into production planning and/or ordering will only automate the assortment and merchandizing errors already existing at the stores. It is vital that the grocery enterprise become assortment architects to establish merchandizing authority in fresh food offerings to build the brand, improve customer satisfaction and loyalty, increase â€œmultiple visit per weekâ€? perishable shoppers, and improve profitability.
The change management platform from Park City Group is a companion deliverable to Fresh Market Manager and is called â€œProfit Optimization Methodology (POM).â€? POM is a set of co-deliverables that will be executed by both Park City Group and the customer. POM will start once the first component of Fresh Market Manager (Category Management) is deployed and operational. POM includes the following tasks:
- Work together to identify key performance indicators (KPI) that will be used to measure the fresh food store offerings
- Once the key KPIâ€™s are identified, establish a baseline set of KPIâ€™s detailing historical performance of the current fresh food store offerings
- Identify a set of test stores and work to improve their fresh food offerings using the baseline KPIâ€™s as measurement
- Park City Group and the customer will work together starting on a weekly basis using the Fresh Market Manager category management tools to improve the fresh food offerings. Things that will be covered and analyzed include such topics as:
- Top sellers (categories and items)
- Bottom sellers (categories and items)
- Top profitable items (CTP)
- Money losing items (CTP)
- Day-part analysis (item movement throughout the day)
- Out-of-stock conditions
- Over-produced items
- Variety planning
- Pricing power opportunities
- Merchandising strategies
- The objective of POM is to give everyone (department managers, store managers, division managers, merchandisers, category managers, up to the C-level) in the organization the ability to answer these three questions about their perishable operations:
- What happened yesterday?
- Why did it happen?
- How will we make it better?
When everyone in the organization, especially at store level (where execution is critical), thinks of their business in terms of the three questions detailed above; the behavior in the organization has changed and employees no longer think of FIM as a controlling tool, but an enabling technology to help them in their jobs.
What Is Fresh Item Management?
Fresh item management is all about:
- Improving customer satisfaction and loyalty
- Increasing â€œmultiple visit per weekâ€? perishable shoppers
- Substantially improving profits by:
- Increasing sales
- Reducing undesirable shrink
- Forecasting item demand for improved production management and ordering
The bottom line: FIM can generate $100,000 or more in additional profits per store (Source: 12/2004 AMR)
What Is Fresh Item Management Not About?
Fresh item management is not about:
- Shrink management reduction (too much shrink control will collapse sales and reduce customer satisfaction)
- Only production plans and CAO (without category management as the first sequence in a FIM initiative â€“ you will be operating blindly and not knowing if you are satisfying consumer demands)
- Deploy fresh item management technology without an organizational behavioral change management platform (users will perceive FIM technology as overly controlling and will revolt)
Why Do Most Fresh Item Management Initiatives Fail Or Struggle To Get Off The Ground?
- Questioning results that seem to good to be true
- Faltering due to fresh item category management complexity
- Debating whether to start with category management, production planning or CAO
- Resisting technology and change
(Source: AMR December 2004)
Why Haven’t Fresh Items Been Managed Optimally?
- Managing perishable departments is very difficult. Unlike center store, perishable items have a number of attributes including shelf-life, pack-sizes, recipes and ingredients, production labor, variety planning, and day-part movement. Taking all of these item variables into account drastically compounds the ability to effectively manage a perishable department without some form of technology assistance.
- No comprehensive technology solutions have been available until now
- Without the right tools and methods â€“ you will be missing opportunities to optimize profitability in perishable departments
- Inability to answers such questions as:
- What is my shrink by item by store on a daily basis?
- What are my lost sales from out-of-stocks?
- What is the true profitability of perishable items (fully cost loaded)?
- What should I make and when â€“ store by store?
- What are the appropriate batch and pack sizes?
- Should I cycle bake?
- What impact do promotions have?
- What is the actual breakdown of sales for items with a variety of flavors (such as bagels or muffins)?
What Does Fresh Market Manager Look Like In Action?