Session Title

Category Management: Grounding Before TakeoffLeslie NewleeDirector Insights Capabilities2010 ALA/DeCA Worldwide Partnership SummitJune 7-10, 2010Hyatt Regency Atlanta

Special Thanks to Key Contributors Leslie Newlie- Director Insights Capabilities, Pepsico

Michelle Frost Semi-Perishables Division Chief, DeCA

Steve Lamkin- Dir. HQ Sales, Dunham & Smith Agencies

Deborah Kalas- VP Sales, Empower IT

Tommie Draper- VP National Accounts, Overseas Service Corp.

AgendaChanging Times

Category Management Evolves

The New DeCA Process

Following the Plan to Success

Q & A

With that in mind, Ill take you through some of todays Changing Times , as well as how Category Management has changed over the years. Todays shopper has changed over time, and likewise, the process in place to capitalize on category opportunities with those shoppers is all new in 2010 for DeCa as well Ill take you through the first half, Deborah will take you through your process and examples of success then well both be here for Q&AIndustry Challenges with CM ImpactEconomy Post Recession into RecoveryRise of Value Shoppers and Value ChannelsPrivate Label Will it Stay?Retailer ResponsesIntegrating Shopper Rise of Shopper Marketing

As I mentioned, I wanted to open up this session by sharing some of the latest thoughts as it relates to todays shopper those that shop YOU and your competitors daily.A few topics well look at (listed go over.)As youll see later in this session, Consumer Insights is a key piece of the new DeCa Category Management Process. Ill get us started in thinking about potential Category Implications from these broad topics Deborah will take you through the specifics of the Process itself.Leaving Recessionary Times

Many economic indicators point to Recovery but what did we learn from the recession?Some Categories ProsperedCategory Growth Rates in High Unemployment Markets Seek to maintain their $ by fixing their own car Doing their own hair and trading down cosmetics selection from department stores

Low Unemployment+20-14Source: IRI, 52 weeks ending 11-29-09+3+1+1

6Some categories had tailwinds.Some Categories Faltered

Category Growth Rates in High Unemployment Markets Avoiding expenses where possible Not following evolutions still buy bag vacuum when new models are bagless

Low Unemployment+2+1Source: IRI, 52 weeks ending 11-29-09-33-10-1+5

7Some faced headwinds

Source: TNS ShopperScape, Traditional Grocery Shoppers (excludes Trader Joes, Whole Foods, specialty grocery)

25 pts23 pts15 pts17 pts28 pts20 pts14 pts8

How Has Your ShoppingBehavior Changed this Year?Shoppers Feeling Recession BurnoutAs economic indicators will support, shoppers once on heightened alert have eased off a bit8

Macroeconomic Trends Fueling Seismic ShiftsThe Rise of theStrategic ShopperA European-LightRetail EnvironmentShift Away from Discretionary ItemsPre-Shopping for ValueShopping Frequency DeliberateTech-Enabled StrategiesTrade ConsolidationIncreasing SophisticationDrive for DifferentiationPressure for MarginRise of Discount FormatsTwo Strategic Themes Emerging9

How frequently do you do each of the following when shopping for groceries?Source: Homescan 09/2009 survey, a service of The Nielsen CompanyShopping: Planning and Price ComparisonsInteresting findings as to how U.S. households shop for groceries:

Very few will ask for assistance in the meat or produce department so retailers need to get their assortment right.Purchasing on displays are made on some & a few tripsShoppers dont like taking their kids with them on tripsShopping is about planning & price comparisons:Large percentages of households use shopping lists, use circulars or coupons, & compare unit prices.The New Age of Frugality widely publicizedThe TennesseeanMarketers put new American shopper under microscope Commentary by David Bohan May 17, 2010

1Food Away From Home2Electronics3Clothing4Media/Entertainment5Home Improvements6Alcohol7Pets/Toys/Hobbies8Financial Products & Services9Tobacco10Non-Alcoholic BeveragesTop 10 Areas Where Budgets Were Slashed

Today, you not only have to segment customers by age, gender and income, but also need to focus on how they shop.New Shopper SegmentsThe TennesseeanMarketers put new American shopper under microscope Commentary by David Bohan May 17, 2010 Shoppers 2.0

Heavy InternetBuy OnlineFrequent CouponLess Brand LoyalDeal Hunters

Price SensitiveHeavy CouponLess Brand LoyalOnline ResearchChannel Surfers

Good Deals Trump ConvenienceLoyalists

Brand LoyalRetail Chain LoyalOnline ResearchBuy Online

Macroeconomic Trends Fueling Seismic Shifts

The Rise of theStrategic ShopperA European-LightRetail EnvironmentShift Away from Discretionary ItemsPre-Shopping for ValueShopping Frequency DeliberateTechnology-Enabled Strategies

Trade ConsolidationIncreasing SophisticationDrive for DifferentiationPressure for MarginRise of Discount FormatsThe Second Theme13Shopping Shifted20082009ChangeSupermarket71%79%8Dollar Stores52%60%8C-Stores50%58%8Internet55%61%6Drug Stores68%73%5Mass/Super Center76%76%0Warehouse Club41%40%-1Pet Specialty32%29%-3Beauty Specialty25%21%-4Department Stores55%51%-4Mall43%37%-6Home Specialty27%20%-7Eat at home benefitRemove temptationDelay purchasesChannels Shopped in Past 3 Months:Source: WSL/Strategic Retail

Recovery Shift?Discount Retailer GrowthAldi Store Growth

= EstimateDollar General Sales Growth

= Estimate15Aldi and Dollar General are REAL choices even in already competitive dense marketplaces (Dallas example)

How will shoppers feel about a box full of Private Label? (ALDI) about 7% of HH have shopped there nationally and climbing. DG at about 9 and down slightly15Private Label Holding Share

Given publicity of Private Label and growth of PL Outlets Speaking of Private Label ..Private Label sustaining in Recession what about now?

Continuing to hold share All Outlet

...and budget-varied entries

Thanks to a Core Group of ShoppersBut still purchased by a core set of Shoppers. Guess is that Aldi will appeal to the Private Label shopper, but PL cant fill all needs...Walmart Reaction Win, Place, ShowClean-store policyCategory rolesAssortment tacticsKantar Retail Forward - 2009

Retailers React In-Store Even WMT is reacting to the new shopper - and fighting to regain from Supermarket seeing small box growth, less is more approach by category and merchandising standards

According to ShopperScape, one in 10 past-month Walmart Supercenter shoppers report that theyve noticed that their store has stopped carrying products they regularly buy Walmart is responding by adding back about 300 branded SKUsKantar Retail Forward - 2009Walmart Win, Place, Show 20Understanding the Theatrics of ThriftI dont understand whats going on, but I know I can try and help my family save wherever possibleHow would I feel about my role as a mother if I just continued in my same routine?At the end of the day, all I can do is try and do my part

Develop Strategies Basedon a Broadened Definition of Value

VALUE2.0PRICEEXPERIENCEQUALITYVALUESUTILITYStrategies for Succeeding in RecoveryComing into recovery, what shopper behaviors will stick? How do we think about Value now? (Grocery growth reasons..) (Channel trends)20

Quality Brand Positioning

Waste Reduction and Convenience (Utility)

Solutions to Enhance Shopper Experience

Reinforce Core ValuesBuild Connections Beyond PRICEStrategies in 2010With recovery and an unknown on which penny-saving behaviors will stick.Retailers are moving past price to define value in their box. The rise of Shopper Marketing positions as well as concepts and partnerships is a result of the new Value equation21Appeal to Shoppers

Occasion-BasedSolutionsWaste ReductionTarget example owning movie night banking on nesting behavior seen in recessionary times to stick knowing they have the breadth of products to pull it off Shopper Marketing > Category Management

Source: Market Watch CPGMatters High Interest in Category Management, But Process is Changing: PollWhat will you focus on in 2010?Data is changing

Shopper has a voice

Old CM process was brokenProcess Enables TacticsIn fact Shopper Marketing is the #1 area of focus in 2010 with CM just behind Shopper Marketing is a definitely offspring of CM Execution through the Shopper is made possible through technology new data, household/shopper data allows value communication, and redemption possibilities to be shopper and store specific Retailers are catching on One size does not always fit all and those with Marketing capability are exercising another Executable muscle

How did we get to Shopper Marketing???? Lets start by recalling the beginning of Category Management Data is ChangingRetailers are recognizing that shopper data is their DNA and they are controlling access. Big shift from supplier-driven to retailer-driven process.

RETAIL POS DATA

Sales Growth

Share Gap

Store DevelopmentTRIP DATA

Missions

Store Layout

BundlingHH DATA

Segments

Direct Mail

Shopper SpecificCategories on each tripCategories in each householdCategories in each storeSource: Market Watch CPGMatters High Interest in Category Management, But Process is Changing: PollShopper is Critical 3rd PartyEconomy, SKU and brand rationalization coupled with consumer insights are factors changing the process.

retailerconsumersuppliershopper /AssortmentShelving/adjacencyPromotionPricingSource: Market Watch CPGMatters High Interest in Category Management, But Process is Changing: PollThe Shopper is now fully integrated in the latest plans. The third person at the desk We see that in assortment, shelving and promotion, or Shopper Marketing.Process Needs Refresh Just 4% say that CM doesnt need to change because the traditional 8-step process still works.

Source: Market Watch CPGMatters High Interest in Category Management, But Process is Changing: Poll

Lets Refresh our Memory

PricingBryan Harris / The Partnering GroupPromotionShelving/AdjAssortmentA retailer-supplier process of managing categories as strategic business units, producing enhanced business results by focusing on delivering consumer valueLets review each piece as it was known.For some this may be a review, but for those who only see the planogram, or the fruits of all the effort you may have thought that planogram was just a pretty picture!Category Definition & RoleBryan Harris / The Partnering Group1. Category DefinitionDetermine the products that make up the category and its most logical consumer-oriented segmentation.2. Category RoleDetermine the best strategic role for the category given the retailer portfolio.DestinationOccasionalRoutineSeasonalConvenience

First.Category Assessment & ScorecardBryan Harris / The Partnering Group3. Category AssessmentIncludes latest trends, analysis and insights on the Consumer, Market, Retailer and Supplier.

4. Category ScorecardIdentify key measures to track goals and align to the organization.

First.Category Strategies & TacticsBryan Harris / The Partnering Group5. Category StrategiesIdentify the road map for success demand-side, in-store service and supply chain plan.

6. Category TacticsDetermine the right assortment, promotion, pricing and shelving based on previous steps.

First.Plan Implementation & Category ReviewBryan Harris / The Partnering Group7. Plan ImplementationPlan and scorecard approved, communicated and action begins.8. Category ReviewThe end and beginning

Planogram Set!All 7 steps take place before the POG gets to you!DeCA Category ManagementThe Evolution of the DeCA CategoryManagement ProcessHistory Category Management Challenges At DeCA

Inconsistency in reviewing DeCA categories across buyers

Duplication of efforts between buyers and retail industry

Countless hours spent sifting through data to find key drivers

Category reviews and live sets were created, but planogram implementation wasnt executed in a timely fashion

Inconsistent method to measure planogram implementationSo, how do we change the process?DeCA and ALA Commissary CouncilThe Category Management Committee (a subcommittee to the ALA Commissary Council) developed a category management template in 2009

Goal was to emulate best category management practices from retail

Many meetings over a year to create the new DeCA template

Collaborative Process IntroducingDefine the category definition and role

Clearly address the goal of the category

Offer consistent key metrics to measure the category trends Time periods, measures, and promotional activity

Incorporate retail information for benchmarking and indexing

Optimize SKU assortment by rationalizing optimal sales drivers and key contributors within the category

The New DeCA Template35DeCA Category Plan

New in January 2 010Key Elements to Drive Category Growth:

Identifies key drivers from the category, i.e. promotional drivers, new item distribution builds

Provides information to develop the planogram

Implementing the Planogram

Planogram Implementation is DifficultBrokerDistributorCustomer ConcernsCategory PlanLive SetWith so many balls to balance, something is likely to fallPOG ImplementationManufacturerThe Importance of Executing POGsIncreases sales and foot traffic to the store, and maintains the proper balance of sales to stock ratio.

Offers the customer the products they want to purchase.

Allows the customer to receive all marketing/sales dollars for any new product launch.

If planograms are implemented on a timely basis, it gives the MBU a scorecard to evaluate their category changes.When Effective Category Management and POG Implementation Meets..

Planogram SuccessPre-Review IndexPost Review Index

Toaster Pastries160168

Household Cleaners195200

HBC-Shampoo163164

Chilled Dinner Sausage 89 93Share indexing is comprised of: DeCA category dollar share of total store vs. remaining market Opportunity AwaitsPlanogram ImplementationReset Results - Pre & Post Store AStore B

Source: Total ConUS (inc AK/HI), 6 quadweeks ending 04/06/09**Category Review Date: April 06, 2009 Toaster Pastry Category$ 208$ 4.00Store AStore B

Source: Total ConUS (inc AK/HI), 6 quadweeks ending 04/06/09**Category Review Date: April 06, 2009 Household Cleaners Category$ (2,286)$ (257)Store AStore B

Source: Total ConUS (inc AK/HI), 6 quadweeks ending 04/06/09**Category Review Date: April 06, 2009 Shampoo & Conditioner Category$ (418)$ (158)Job Well Done!!!Planogram ImplementationReset Results - Pre & Post

Fort CarsonNew River

$ 2,684$ 3, 477Source: Total ConUS (inc AK/HI), 6 Quadweeks Pre & Post 07/20,2009**Category Review Date: July 20, 2009 Toaster Pastry Category

Household Cleaners Category

Fort CarsonNew River

$ 25,079$ 6,291Source: Total ConUS (inc AK/HI), 6 Quadweeks Pre & Post 06/05/09**Category Review Date: June 06, 2009 Shampoo & Conditioner Category

Fort CarsonNew River

$ 5,626$ 3,497Source: Total ConUS (inc AK/HI), 6 quadweeks ending 04/06/09**Category Review Date: April 06, 2009 Q&AQuiz or audience questionsAppendixChart1549625684697730759821895996106111261191125613211381

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