FDBuyer: It Ain’t Just Walmart
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Dairy Buyer magazine.
Right at deadline, a manufacturer friend e-mailed me to vent his frustration about working with Walmart lately. That’s not unusual — I hear all the time from both retailers and manufacturers about skirmishes with "partners" who have freshly driven them a little crazy.
Typically, when they’ve finished venting, the question people ask is, "Has anybody else had the same problem I’m having, or is it just me?"
Anyway, I took my friend’s rant, pasted it into an e-mail (without his name and company) and sent it around to people I consider straight shooters. As the responses came in, I came to two conclusions.
First, my friend was not alone in his frustration over the specific problems he was having. And second, most of what I was hearing about Walmart, I was also hearing about nearly all retailers — at least from the vendor’s point of view.
In Walmart’s case, I’m happy to point out, the venting that people have sent me almost always has to do with a policy or a direction the company is taking. It’s never ever been about lack of honesty or forthrightness from anybody at the company. That’s rare, and it’s why I have always loved Walmart. Simply put, the people are class acts. Vendors invariably tell me they always know where they stand with Walmart, and that no devious games are played.
So my friend’s complaint about Walmart has nothing to do with dishonesty. It has to do, essentially, with category captains having too much power, and buying teams not having enough experience. In other words, it has to do with money.
The industry just doesn’t seem to be able to afford the basics anymore. Category captains are getting too much power because buying staffs everywhere (not just at Walmart) are trying to do more with less. Staffs are smaller, workloads have increased, endless new "reports" have to be turned in, memos read, and there’s barely time to meet with manufacturers at all — let alone work up decent schematics and promotions.
I don’t know about you, but if I were as stressed out as today’s buyers, I’d be sorely tempted to lean on those category captains too much, just so I could have a life. But if I were really smart, I’d lean on some of those strong secondary suppliers to validate what my category captains have suggested.
Discussion Questions
Discussion Questions: What do you see as the weak points in the buying process for major retailers? Are stores relying too much on category captains?
Category captains are a relic of a failed category management process. But the process has become ingrained at most places and it will take another great idea (as CM was) to disrupt the process and replace it. Meanwhile, one can be an average retailer and hope you picked the right category captain, who has some of your interests at heart, or one can be a better retailer and listen to the second tier when they have something to say and data to back it up.
In my experience, most merchandise teams are absolutely overwhelmed with the business of reporting. This is the unintended consequence of (1) having very flexible and powerful reporting tools and (2) disjointed systems. Recently I heard the CEO of a major apparel chain say that 25% of his merchants’ time was consumed with producing and digesting performance information.
I’ve seen many merchandising operations throw up their hands in frustration at the inability of their IT staff to keep pace with them. They then step into what I call “Excel Hell” or, worse, “BI Binge.” Excel Hell is when they begin to take over not only report production but data base maintenance. “BI Binge” is when they embrace a “self-service” reporting model where every merchant builds their own reports. In the space of a couple of years, total chaos results. In these days of expense pressure, the only way to deal with the chaos is effort. As a consequence, merchants can’t get the quality time they need to take the best of what their vendors are offering.
The solution? Merchants must step back and understand how reporting must drive process.
In my view, there are two major weaknesses that have been building for a long, long time. The first is driven by the fact that there is simply way too much supply chasing way too little demand. The resulting market share game becomes not only a zero sum game between retailers, but between retailers and suppliers as well. In the department stores, this becomes gross margin guarantees, chargebacks for real/imagined shipping violations, and on and on. As noted, this is not because retailers are malevolent, it’s because, lacking revenue growth, it’s the only way to build margins. As more retailers go dark, this will tend to self-correct.
The second problem is, ironically, the reliance on systems to make, in some cases very large, merchandising decisions (witness the recent SKU rationalization at Walmart). Individuals we call merchants today spend little if any time in the stores or among the customers. They’re too busy designing a killer Excel spreadsheet. Instead of merchants (think Stanley Marcus, Walton, Cammarata, Drexler, Bernie Marcus and Art Blank), we have junior accountants and systems designers. This, I fear, will not self-correct.
Given the scarcity of resources, category captains are an essential part of the retail process because they enable the merchant to access the frequently vast archive of category performance data that many leading manufacturers have. However, Warren’s prompt to retailers to in addition access the knowledge reservoirs of secondary suppliers is also vitally important–if for no other reason than to keep the category captain honest. The situation that Warren describes is reflective of the divide that has long existed between supplier and retailer. However, in actual fact, that divide now appears to be closing, notwithstanding the vendor-merchant fireworks that Warren reports. Earlier this year, RetailWire published a White Paper on research conducted relative to shopper insights, sponsored by DemandTec (it’s on the website). As a really brief summary, the findings indicated that both retailers and suppliers extensively used shopper insights in their operations at all levels of management and both valued this data highly for making effective retail decisions. But one of the most interesting findings was that a substantial portion of retailer respondents believed that they should be responsible for collecting, managing and using shopper insights, and that they, not the supplier, should be willing to pay for them in many instances out of their own marketing or trade monies. Long term, the tide in mass market retailing is flowing towards greater cooperation between merchant and manufacturer and that retailers are looking to generate their own data with which to make retail decisions. Net-net, there will be conflicts always, but overall the trend is towards more cooperation.
Buying is too often focused on the art of striking the best deal (in a broad sense of the term) rather than finding the best shopper solution.
Buyer experience is clearly critical–the less experience, the more the buyer is likely to lean on the manufacturer in the form of a category captain and many times that means the manufacturer with the greatest capital commitment is calling the shots.
As to whether or not stores are relying too much on category captains, I guess that depends on the store and the category, but my suspicion (absent hard data) is that, in the main, the answer to that is question is “yes.”
The power of category captain varies considerably from retailer to retailer. In 2003 I was invited by the FTC to participate in a Roundtable on Antitrust and Category Captains. Concerns expressed during the session included increased concentration and marketing power of manufacturers, exclusion of smaller producers, increased margins for both sides and possible retail price fixing. It was discussed that these outcomes are far more likely to occur under category management when there is a single Category Captain from a dominant manufacturer. Based on what we discussed at the Roundtable, I wrote a letter to all retailers suggesting they remove the term “Category Captain” from their company’s vocabulary and establish clear guidelines in assigning suppliers to assist in the category management process. Some followed this advice, many did not.
We continually remind our retailer clients that while they may rely on one or two of their major suppliers in a category, the decision making process should include input from all suppliers in the category. We continually have to remind them that the Category Manager is the decision maker, not the supplier.
Regarding the weak points in the buying process for major retailers, too many continue to focus on cost and the deal of the day instead of focusing on shopping experience enhancement merchandising solutions. This is a huge issue at the Category Manager’s desk.
Alright! Let’s get right down to business here. Too much of the time, too many people in this industry are either unaware of the realities driving the three major parties to retail, or regularly ignore them in practice. Each of the three quite reasonably are focused on their own problems, with scarcely the time or resources to give any realistic consideration of what is driving the other parties.
I will be writing a white paper soon on what I call the dysfunctional marriage that is retail. That is, the necessary relationships among retailers, their brand suppliers and the hapless shoppers who make a go of it while those other two obsess about themselves.
BTW, only the shoppers can afford to be self-engaged–nobody is trying to replace them! But both retailers and their suppliers have massive wolves at their doors, seeking to eat their lunches, at all times and at the drop of a hat. When I refer to the in-aisle, brand on brand gladiatorial contest, it is only lacking the gore. 😉
As I read the article and the subsequent responses, I could not help but notice that there was no reference to the customer. I know it is implied, but I cannot help getting the sense that creating value for the consumer is taking second place. The desire to drive efficiencies and to maintain bottom lines is the primary concern.
I would question if it is this drive for efficiency that leads to behaviours that are all to common; antagonistic meetings that a win/lose; rationalisation of bottom feeders without assessing the interaction of these items on the rest of the category; focus on deeper discount promotions at the expense of promotional frequency; the drive to bring analytics capability in-house at the expense of CM skill acquisition.
Driving efficiencies in the long term simply is not effective. In a world where paying the iPhone bill is as important as the monthly grocery bill, retailers and vendors need to collaborate in providing a shopping experience that resonates with their consumers in order to capture share of wallet.
Focus on becoming effective. Every stakeholder needs to be the best at their primary function. Let operators operate, category managers manage their categories, analyst analyze. Reward this behaviour and hopefully the commoditisation of the grocery experience can be avoided. Meetings can focus on growing markets instead of ‘sharing the share’.
No, no, no. Making good decisions is not a reflection of having “too much work,” too little money, or not enough resources. It is about leadership, training and a clear vision. Despite this recession, there are great companies all around us, who still make money, and make great decisions. They all minimize on staff to maximize on performance, but that is the expectations of their shareholders. Companies like Whole Foods, ERAC, Apple, Ford and others rapidly come to mind. Every category has great companies and they are great because they have great people, with a clear vision, who are well-trained in the jobs they are expected to perform.