Should grocers just say ‘no’ to big CPG brands when it comes to shelf decisions?

Photo: RetailWire
Feb 24, 2020
Tom Ryan

With proprietary data and software that measure “walk rates” in stores, grocers are increasingly taking greater control over what goes on the shelf and where, according to a Wall Street Journal report.

In many cases, legacy brands are losing shelf space to either private labels, which offer grocers higher margins, or products from emerging brands that better address natural and healthy trends. Carrying more retailer-owned and niche brands helps stores to differentiate.

Perhaps the biggest news in the article is that the use of category captains has diminished over the last 18 months. More grocers are also becoming open to foregoing slotting fees with confidence their in-house insights are creating an optimal shelf mix.

In response, bigger brands, from General Mills to Clorox and Hershey, are stepping up their respective analytical capabilities to again prove they have deeper insights into categories in an effort to recapture some shelf influence, according to the Journal’s reporting.

Critics have long charged slotting fees make it more difficult for smaller brands to secure shelf space, although the long-used practice obviously has some fans. In early 2018, reports arrived that Whole Foods was starting to require vendors to pay for shelf space, displays and in-store sampling.

An often-cited study from Yale and Cornell — albeit published back in 2005 — found slotting fees helped balance the risk of new product failure between manufacturers and retailers. Products “likely to be a sure hit” also tended to find shelf space without slotting fees.

Critics charge category captains create bias in the mix, although Progressive Grocer’s 2019 Category Captain Awards suggests the practice remains common. Fifteen brands were honored as captains, including Chiquita Brands, Kellogg, Nestlé Purina and Molson. Another 13 were designated with a Category Advisor distinction (honorable mention).

Winners emphasized that retailers must trust that the vendor’s knowledge and expertise will guide what works best for the category currently and as it evolves.

“The retailer must trust that the manufacturer is truly looking out for the success of the category as a whole, and not simply for their brand,” Joel Warady, general manager, Enjoy Life Foods, told the publication.

DISCUSSION QUESTIONS: What role do you think CPG manufacturers should play today in how grocery retailers manage product assortments, shelf space, displays and marketing? Is the use of category captains still relevant in the current retailing environment?

Please practice The RetailWire Golden Rule when submitting your comments.
"There’s no reason why CPG brands shouldn’t have input, but no one brand should run the show."
"If the large CPG brands don’t have a way to make their specific brands something consumers want, they will increasingly have less influence over retailer decisions."
"As the grocery business has shifted, to meet the changing consumer demand, large CPGs have become out of touch with what is driving the grocery business."

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19 Comments on "Should grocers just say ‘no’ to big CPG brands when it comes to shelf decisions?"

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Bethany Allee

For larger retailers, it makes sense to work with CPG captains as part of an advisory board. Smaller food retailers are disrupting the industry – they should minimize their input from CPG captains and manufacturers.

Specialty food retailers are seeing massive growth compared to their larger food retailer counterparts. The data from the 2019 Specialty Food Association (SFA) report showed that specialty foods grew by 10.3 percent versus 3.1 percent for all food at retail. The data indicates that specialty stores listen to and center themselves around their customers’ needs – and they’re winning.

Dick Seesel

The concept of “category captains” never made sense to me, because it substitutes one CPG vendor’s self-interest for the heavy lift of data analysis that grocers should be doing themselves. No matter how much these “captains” swear to manage shelf space objectively, reality often suggests otherwise. Their own brands squeeze out rival national brands — not to mention stores’ private brands and specialty products.

I can’t speak to the industry trend but it seems clear from shopping my local Kroger stores (since buying Roundy’s nameplates) that their own brands are eating up more shelf space. If this represents a turn away from the “category captain” model, so be it — as long as the space decisions are based on more sales and higher margins.

Michael Terpkosh

Large, traditional CPGs with their legacy brands are not driving sales with grocery retailers like they have in the past. Small-medium companies are driving most of the grocery sales growth. There are many reasons for this including innovative products, better for you items, and new ethnic brands. As the grocery business has shifted, to meet the changing consumer demand, large CPGs have become out of touch with what is driving the grocery business. The result is that their usefulness as a vendor partner has diminished in the eyes of the retailer. Plus the availability of many sources of consumer and market data from syndicated data companies has empowered grocery retailers to drive their own analytics, insights and shelf decisions. The larger CPGs may never be able to get a seat at the partner table again.

Dr. Stephen Needel

I’ve never liked the category captain model for the same reason Dick mentions – it’s an excuse for the retailer to use the manufacturer’s labor for free. We’ve encouraged retailers to engage all their vendors in doing shelf assortment and shelf layout studies. We’ve also pushed our clients to think more about the impact of their program on the category, particularly store brand and, if it’s a small player, the impact on the large players. There’s no reason why CPG brands shouldn’t have input, but no one brand should run the show.

Steve Montgomery

The underlying issue is, whose store is it? Is it the retailer’s store or simply and outlet for the category captain’s brands? We have always encouraged retailers to take control of their shelves and inventory. The problem in the c-store industry at retail is not slotting fees per se but that the cost of some items is tied to contracts that dictate the amount of space, the number of SKUs and where they are located. This is especially true in the coolers.

Gene Detroyer

Every CPG brand has very sophisticated analytics that they show to the retailer on how the shelves should be allocated. CPG brands have been doing this for over 50 years. The analytics have gotten more sophisticated and fancier over time of course, but the answers are always the same.

If the analytics were as sophisticated and objective as they claim, then each CPG company would give the very same shelving suggestions to the retailer. But, alas, when two competitors show their shelving recommendations based on their very sophisticated and expensive software, they are not the same — and somehow they seem to always favor the presenting company.

Category captains came about at a time when the CPG companies were more sophisticated than the retailers. The retailers thought, anything is good and better than what we have. Today that is different. Retailers can find a multitude of software that is actually objective and uses the retailers’ own data to determine the most appropriate shelving schemes.

Richard Hernandez

As retailers get more savvy in learning how to mine their data and utilize it to make shelf decisions, the role of the CPGs (or their leverage in making decisions) begins to diminish. I believe POG work and the analysis of the shelf data should be (or begin to transition to being) an in-house function. A strong private label program will be to the retailers’ benefit.

Susan O'Neal
1 month 13 days ago

CPG manufacturers really only have one job, to create enough consumer demand for their products that consumers go into retail stores looking for them. Historically they’ve done that through advertising. As brand access to consumer attention continues to wane (thanks to the evolution of digital media), so has brands’ ability to create that consumer demand and, correspondingly, the brands’ value to the retailer will continue to decline.

Retailers are doing what is in their best interest; giving their customers what they want the best possible price. If the large CPG brands don’t have a way to make their specific brands something consumers want, they will increasingly have less influence over retailer decisions – it’s as simple as that.

Jeff Sward

This reminds me a lot of gross margin support deals in the apparel business. They kind of made sense in the beginning. They were an insurance policy against a bad buy or a bad season. If the product turned out to be off-trend, the brand/wholesaler wrote a check to get the retailer’s margin back up to an agreed to level. Margin deals became pervasive — table stakes. And buyers bought the safest “deal” rather than the best product. And then the brands figured out that if they were going to be paying for the markdowns, they’d play it safe on product too. Risk aversion has given us a lot of undifferentiated product, along with race-to-the-bottom pricing. That’s not customer-centric thinking. The best “deal” for everybody is actually offering the customer the product they really want. The retailer at some point has to differentiate between being a landlord or a merchant.

Suresh Chaganti

The motivations of brands and retailers are different. The retailers are looking to grow the category regardless of what brands they stock, while the brands are looking to grow their share within that category.

The best course of action is for the CPG brands to be acutely aware of this dynamic and look to convince retailers of how their brand will drive the category and have a halo effect on adjacent categories. Category captains can do this, but it is debatable if that captain should be from one of the brands, given the inherent conflict of interest.

Herb Sorensen

A silent revolution is underway. Many decades of standard retailer practice will NOT survive “as is.”

Dave Wendland

Totally agree, Herb. I believe the faulty model that perpetuated itself at retail for decades has created today’s problems at shelf. And as Albert Einstein so boldly said, “We can’t solve problems by using the same kind of thinking we used when we created them.”

It’s high time that retailers and CPG brands (big and small) scrap the age-old approaches and move forward with new thinking that’s right for today’s market.

Gene Detroyer

I wish I could give you 3 thumbs up.

Paco Underhill

Catman has reached a crossroads. Time for the merchant and the brands to do a better job managing not just the plan-o-gram and shelf sets, but to understand the broader store better. How does Catman intersect with store design and visual merchandising?

James Tenser

Brand marketers are the category experts. Retailers are the customer experts and they have final say on what appears on their shelves. Category advisers have an important place in the merchandising process, but a retailer who hands over the decision process entirely to a “captain” betrays their shoppers.

The debating points restated in this discussion thread have many years of history. A few things have changed however, since CM was introduced ca. 1990. Most notable is the availability of actual shopper behavior data from loyalty programs, displacing syndicated consumer data and warehouse removal data as the basis of decision-making.

In a truly collaborative process, brands and stores analyze that information to make store-level assortment decisions and design promotions that drive the retailer’s business. This can be an extremely intricate process, so a major brand’s know-how can be invaluable to a supermarket retailer with 350 categories to manage. Too-frequent changes can tax store labor and confuse shoppers, and self-dealing by brands can undermine outcomes for all. Ultimately it’s the retailer’s job to set the boundaries.

John Karolefski

For the best outcomes, managing product assortments and shelf space should be a collaborative effort. Trading partners need to jointly focus on their mutual customer — the consumer. I suspect that reports of the role of category captains diminishing is fake news. Nobody knows more about products and their sales potential than the companies making them. One more thing: the growing success of private label will have its limits. The US is not Europe.

Bob Hilarides
1 month 13 days ago
Having built category management processes, tools and platforms used across all FDM retailers and hundreds of categories, I find some of these comments naïve. There is not one simple answer for dynamic, complicated processes like assortment and space. A model to optimize assortment and space allocation requires a “category view” of the decision hierarchy to determine the incrementality of an item. Decision hierarchies are of course different by shopper and evolve over time, so require deep category understanding that is difficult for a retailer to attain and keep fresh over hundreds of categories; a manufacturer can command that insight over their 5-25 categories. The value lost in building a tool on a simplified or syndicated category view may be as great as the value lost because a manufacturer ensures they don’t “lose” as a result of their efforts. The manufacturers successful in the long term are adept at customizing the recommendations to the retailer’s unique shopper base and finding the triple win. I would argue that the retailer would be foolish to “say no to… Read more »
Richard J. George, Ph.D.

There are two key questions here: 1. Who owns the shelves? And 2. Who has a local shelf monopoly? The answers are the same, the retailer. Given the phenomenon of retailing, it is incumbent upon CPG retailers to market their products within these parameters. Plus, retailers have learned that private/own label (not just price & generics) provide a real point of differentiation going forward.

Category captains are yesterday’s paradigm. Today, we need customer captains within retailers, who will work in concert with CPG brands to maximize the customer experience. If the customer again becomes king/queen, both retailers and CPG brands should reap the benefits.

Christopher P. Ramey

Manufacturers should never have been managing floor assortments. A merchant’s job is to serve their customers rather than their resources. No one should subordinate their primary responsibility.

At the most basic level, specialty food retailers should be focused on high quality brands unavailable at competitors so they can make the necessary margin. Marketing the same brands as their larger competitors makes them “un-special.” Larger retailers likely require the supply and price points a category captain can provide.

More specifically to the question, category captains are only relevant in chain stores where they execute plans from supervisors.

"There’s no reason why CPG brands shouldn’t have input, but no one brand should run the show."
"If the large CPG brands don’t have a way to make their specific brands something consumers want, they will increasingly have less influence over retailer decisions."
"As the grocery business has shifted, to meet the changing consumer demand, large CPGs have become out of touch with what is driving the grocery business."

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