Category Management: What If Your Company Doesn’t Make the Cut?

jobless_with_no_safety_net_falling_through_cracks_ineiCategory management is a hot topic in the foodservice industry. Broadliners are undertaking n-step strategic sourcing (lower cost suppliers, demand aggregation, bidding and negotiation)–the more holistic catman comes later. Many manufacturers are participating in training programs. Some have or are going through the process assuming each progressive step is a sure sign that “preferred supplier” status is within reach.

But what if your company doesn’t make the cut? What if you end up on the outside looking in? What if your line is eliminated and your business is converted to a competitor?

Manufacturer CEOs struggle to find the logic in these questions. They believe their brands and products can bypass the principles of strategic sourcing, or that relationships with long-time category managers will influence outcomes. They predict operator revolt and hold-out if they are de-listed.

There may be some consolation in this thinking–and plenty of faulty reasoning. Distributors won’t sell fewer cases of French fries, spaghetti sauce or brownies after some lines go away; they will run more efficient and profitable operations. They will make it worth their end-users’ while to convert. Operators will source hard-to-find products online. On the flip side, the catman process is ongoing. Winners in Round One can expect margin pressure and significantly more resource investment to maintain their preferred status in Round Two.

When pressed about plans for various “what if” scenarios and outcomes, manufacturer CEOs are quick to say that chains are an option. Or regional broadliners. Or Restaurant Depot. These aren’t plans; they are reactions–fortified by assurances from VPs that recovery is a matter of shifting attention elsewhere and lost volume and profit will follow.

The hard truth is that events will turn out badly for many manufacturers. These are not like-for-like alternatives to what’s at stake. There’s limited volume available to suppliers excluded from strategic sourcing and category management. What’s more, brand reputations slip with every loss.

Serious Implications For Manufacturer CEOs

“Consolidation” is code for “stripping out”. Low innovation has produced an overrun of poorly differentiated, non-essential products in the supply system. As customers merge and strategic sourcing continues to strip out cost and duplication, volume and profit recovery for excluded manufacturers will be outpaced by time, aggressive competition for what’s left over and mounting investment to try to win new business in a risk-averse environment.

Please, think about this carefully. Without a meaningful assessment of what’s at stake and a build-out plan in the event of catman or consolidation fallout, your company’s worth will likely decline, leaving only three options: 1) manage the contraction, 2) merge, 3) sell off assets.

As the Keeper, Defender and Builder of Company Value, “what if” scenarios reside in manufacturer CEO’s wheelhouse. Decisions are high stake and there is little time to weigh their impact or options. Build out plans must be put in place immediately.

Big Data vs. The Foodservice Lifer

Dave DeWalt PhotoBlueberry is pleased to feature the following guest commentary from Dave DeWalt. Dave is a “Foodservice Lifer” and has been President of Franklin Foodservice Solutions since 1996. Franklin Foodservice Solutions assists manufacturers with marketing and distribution-related projects, and also works closely with foodservice broker agencies. Dave is author of several books about the foodservice industry, as well as the monthly Foodservice Marketing Insights newsletter. You can subscribe at no cost from his website: http://www.franklin-foodservice.com/subscribe/

A few weeks ago I had the opportunity to conduct a broker agency panel discussion at the IFMA Sales and Marketing Leaders Forum. The overall theme of the Forum was clearly about the availability and potential uses of consumer data in the foodservice channel.

There were presentations about Operator-level Purchase Data, “Food Communities” and “Local Food Environments,” and understanding the Foodservice Consumer’s “Eater Types” and “Food Away From Home Occasion” motivations.

There were bright, articulate presenters from software companies and research firms who not so long ago were strangers to the foodservice channel. And I couldn’t help but notice that a lot of the attendees were strangers to me, and looked younger and different from the pudgy middle aged balding guys (including me) that I’m used to seeing at foodservice events. Could it be that I was seeing what people look like when they’re not burdened with 30 years of foodservice baggage?

And suddenly, I found myself deeply conflicted about the whole scene!

The “Foodservice Lifer” in me perched on my left shoulder and hoarsely whispered “What a crock! Distributors and Operators aren’t going to listen to all of this theoretical nonsense; it’s still going to come down to price and trade deals!”

The “Introspective Consultant” in me perched on my right shoulder and chided “For 30 years you and your colleagues have been whining about the lack of data, sophistication, and intelligence in the foodservice channel and now it’s staring you in the face. This could be our chance to finally break out of the rut of commoditization, trade spending, and competing on price alone!”

I came home and continued to think it over, and I’ve come to a few conclusions:

1. Our foodservice business IS changing, and our environment has quickly shifted from a data desert to a data monsoon. All of the big customers (distributors and chains) and the big, retail-driven manufacturers are embracing the use of data to better understand operators and foodservice consumers. This means everyone else (manufacturers, brokers, independent distributors and operators) will need to get on board OR develop more effective strategies which are not data-driven.

2. The challenge with Big Data (as always) is figuring out how to turn it into useful information that can increase revenue or reduce costs.

3. The initial efforts are intriguing and the potential is enticing, but it will probably take a few years for foodservice to coalesce around some effective approaches, consistent practices and standard terminology

So it’s incumbent on we Foodservice Lifers to make sure we don’t become Foodservice Dinosaurs. Let’s figure out whether we want to stay in our comfort zone and carp about the way things are, or embrace the new world and invent new and better ways to work together.