Category Management: Destination Known
Core categories face challenges, evolving customer tastes, but savvy retailers can adapt
“How will you change to make sure your customers don’t?” asked Laurie Rains, vice president of retail analytics and consulting for Schaumburg, Ill.-based Nielsen, of attendees of the category-management breakout session.
With traditional category management, retailers consider every category in the store as its own little business, with its own P&L and strategy. The role of each category is evident in the store’s overall strategy. Rains encouraged attendees to focus on specific destination categories to achieve maximum attention and profit.
A destination category makes a retailer the customer’s first choice for a particular product. A retailer uses destination categories (just 5% to 7% of the total) to differentiate itself and to be the store of choice to the consumers.
“Your destination categories define you,” Rains said. And for most retailers, a few unsurprising key destination categories drive the majority of traffic to stores: cigarettes, packaged beverages, beer, candy and salty snacks.
But changes are coming that could influence a retailer’s ability to sell these and other products and affect consumers’ desire to spend money on them. Nimble retailers understand these threats and challenges and can evolve to accommodate a changing landscape—and changing consumers.
According to Rains, the categories to keep an eye on include:
▶ Tobacco: Taxes, increased competition and the profusion of e-cigarettes continue to put pressure on the all-important tobacco category and make it harder and more costly to sell. In addition, the number of smokers declined from 20.9% in 2005 to 12.0% in 2012, according to the Centers for Disease Control and Prevention. With 80% of adult smokers purchasing another item with their cigarettes, this is a customer c-stores cannot afford to lose.
▶ Beverages: In the beer category, the top two volume segments—premium and subpremium—are declining as craft and cider experience tremendous growth. The beverage industry is also changing, with growth focused on alternative drinks such as energy and functional beverages.
▶ Coffee: While consumption of coffee is increasing, methods of consuming have changed as flavored and single-cup coffee gain momentum.
▶ Lottery: States’ lottery income has increased 15% since 2007, but many states have already approved or are considering online lottery-ticket sales, which could have a detrimental effect on foot traffic and basket ring in c-stores.
▶ Fresh foods: The desire for fresh foods in c-stores is undoubtedly increasing. Roughly one-third of consumers who visit convenience stores for fresh-food items purchase them at least once a week, making them very valuable consumers. Nine out of 10 c-store foodservice users say the quality and taste of the food are among the most important factors when deciding which c-store to visit.