Article

6 Benefits of Category Management in the Digital Grocery Industry

By
Shalmali Prakash
August 24, 2022

At A Glance

  • 30% of shoppers have purchased more categories online in 2020 vs 2018
  • Pandemic has worsened market forces that have further pressured already-tight margin
  • To adapt to the changing economic climate, grocers are accepting the notion of category management
  • Category management aids in increasing sales, improving vendor relationships, and boosting competitive positioning for these stores 
  • This article explores six key benefits of category management in the digital grocery industry

According to the Incisiv Annual Digital Benchmark 2021, 30% of shoppers have purchased more categories online in 2020 vs 2018. In fact, it is likely that ~ 75% of shoppers would have purchased groceries online by 2025. While the pandemic has significantly impacted the grocery industry, it largely just served to worsen market forces that have been pressuring already-tight margins for years, including the exponential growth of digital. 

The average gross margin for digital orders was barely 9% in 2020, according to the Incisiv-Wynshop Digital Grocery Study, and many retailers even lost money on their online orders. It's no surprise that 86% of food businesses are unhappy with the profitability of their online operations. Grocers now feel pressured by the pandemic to overhaul a struggling business strategy. To combat the growing rivalry, retail grocery owners and managers are accepting the notion of category management. 

It can be observed that products of the same category and giving roughly the same benefit to the user are grouped in stores, both physical and virtual. These are essentially referred to as categories, and grouping them into these categories aids in increasing sales, improving vendor relationships, and boosting competitive positioning for these stores. Here, in this article, we explore some of the key benefits of category management in the digital grocery industry:

Winning the Consumers

In the end, consumers are in charge of their own finances and will choose market winners and losers based on their purchasing power. Merchants should have a thorough understanding of their key consumers before even considering brands and items. Merchants should identify their customers (demographics, attitudes, needs) and study how they shop between occasions and within each category to better satisfy their preferences. This makes it possible for retailers to offer a distinctive value offering that appeals to critical customer segments. The primary benefit of category management is fulfilling customer needs, and your business prospers if you can do so faster and better than your competitors.

Building Strong Vendor Relationships

The manufacturer-retailer relationship is centered on category management, which calls for a revolutionary upheaval that enables a quick response to the digitally equipped shopper. Setting category goals, tracking success against those goals, and utilizing data-oriented tools - all significantly contribute to bringing the store and supplier teams together as a cohesive team working toward shared objectives. Vendors can play a significant role in the category space, thanks to category management since they can serve as a beacon of consumer understanding.

Opening Insight-Driven Opportunities

Data is at the heart of the concept of category management - utilizing data to spot performance and consequently possibilities. The three main objectives of category management are to identify opportunities inside a category, market those prospects, and secure those opportunities online. Too many merchants ignore the bigger picture in favor of merely figuring out how to best utilize their current stock. They fall into the trap of maintaining what they had last year and adding the most recent range of extensions recommended by their suppliers rather than strategically considering market developments and prospects. If necessary, they just cut the tail off of low-performing goods to make space. However, category management should be anchored in an in-depth holistic understanding of current and potential market trends.  

Creating Targeted Omnichannel Experiences

Successful grocery stores resist the impulse to extend their assortments constantly in an effort to grow; this strategy leads to both operational inefficiencies and customer confusion. Rather, they accept their value proposition and gain customers by providing a suitable assortment as opposed to a wider one. That necessitates analysis and study, the capability to test decisions in real-world settings, and ultimately, the willingness to take measured risks. All this while, grocers can continue to work on curating an entirely personalized approach basis individual customers’ online shopping behaviors. Digital is the ideal testing ground for new products before they are introduced on constrained floor space.

Enhancing Promotional Activities

Category Management helps grocers determine where to invest and what the associated returns are. To begin with, it is essential to understand what we want our customers to do differently. For instance, when grocers are looking at introducing a new product, is the aim to lure in new customers or rely on existing customers to test out this product? Answering this question, as well as many other such touch questions, will help curate the promotional plan in a way that ensures a positive return on investments.    

Restoring Profitability and Growth  

Often, category management is merely the beginning of a more comprehensive merchandising overhaul. In supplier negotiations, simplification offers great leverage that shouldn't be wasted because it generates winners and losers. Cost-of-goods-sold profits can be used to fund reinvestment in price, promotion, and digital experience. Banners can regain customer relevance and resume revenue growth and margin expansion when marquee categories start to perform once more. 

Be it grocers, vendors, or shoppers - each one of these can benefit largely from adopting category management initiatives. Grocers have begun to understand the criticality of category management to sustain their business, and are doing everything in their power to reap its benefits.