We have long been vocal and active proponents of foodservice category management and have closely followed its adoption and developments.
Prior to the pandemic, the potential benefits of category management, including fact-based decision making, collaborative business planning, and better asset utilization, were enthusiastically recognized and valued by manufacturers and distributors. Many companies willingly invested in people, processes and technologies to harness the “power” of category management in the hope of driving mutual growth and profitability.
Unfortunately, and somewhat understandably, category management failed to reach its potential for most practitioners for a variety of reasons:
- A disproportionate amount of effort was placed on the “front end” (analytics, etc.) and not nearly enough on implementation. Therefore, execution became a “pain point” for both parties. The limited standardization at the distributor branch level coupled with local market operator customer demand for specific products added significant complexity to executing centrally develop plans.
- While active involvement in category management often led to improved customer relations, most companies, especially manufacturers, were unable to directly attribute any actual business improvement to their efforts.
- Despite the availability of enabling tools, foodservice lacks the level of automation and sophistication that retail enjoys, including shared visibility to all category transactions such as inventory, purchase orders, shipments, receipt, pricing and costing, etc. Therefore, supporting category management in its current manifestation, especially in the upfront analysis and planning phases, is resource intensive, and companies became increasingly reluctant to invest in an initiative with an unproven, seemingly immeasurable, and possibly non-existent ROI.
- As befits their size and market position, “mega-distributors” like Sysco and US Foods defined the agenda for foodservice category management, which tended to limit the promulgation to the wider market. Many manufacturers, including distributors’ designated “category captains,” thought the “mega-distributors” were far too focused on lowering landed product cost and promoting the sales of their high margin private brands vs. growing the category. We also observed that trading partners struggled to achieve an “end-to-end” view of how category management could reduce total supply chain costs as opposed to reducing cost of goods sold (COGS).
- For major distributors, large national customers like GPOs and foodservice management firms (such as Aramark, Compass and Sodexo) drive much of the volume in categories that can be managed, and almost all new items are brought in at these customers’ request. This leads to an inherent under-optimization of category management. A related complication is that the deals for the large national customers erode much of the savings category management achieves.
Fast forward to today and category management is, at best, on life support. As noted, trading partners were previously frustrated with the lack of real progress and the pandemic has caused a very significant shift in business priorities. Supply chain bottlenecks, chronic labor shortages, and unpredictable demand have led to far greater emphasis on product availability, customer prioritization and margin enhancement across all channels. SKU counts have been reduced and suppliers are (finally) basing key business decisions on cost-to-serve metrics. Investment in “non-essential” activities like category management has been sharply curtailed.
We were impressed by how extensively and sincerely the foodservice industry mobilized behind category management. One can say that “we gave it the old college try” but the “experiment” did not “pan out.” For the foreseeable future, we strongly doubt that there will be any further serious attempts to activate category management, at least in its current form, as a “standard” business practice. It is possible, however, that a new, streamlined iteration(s) more focused on the “back end” of the process may gain some limited traction at some point.
By: Bob Goldin and Chris Davis1
1Bob Goldin is a Partner and Co-Founder of Pentallect. Chris Davis is a Sr. Associate of the firm; his experience includes over 30 years of staff and line leadership at Sysco Corp.