It has been 30 years since category management was introduced to the U.S. market at H-E-B. In the early years of category management, retailers experienced significant incremental gain in sales, gross profit, market share, inventory investment and ROI. It aligned merchandising strategies and tactics, created an environment that encourages fact-based decision making, created greater efficiencies across the supply chain and more. Over time, with the grocery industry experiencing the most dynamic change in decades with expanding food lifestyles, digital connectedness, social media, online shopping, delivery options and increasing generational complexities, Category management has become less impactful in producing the desired results for retailers. In fact, recent surveys reveal that well over 50% of retailers say they are no longer experiencing incremental gain, with 85% saying they have made no change or only moderate change since they implemented category management years ago. A 2015 survey reveals that 100% of retailers and CPG manufacturers said we must build upon what we have learned and move beyond category management. Considering that this was six years ago and before COVID-19, which has caused further disruption with digital transformation accelerated by an estimated six years, online grocery sales are expected to reach 25% of sales by 2025 and physical retail evolving from its transactional roots to become a shopper environment, what does this mean regarding the future of category management?

The bottom line! There is no way that category management, regardless of retailer size and sophistication, can adapt to the new marketplace. It has too many limitations and must be replaced if a retailer is to achieve the desired results.

The solution is shopper-centric retailing, an all-encompassing and transformative business model which focuses all functions within a retailer on increasing sales by exceeding shopper expectations. This means evolving beyond ingrained business policies and practices to a fully integrated, top-down, cross-functional focus on the shopper, shopper solutions and enhancements to the shopping experience. This new business model provides the support necessary in today’s shopper-centric environment to deliver sustainable incremental gain. It is expected to be a key contributor to industry growth by delivering customer satisfaction for years to come.

Shopper solutions planning, a core component of shopper-centric retailing, is the next-generation process specifically designed to translate insights into shopping solution enhancements at the category, aisle, department and total store. It shifts category management’s tunnel vision from products and categories to those solutions the shopper is seeking and enhancements to the shopping experience. This aligns with what we know about today’s shopper. We know the traditional definitions of categories no longer dictate the shopping journey with shoppers wanting solutions tailored to their lifestyles. It is the combination of items, bought with a particular solution in mind, which often defines a successful shopping trip.

It is also important to restructure the organization so it can optimize its shopper solutions management capabilities. This includes how support is provided to the merchandising teams, how merchandising and operations should interact, and how store execution should be addressed.

The traditional department structure (grocery, fresh, nonfood) based on merchandise attributes, evolves to a solutions-based structure focused on shopper attributes. This means the current siloed department alignment, which does not lend itself to the concept of solutions thinking, must evolve to one with a focus on shopper solutions. The analytics function is restructured to better identify opportunities through integrated analysis of disparate data/information, which is essential when considering the analytic complexity related to the digital revolution. A new position in store operations establishes vertical alignment of merchandising and shopper-centric priorities, and a new management function is added to store management teams with the responsibility of coordinating cross-merchandising activity within the store, supporting the execution of corporate initiatives, and being the conduit for local merchandising.

Retailers should view the new shopper-centric retailing business model as a key priority among other transformation priorities such as technology investment, store design, new formats, etc. In today’s intensely competitive and challenging environment, retailers have no choice but to make this paradigm shift, from category management to the new shopper-centric business model, if they are to remain relevant in the marketplace. The benefits have proven to include increased basket size, enhanced shopper loyalty, improved store execution and increased capability to differentiate in the marketplace. Importantly, it will be a significant contributor to sales and profit growth.

The new shopper-centric retailing business model is endorsed by the Food Industry Association (FMI).

Victor Alessandro is president and chief executive officer of RCVA Group International.