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Journal of Purchasing & Supply Management 10 (2004) 4151

Category management initiatives from the retailer perspective: a study in the Brazilian grocery retail industry
Rebecca Arkader*, Clarissa Frossard Ferreira
The COPPEAD Graduate School of Business, Federal University of Rio de Janeiro, PO Box 68514, Rio de Janeiro, RJ, 21919-900, Brazil Received 1 July 2003; received in revised form 25 November 2003; accepted 28 November 2003

Abstract This paper aims to bridge a gap in the literature concerning implementation processes and outcomes of category management initiatives in a developing country context. It presents the results of a study into initiatives of adoption of this tool in the Brazilian grocery retail industry, based on three in-depth case studies with retailers covering both pre-implementation, implementation and post-implementation issues. There is indication of satisfaction on the part of retailers with the business outcomes and learning effects of the initiatives. However, there seems to be the need for a better denition of medium and long-term actions as well as planning of investments in resources and technology. r 2004 Elsevier Ltd. All rights reserved.
Keywords: Category management initiatives; Implementation processes in category management; Brazilian grocery retail industry

1. Introduction Globalization has imposed distinctive structural changes on the grocery retail industry, such as concentration through mergers and acquisitions, increased competition and compressed margins. Worldwide, grocers are undergoing signicant structural and managerial changes in order to achieve both lower costs and improved service. The Brazilian grocery retail industry has been subject to even greater pressures due to specic characteristics of the local economy. The past decade was in fact marked by increased competition brought about by factors such as stabilization, deregulation and the opening of the market. As far as the impact on the retail industry and its suppliers is concerned, the most relevant aspects seem to be competition from imported products, increasing foreign investment and unprecedented concentration through mergers and acquisitions. In addition, having to cope with one of the worlds highest real interest rates, Brazilian retailers have been forced to seek ways to reduce even further their inventory levels. As a consequence, improvement in supply chain management
*Corresponding author. Tel.: +55-21-259-89-800; fax +55-21-25989-817. E-mail addresses: rebecca@coppead.ufrj.br (R. Arkader), clarissa@coppead.ufrj.br (C.F. Ferreira). 1478-4092/$ - see front matter r 2004 Elsevier Ltd. All rights reserved. doi:10.1016/j.pursup.2003.11.002

practices has become an imperative in the Brazilian grocery retail industry, by means of efcient consumer response (ECR) and other collaborative supply chain initiatives. Against this background, retailers are seeking to establish new relationship patterns with suppliers (Saab and Gimenez, 2000). On an international scale (Dapiran and Hogarth-Scott, 2003), and also in the Brazilian market, there has been a redenition of the balance of power in the supply chain, as grocers acquire information technology capabilities to capture data on consumers (Santos and Gimenez, 1999) and develop logistics practices to take advantage of increased scale. Together with the signicant increase in the number of products and categories offered, these factors have set the ground for the adoption of category management, one of ECRs tools (Harris et al., 1999). Category management is proposed as a tool capable of preparing both grocers and suppliers to changes taking place in the needs and buying behaviors of consumers (ECR Brasil, 1998), so as to effectively design a strategy to uncover the real potential of the category and develop its business (Progressive Grocer, 1996). The relevance of implementing category management rests on the fact that it enables grocers to focus on the consumer; to use available information in order to make better, fact-based decisions; to defend themselves from competitors; and to create a relationship between

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grocers and suppliers that facilitates both a strategic and a tactical alignment between the parties (Blattberg, 1995). In nutshell, the tool would make it possible to treat each category as a self-contained business unit (Schubert, 1997). A high interest in category management on the side of retailers has been signaled in the specialized trade press and industry reportsa survey indicated that 83 percent of grocery retailers consider category management to be the most important issue facing them and another study highlighted that category management initiatives were the most important reason why retailers were improving their information technology systems (as reported in Basuroy et al., 2001). A survey with Australian grocers indicated that category management, with 59 percent of respondents committed to its adoption, was the most popular activity in ECR programs (Harris et al., 1999). By adopting category management, grocers would be making use of consumer preferences to determine the key items for their business, as well as aspects such as in what quantities these items should be bought, at what price they should be offered, what shelf space they should deserve and in what place in the store they should be displayed (ACNielsen, 1992). This approach would lead to better asset management and, therefore, would increase the possibilities of improving protability (Stassen and Wallen, 2002). Seemingly, however, these goals are not very easy to reach, and the parties would need much perseverance and skills during implementation in order to reap the benets of the initiative (Dussart, 1998). This should be even more critical in the case of the Brazilian grocery retail industry, due to the need to cope both with changes in the industry itself and, as mentioned above, also in the local business and economic environment. There is a gap in the literature in terms of studies on category management adoption initiatives, despite the dissemination over the last years of this and other tools used in fast response strategies such as ECR in the grocery retail industry, both in the US, where it was originated in the early 1990s, and in Europe, Australia, and other environments (Hogarth-Scott and Dapiran, 1997; Kotzab, 1999; Fernie et al., 2000; Frankel et al., 2002; Dapiran and Hogarth-Scott, 2003). Considering the ambitious goals that category management initiatives are meant to achieve for grocers, there has been little academic investigation into the implementation processes themselves, as well as on what leads companies to adopt them and what outcomes can be expected of them. Even though several news articles and some case reports can be found in the trade press, these are of an anecdotal nature and lack a critical discussion based on theory. This paper intends to ll this gap in the literature by presenting the results of a study into category management initiatives in the Brazilian grocery retail industry.

Its objective was to investigate the characteristics of the process of adoption of category management from the perspective of Brazilian grocers, uncovering the motivating factors, obstacles, impacts on business practices and organizational structures, and results achieved. It draws on three comprehensive case studies of specic category management adoption processes conducted by Brazilian grocery retailers. This introduction is followed by a brief account of the Brazilian grocery retail industry, which sets the background for the study. This is followed by a review of the literature on category management that sets the frame for the empirical investigation. The research questions, the methodology adopted in the study and limitations are then presented, followed by a presentation of the cases and a discussion of results. The conclusion points out the possibilities and limitations of category management adoption from the perspective of retailers in the studied context, and raises issues that should be further investigated, both in the Brazilian and other settings.

2. Industry background: recent trends in Brazilian grocery retailing1 For decades the Brazilian grocery retail industry was dominated by small family businesses, which resisted a more professional approach to management and the adoption of new technology. This state of backwardness was further sustained by the lack of incentives to modernization in the uncompetitive local business environment prior to the 1990s. High ination since the 1970s, accompanied by indexation, in fact induced companies to disregard cost issues and to focus on cash ow management. In such an environment, prot came rather from interest earning than from company operations. As previously indicated, in the 1990s there was a radical change in this environment. Stabilization and the opening of the economy resulted in widespread competition, and retailing operations began to face a new reality. Grocers, in a scenario of stable prices and competitive pressures, had to deal with tough efciency and service issues in order to survive and, hopefully, grow. In order to do that they had to speed up decision making, reduce costs, develop cooperative relationships in the supply chain and improve customer service. Several groups were not responsive enough and perished or were absorbed in the process. The better performers were those companies that started restructuring with the rst signs that changes were needed, even
1 This section is based on Santos and Costa (1997), Santos and Gimenez (1999), Araujo (1999), and Saab and Gimenez (2000), as well as reports and statistics supplied by the Brazilian Association of Supermarkets (ABRAS).

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before the improvement in macroeconomic conditions. These were the companies that invested in information technology and automation, adopted new logistics facilities and systems and hired specialized outside management. New marketing strategies were also developed, like one-stop shopping concepts, new formats such as hypermarkets and supercenters, and ecommerce. Besides these aspects, the new industry reality also involves demanding consumers, the need to pay more attention to supply chain relationships through ECR and other efciency enhancing cooperative practices and the need to increase training and attention to human resources. In fact, ECR began to be disseminated in the Brazilian grocery industry with the creation, in 1997, of the ECR Brazil Association, within the scope of the Brazilian Supermarket Association. In 2000, the grocery retail industry accounted for 6 percent of the GDP; grocers operated over 61,000 stores and grossed about 34 billion dollars. In terms of concentration, the top ve groups accounted for 40 percent of overall industry sales.

store assortment, efcient replenishment, efcient promotion, and efcient product introduction, ECR makes use of some basic tools to implement themelectronic data interchange (EDI), continuous replenishment program, computer assisted ordering, ow-through distribution, activity based costing (ABC) and category management (Kurt Salmon Associates, 1993). There are many denitions for the category management ECR tool (Dussart, 1998), but the most disseminated is still that it is a process for managing product categories as business units and customizing them storeby-store, so as to meet consumers needs (ACNielsen, 1992, p. 9). This management involves the determination of prices, merchandising, promotions and product mix in order to achieve the objectives of a certain category (Roulet, 1993). However, there seems to be several interpretations among grocery retailers of what category management really is, as revealed by a previous study in Australia and the UK (Hogarth-Scott and Dapiran, 1997). 3.2. Motivation

3. Conceptual background in category management 3.1. Denitions It has been said that retailing, nowadays, is either quick or dead (Levy and Weitz, 2001). Fast response systems are designed to provide efcient planning of production and distribution, thereby reducing supply chain inventory and total cost as well as improving service. ECR, dened as a strategy to make suppliers and retailers work together to offer quick and efcient response to consumer needs, was developed within the US grocery industry in the beginning of the 1990s (Kurt Salmon Associates, 1993) and has quickly spread to other contexts (Gatty, 1993). In fact, ECR is seen as the main existing strategy for supply chain and logistics management in the grocery retail industry (Hoffman and Mehra, 2000; Fernie et al., 2000). The advent of the ECR movement in US grocery retailing can be seen as an initiative to revert the progressive loss of competitiveness of American supermarkets relative to other retail formats. Also important was the concern of part of the industry with the prevailing logistics and channel relationship practices, that implied high costs, poor response, and little benet for consumers (Fernie, 1994). The main tenets of ECR are a constant focus on offering better value to consumers; a winwin approach in buyersupplier relationships; an accurate and timely ow of information to be effectively used to support decision making in marketing, manufacturing and logistics; and common performance measurements and reward systems (21 Questoes, 1997). Based on four pillar strategiesefcient

Three main forces were identied behind the drive of retailers to adopt category management: grocers have to differentiate themselves from competitors, have to cope with the proliferation of new products in recent years and are seeking ways to maximize sales and raise protability levels (ACNielsen, 1992). The antecedents of category management adoption are usually presented in terms of expected benets such as a focus on consumer needs, better sales development opportunities at the category level (due to denition of target markets and their needs), better infrastructure for the use of information and technology, and better use of knowledge held by manufacturers (Harris and McPartland, 1993). The main motivators, however, seem to be increasing prots and sales, as well as optimizing merchandise mix, and a recent ACNielsen survey is reported to have indicated that 97 percent of retailers target increased protability when they initiate category management implementation processes (Basuroy et al., 2001). 3.3. Implementation of category management The implementation of category management adoption processes is seen to be a continuous and long-term process (ACNielsen, 1992, ECR Brasil, 1998), involving several stages, steps and components, according to the methodology under consideration.2 The ECR Brasil
2 The most disseminated are the ECR and the ACNielsen methodologies. Though looking at the same principles and objectives, they differ in their degree of formalization, the former being more structured within an implementation model.

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model is the most disseminated methodology in Brazil (ECR Brasil, 1998), and involves six interrelated components: two corestrategy and business processand four enablersperformance measurement, cooperative trading partner relationships, information technology, and organizational capabilities. While strategy sets the framework for decision making in the business process component, the latter is split in eight steps that are meant to develop, implement, and monitor a category business plan. These steps start with category denition and run through category role, assessment, performance measures, strategies (such as increasing trafc and transactions, generating cash and prots, etc.), and tactics (assortment, promotion, display and supply), ending in implementation. The checking of implementation and the improvement of the system is achieved by the periodic process review step. The enabling components are seen as vital to support the strategy and the business process. The role of the category manager in the implementation process relates to three vital assets in a retail companyinventory, space, and consumer trafc (Harris and McPartland, 1993). His/her role is seen as being that of an entrepreneur, that is, a buyer, a salesman, a manager, and a strategist all at the same time (ECR Brasil, 1998). The role of the functional departments, on the other hand, changes from decision making to the execution of buying and marketing strategies (ECR Brasil, 1998). 3.4. Difculties and obstacles Some potential obstacles to success in category management processes from the perspective of retailers would be: a lack of commitment on the part of top management; a mismatch between evaluation metrics and category objectives; lack of a periodical review of category plans; difculties on the part of grocers to assess consumers needs; a focus on sales opportunities in detriment of the role and objectives of a category; and a lack of sufcient or adequate data to support category planning (Blattberg, 1995). Being based on buyer supplier relationships, category management initiatives are subject to potential tensions between grocer and manufacturer, such as the focus on categories by the former and on brands by the latter, or the fact that retailers may not be able to recognize opportunism by the supplier in category management relationships (Gruen and Shah, 2000, p. 486). 3.5. Contextual specicities In the specic case of the Brazilian environment, some additional difculties may arise. The main contextspecic hurdles would be a lack of an adequate vision both on the retailer and the supplier side of the changes

category management implies in their organizations; the lack of human resources with adequate skills and mindsets; the long time required for implementing all components; harsh buyersupplier relations as a result of inefciencies and of long years of coping with high ination and economic uncertainty and turbulence; and the lack of technological and information technology capabilities (ECR Brasil, 1998). 3.6. The role of suppliers Suppliers play an important role in implementing category management in the grocery retail industry mainly because they are the key providers of information necessary to establish a category plan, having to share with retailers the results of their market research efforts and providing them with analytical and human resources (Johnson and Pinnington, 1997). Suppliers willing to take on the role of category leaders in category management initiatives should be ready to align their organizations and business processes according to categoriesand not to brands (ECR Brasil, 1998). This is a crucial point in the initiative (Gruen and Shah, 2000), and suppliers should be focusing on the protability of categories as a whole and not on the individual performance of their products in a category (Dussart, 1998). 3.7. Outcomes Outcomes obtained by grocery retailers from their category management initiatives range from happier employees and more creative marketing plans to measurable nancial results, and may also entail a better protection against competition, increased market share, and improvement in the coordination between marketing, merchandising, and buying (Blattberg, 1995). Promising results are being recognized by the ECR movement in Brazil (ECR Brasil, 2001), such as the development of a more strategic perspective in buyersupplier relationships, with a shift in focus away from short-term negotiations on volumes and prices; better return on promotional actions; improved sales; increased category protability; and improved store and shelf layout. Gruen and Shah (2000), in their study of factors impacting category performance, have shown that the implementation of category plans plays a stronger role than the objectivity of the plans, that is, if retailers believe in their plan, it stands a greater chance of success. Some case stories in the trade press report interesting results from category management implementation. Randalls (Anthony, 1997) reports a 25.3 percent reduction in the number of SKUs, a 65 percent sales increase, a 14.3 percent reduction in inventory value, a 133 percent increase in inventory turnover, a 55 percent

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reduction in average inventory coverage, a 67 percent increase in sales, and a 54 percent rise in gross prots. Giants experience with category management (Chain Store Age, 1997), although reported in less detail, indicates a successful implementation of pilot projects in the soap and soft drinks categories, in which results are reported to have exceeded expectations raised by the business plans. In Brazil, the Pao de Acucar supermarket group reported results of a pilot project in the soft drinks category that achieved a 10 percent increase in sales (Barcelos, 1998).

4. Research questions Considering the objective of this study and the conceptual framework presented above, the main research question is: What has characterized the processes of adoption of category management initiatives from the perspective of Brazilian grocers? which in turn unfolds into the following specic questions:
*

Due to the comprehensive nature of the category management adoption process and consequently the time required to adequately cover all relevant aspects during in-depth interviews with participants, the investigation was focused on three grocery retailers. They were chosen with a view to providing perspectives from different industry segments, so that a discussion of process differences could be traced either to companyspecic or to segment-specic factors. Another characteristic of chosen rms was a signicant participation in their segment. Data were collected during interviews with category managers and professionals from the three companies, complemented by secondary data for triangulation purposes obtained from industry experts, company reports, publications in the business or trade press, and information obtained in company and other websites over the Internet. At least three category managers were interviewed in each retailer. Interview recordings were transcribed and their content coded in order to uncover the different aspects of the phenomenon being studied.

How do grocery retailers perceive and dene category management? What were the main motivations to adopt category management from the perspective of retailers? What methodologies did retailers adopt and how did the adoption process evolve? What changes were implemented in business practices and in the structure of grocery retailers due to the adoption of category management? What main difculties and obstacles during the implementation of category management initiatives are perceived by retailers? What was the role played by suppliers in the implementation of category management initiatives in the perception of retailers? What are the outcomes reported by grocery retailers as a result of category management adoption? What trends do retailers perceive concerning the future of category management initiatives?

6. Limitations The limitations of this research are those usually associated with the case study methodology (Yin, 1989). The results presented have to be understood within the limits of the companies here discussed and may not be generalized to other companies and settings. However, they should represent a good indication of how well category management processes can unfold in a developing country context and what issues and outcomes may be expected to be similar or dissimilar to those in other settings that are usually the object of investigation in the US or Europe. Furthermore, apart from context and company specicity, they bring out insights into the process that seem to be useful both for practitioners and for other researchers probing into category management initiatives. The second methodological limitation is that of possible subjectivity in the gathering, recording, and analysis of information, and this research has as much as possible tried to minimize its effects by consulting different sources. Approaching the same issues from different perspectives, so as to control for inconsistencies, minimized possible biases on the part of interviewees.

5. Methodology Considering the complexity of category management implementation and the nature of the research questions, designed to probe into characteristics of a process not yet well explored, it was considered that a qualitative approach would be more adequate for the investigation. Furthermore, implementation of category management is fairly recent in Brazil and not many retailers have gone through the adoption experience. The case study methodology (Yin, 1989, 1993) was chosen to conduct the inquiry.

7. The cases Retailers are here identied as V1, V2 and V3. V1 is one of the ve largest grocers in the country. It has existed for 40 years and has now about 14,000

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employees. With a turnover of one billion dollars, it operated 85 supermarket stores in 2001, with a 4 percent nationwide market share. Focused on one Brazilian region, it is expanding in this area by means of acquisition of other smaller chains and construction of new stores. V2 is a medium sized chain of supermarkets, also concentrated in one region and with a turnover of 120 million dollars. It targets the upscale market and is seen by its management as being positioned halfway between convenience and monthly shopping. Having opened its rst store in the 1950s, it has now grown to about 20 stores and competes on service (opening hours, shop ambiance, and courteous service). V3 is a convenience store chain belonging to one of the ve major oil distributors in the country. It started operations by the end of the 1980s, with a store in Rio de Janeiro, and has now 364 stores throughout the country. Twenty of these stores are company-owned, while the rest are franchises. The former are used as laboratories where new products, layouts, equipments, and management practices are tested for chain-wide adoption. Marketing strategies of the three retailers are considerably different. V1 focuses on sales volume and customer loyalty and has developed strategies that aim at strengthening the links with consumers, such as a branded credit card, a delity card and a retailer brand. Its store format is targeted towards medium to lowincome consumers. V2s strategy, on the other hand, is to woo high-income consumers with strategies leaning towards customized service, home delivery, and phone, fax, or Internet shopping. Its prices are higher than those charged by larger grocery chains like V1. As it operates smaller stores, there is an effort to optimize shelf space utilization, with emphasis on the display of leading brands. V3 also gives priority to leading brands but, as a convenience store, it does not aim to provide customized service to consumers or to achieve loyalty, but rather to offer a fast service. Neither are there similarities among the three companies in terms of warehousing and inbound logistics. V1 operates two distribution centers where 100 percent of goods are received, with the aim of reducing logistics costs as well as minimizing problems in warehousing and delivery to stores. All division and distribution center systems are integrated, enabling real time order transmission. V2, on the other hand, operates two central warehouses, to which about 60 percent of deliveries are made, while the rest is delivered directly to stores. In the latter case, unloading is done from trucks parked on the street alongside stores. In most stores there is no information system with inventory information, and replenishment orders are calculated based on the records of the average sale of each item as well as manual count of inventory at hand. V3 depends on

manufacturers for its logistics, as it does not operate distribution centers. The retailer negotiates nationwide supply agreements with suppliers to have them deliver items to the stores, but each store manager deals directly with suppliers as far as order quantities and delivery lead times are concerned. This means that, for V3, an accurate assessment of demand at store level is vital in order to avoid stockouts. V1 is the only company among the three cases to adopt ECR tools other than category management. This grocer practices cross-docking and centralized deliveries on predetermined time slots, as well as uses EDI. V1 and V2 adopt both centralized and decentralized buying practices. However, V1 is leaning towards stronger centralization in its buying activities, so as to exert more control on suppliers and conquer more bargaining power. V2 adopts centralized buying orders as well as price and delivery negotiations. Only beverages and perishable items like bread and greens may be acquired directly by stores. V3, both in company-owned and franchised convenience stores, determines the product mix and the suppliers in a centralized manner, so as to sustain stardardization of its store image. However, buying quantity and inventory replenishment decisions are taken by the store manager him/herself, without V3s intermediation in the process, which means store level dimensioning of demand and contact with suppliers. All three retailers report a good relationship with suppliers. V1, besides traditional purchases of manufacturer items, relies on suppliers for the production of its retailer branded products. The considerable marketing success of these products has raised the interest of leading brand manufacturers in supply partnerships with V1. In V2 there is a strong concentration of purchases in a reduced number of suppliers. Seven suppliers account for 80 percent of sales. These are seen as partners and are those that work side by side with V2 to look for alternatives and solutions to improve logistics processes. V3 works with a set of listed suppliers, selected by means of very rigorous procedures, and these suppliers are seen as trade partners. The company recommends that franchisees deal with these suppliers, with which it maintains umbrella agreements. The franchised store has to become a part in these agreements in order to be entitled to benets such as equipments, product bonuses, and commercial discounts, according to each specic contract. In general, the buying process in these companies may be characterized as traditional. Only V1 seems to be adopting more up-to-date methods in its buying procedures, which are EDI with selected suppliers and participation in a b2b site for e-commerce transactions between manufacturers and supermarkets.

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8. Results and discussion 8.1. Denition When asked what was category management, only one of the grocery retailers in this study could effectively express a denition of the process: V3 dened it as a management model that aims at grouping together products with similar characteristics to be managed as strategic business units. V1 and V2, on the other hand, emphasized motivations and results of the process, hinting at a lack of a clear vision or else a real understanding of its objective. In fact, none of the retailers mentioned the integration between buying and merchandising that, according to literature, would be one of the key elements of category management. On the other hand, retailers demonstrated a good understanding of the objectives and some of the implications of category management. For them, the main objective of category management processes would be leveraging sales and increasing protability based on a deep knowledge of the consumer and of the product category. In terms of implications, they highlighted the establishment of partnerships with suppliers and the importance attached to pleasing consumers by offering product and service packages that meet their needs. 8.2. Motivation The main motivation for retailers to adopt category management was identied as the possibility all of them saw to maximize sales and increase protability levels, according to what is proposed in the literature. It is interesting to observe that category management concepts and methods were rst presented to both V1 and V2 by manufacturers. Retailers have been trying to improve their buying, merchandising, sales, and promotion practices in view of the denition of target markets and their respective needs. In fact, grocery retailers are looking for new ways to attract and retain consumers. V1 also pointed out a search for differentiation while V3 was looking for ways to overcome the stagnation in its store model by adopting new strategies that would give the retailer an edge over competitors. This would involve spotting new opportunities to reduce inventory by means of improved buying practices as well as to make better use of data obtained through the use of information technology. These motivating factors preceding category management adoption are all mentioned in the literature. V2, on the other hand, revealed it had become motivated to develop long-term partnerships with suppliers, based on category management principles, so as to tap into their pricing models, efcient assortment, ABC costing, consumer research, space management, efcient promotion, and data mining capabilities. This motivation had not been previously

mentioned in the literature and may be specic of the Brazilian business environment, where small and medium sized grocery retailers lack resources or scale to justify the investment required for the development of these capabilities on their own. 8.3. Implementation of category management Category management implementation processes in all three retailers, despite different marketing strategies and operation practices, followed the same methodology. This consisted of the eight-step model for implementing a category business plan. All of them also saw that category management, by involving strategic decision making and demanding transformation in their businesses, should be aligned with organizational objectives. All processes had been started in 1998 (V1) or 1999 (V2 and V3) and were in different stages of advancement. At rst, not being familiar with the process, V1 followed the rst supplier partners model without questioning. Now, however, it sees it has evolved quite a lot in mastering the category management process and is able to set the rules in its internal processes, independently of manufacturers. V2, having fewer resources at hand to dedicate to category management, depends on supplier investments and has been cautious in choosing its rst projects. This retailer declares, however, to be optimistic with regard to results and future implementation. V3 has implemented six category management projects in its company-owned stores, with considerable success, but is experiencing difculties in convincing franchisees to correctly implement the process in their stores. Furthermore, and in accordance with what is highlighted in the literature both on this and on other organizational change projects, grocers expressed a belief in the key role played by top management in assuring the involvement of employees at the store and in buying and logistics in order to guarantee the effectiveness of the process. In terms of the eight steps of the process, retailers V1 and V2 stressed the fact that the denition of a category is not a simple process, since agreements among suppliers, grocery retailers, and consumers as to what items should or not be included in the category are not easy to accomplish. However, in the perception of retailers, it is not anymore up to retailers or manufacturers to dene what makes up a category, since the consumer has become the main actor in the process. It may be observed that retailers are then comfortable with the idea that it is not the traditional section that differentiates one category from the other, but a solution as perceived by the consumer. At each stage of the implementation process the three grocery retailers have been amazed by the signicant amount of data and indicators they have to tackle. For years, as one of them expressed it, they had worked

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based on sensibility and not on facts. The determination of the role of the category, according to these Brazilian grocers, involves the analysis of market data of different categories, in order to establish their relative market importance. Likewise an analysis is conducted among retail categories so as to determine their relevance to each business. Data are available to all three retailers, but the big challenge seems to be in interpreting and taking advantage of the information potential as a support to business. Retailers are not always able to determine which data are important to generate useful category information. In fact, V2 and V3 outsource their data analysis systems as well as rely on manufacturer capabilities. According to category management principles, evaluation and performance measurement are key elements in the process and companies have to develop their category indicators. Several indicators are in fact adopted by the retailers in this study, such as sales volume, gross prot, inventory turnover, percentage in overall sales, and stockouts. V1 already performs monthly analyses of the evolution of categories and further identies which stores perform below average in order to correct deviations. V2 and V3, on the other hand, still depend on the abilities and resources of suppliers to periodically conduct analyses. The category management tactics more intensively adopted by the studied retailers are assortment and display. In the case of assortment, this seems to be due to the fact that it allows retailers to eliminate less protable items, liberating shelf space for products that effectively make a prot contribution. As to display, this probably results from the possibility of better evaluating the positioning of the category in the stores macrospace (by observing the ow of consumers and the display needs of the category) as well as in the microspace corresponding to the shelf. In view of the priority given to display tactics in their practice of category management, the retailers in this study seem not always to distinguish them from space management, in which the end product is a planogram. In fact, a category management process is supposed to go beyond them, involving a review of product display in order to facilitate consumer purchase decisions, to guarantee a constant presence of products in the point of sale and to offer subsidies to promotion activities. In all, this study revealed that in V1 category management processes are already embedded in strategy and organizational structure. V2 and V3 have not yet clearly dened strategies and objectives for category management in their overall businesses. This means their initiatives still depend more on suppliers, whereas V1 is already working independently of manufacturers. First, this seems to indicate the role that size and scale play for the category management tool. Second, V1s wish to be more independent of suppliers seems to be a

contradiction in terms of category management principles, and might indicate that industry buyer-supplier relationships might still be considerable strained, despite allegations of good relationships on the part of retailers. 8.4. Changes in practices and structures For the retailer, category management adoption implies an adaptation to a brand new process that practically upsets all existing buying and sales practices. The main change would be in the usual model that treats the store as a whole or, at most, by sections. The studied retailers mostly experienced this change in terms of data analysis and in the development of tactics. These began to be done category-by-category, store-by-store, while before they were done so as to cover a whole group of stores considered to be homogeneous. According to literature, category management implies substantial changes in structures and functional roles. In particular, retailers would no longer have separate buying, promotion, inventory, and other specialized area managers, shifting instead to one category manager. Therefore, decisions involving category planning should be integrated and controlled by category managers. However, the grocery retailers in this study show no signs of having adopted this organizational change. In fact, only in V1 category managers have overall responsibility for the performance of the category they manage and, even so, they manage it together with another manager who is responsible for the merchandising of all categories. Even though the other two retailers have undergone changes in their organizational structures following category management adoption, this happened quite more conservatively. There is no specic area to deal with category management, and the process is implemented by a group of professionals, under the guidance and with the support of top management. This lack of a denition of who is responsible for the process may lead to a lack of commitment and to a fall in implementation emphasis. 8.5. Difculties and obstacles This research unveiled several difculties Brazilian retailers have to cope with while implementing category management processes, such as negotiation impasses and mistrust in the exchange of information between manufacturers and retailers. A very antagonistic commercial culture in retail buyersupplier relationships seems to be prevailing (again despite retailer allegations during interviews), aiming at short-term negotiations based on volumes and prices. This culture seems to be in the way of change processes and further development of category management initiatives, as manufacturer

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retailer collaboration focused on consumers is at the heart of the tool. Another difculty on the part of smaller retailers is the lack of systems to treat, analyze, and control data on consumer purchasing behavior. The lack of an internally developed structure entails a reliance on resources and capabilities of large suppliers, and this power imbalance seems to further complicate category negotiation processes. In addition, given the crucial role played by information in determining the success of category management processes, one of the toughest challenges in the Brazilian context is to deal with the lack of market information for certain categories, as signaled by the retailers in this study. Another serious barrier to category management implementation processes in the Brazilian case seems to be the fact that, to this day, market dynamics is followed up only with aggregate data by region or by store chain. This poses serious difculties in terms of assessing what is happening within a category, store by store, and means that category management implementation process results are hard to measure. The perception that it is a complex, long and resource-demanding process makes it more difcult for retailers to disseminate category management. This also seems to be strengthening the idea that it is a methodology geared towards large organizations. V2, when rst introduced to category management by a supplier, was afraid to agree on adoption because it was considered to be a complicated and costly process. V3 faces a lot of resistance from franchisees in adopting the tool. This has led this retailer to work on simplifying the process without loss of its benets. Therefore, and at least in the case of Brazilian companies, a one-for-all process methodology does not seem to be feasible, and it is necessary to adapt it according to retailer format and scale. 8.6. The role of suppliers The role of suppliers in category management is seen to be relevant, and the three retailers pointed out that suppliers have been following category management implementation processes step by step. In addition, they provide category data analysis, share research results, gather information, work on assortment tactics and planograms, and undertake periodical training programs on the concept and practices of category management. V1 and V2 consider that suppliers play a key role especially in the denition of the category and in the application of ABC costing principles. In practice, however, the role of manufacturers in category management processes in the Brazilian case seems to be more of an advisory nature, and decisions concerning implementation are made by retailers, that approve or not suggestions they receive from suppliers.

8.7. Outcomes from the adoption of category management Even though category management is supposed to be an integrative process, retailers tend to perceive results more in terms of marketing than of buying or logistics. Retailers saw the results in terms of space management (planograms) as the most important they had achieved so far, providing them with improved product displays and customer service and bringing about rewards such as customer retention and improved protability. Other results recalled were a better knowledge and exploration of interrelationships among categories, the signicant reduction in product mix (again a result found in literature but that seems contradictory with consumer focus) and improved demand planning, leading to smaller inventory costs and stockouts. Another observed benet seems to derive from the analysis of consumer purchase data (demographics, habits, and preferences), which is allowing some retailers, if they have the adequate resources, both to tailor promotions to different groups of consumers organizing products according to the needs of consumers at the time of purchaseand to strengthen their " -vis suppliers. bargaining power vis-a In terms of numbers, retailers highlighted positive outcomes in turnover and gross margins. All this corresponds to what is found in the literature concerning other contexts. Retailers seem therefore to be motivated to go on adopting category management initiatives. 8.8. Future trends This study revealed that there might be very different outlooks on the future of category management and the impact of the tool for retailers. This was the case of the three retailers in this study. While all stated they intended to improve and move ahead with practices and projects, due to good results, only the larger company viewed category management as an integral part of its strategy and organizational structure, and considered it was ready to move on independently of suppliers, as discussed above. For the smaller companies, which nd themselves in less advanced stages of implementation, there is still the need to seek new manufacturer partners (V2) or convince franchisees of the advantages of category management adoption (V3).

9. Conclusions The above results and discussion lead to the conclusion that category management has already proved to be a relevant tool in the case of the Brazilian grocery retail industry. Despite difculties and obstacles, companies

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that have implemented category management seem to be reaping satisfactory results. There is an indication from this study that the category management process is open to companies of any type or size. All retailers in the study have embraced the initiative for over three years and, despite being in different stages of maturity in their adoption, they all believed in the tool. Retailers invested resources in category management implementation and mustered teams focused on developing and monitoring projects. However, size seems to matter. The pace of the process as well as the availability of resources to carry it on, especially human resources and information technology, seemed to be a function of the investment capacity of the company and the scale returns it is able to collect. There is also indication that category management constitutes an important tool for Brazilian retailers. The retailers in this study, while expressing their surprise with the wealth of information on operations and consumers they need to effectively manage the process, also saw the benets of adequately processing all this information. In the perspective of retailers, category management allows them to establish good category assortment plans as well as to make better decisions on shelf space allocation and prices and promotion, in order to improve sales and prots. In Brazil, at least, suppliers seem to have led the way in terms of ECR actions. In fact, manufacturers introduced two of the retailers in the study to category management. This may be also pointing to a gradual change in buyersupplier relationships in the grocery industry, since parties have started to think and act jointly instead of in isolation, and are willing to consider keeping a relationship focused on the consumer. Retailers realize that they know better as far as their stores are concerned, and that suppliers are more knowledgeable on their own products. Thus, this study seems to indicate that retailers recognize that the combination of these two sides of information may help them to achieve a better management of product categories. However, despite the exchange of information with suppliers, Brazilian grocery retailers mostly feel uncomfortable and insecure in the relationship due to traditional channel antagonism. In fact, this seems to be leading them to establish a limit on the level of information sharingand even to consider working on their own once the process matures in their organizationswhich in turn may be preventing category management from effectively fullling its promises. According to its mentors the category management process can only achieve its goals when there is fearless sharing of data on sales, assets, and inventory. That companies see benets even when not fully engaging in such openly collaborative practices may be an indication that in fact engaging in the process, by itself, has a

positive effect on results, as pointed out by Gruen and Shah (2000). Furthermore, there is indication that retailers believe category management may be an asset to understanding consumers better and to seeking his/her satisfaction. However, there is still the need to adopt a long-term perspective and to plan investment in resources and technology, especially information technology, in order to proceed with the projects already under way and netune their operation and monitoring. Therefore, there are specicities in the Brazilian business environment that may act against expansion of category management and other efciency and effectiveness enhancing initiatives in grocery retailing. Among them are the aws in logistics infrastructure, a still modest supply of adequately trained human resources, and the difculties for funding new investment, since local interest rates have been kept at rather high levels to maintain currency stability. Further studies may say if it is a passing fad or if category management, at least in terms of its principles if not of the full step-by-step recipes, is a lasting process that will help the grocery industry. This specic research focused on retail operations and on category management processes as conceived and implemented by retailers, that is, from a demand side supply chain perspective. It would be interesting to further investigate this phenomenon in the Brazilian grocery retail industry from the perspective of manufacturers, as well as of dyadic category management relationships. In the Brazilian case, due to structural conditions in the grocery industry, manufacturers may hold stronger power than in other more developed contexts where retail restructuring has further advanced. The fact that large manufacturers nanced most of the category management projects here studied reinforces this supposition and adds to the literature in terms of context-specic applications of management tools developed in North American or European contexts.

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