Theory dictates that assortment planning should be space agnostic. Retailers want a solution that is space aware. What is the right way to go?
Before efficient item assortment (EIA) was a software solution, it was a grocery industry best practice. As originally conceived by FMI, EIA was designed to be space agnostic. Yet some of the new assortment planning tools are space aware. This led me to rethink the base premise behind EIA as a business process. Sometimes it is hard to remember that there was a time when category management and EIA were not the widely accepted business processes that they are today.
How We Got Here
When category management was first being adopted by the grocery industry, I was the space management lead at Kraft Canada. The basis of conversation on assortment between retailers and suppliers was “one in/one out.” In other words, if you were going to introduce a new product into a mature category, you had to first identify what product you were going to take out. In many sections in grocery retail, most products were spaced to operational constraints and there had to be enough facings to support case plus stocking. Some of the fastest moving items required more than case plus space in order to meet demand. As a result, the “one in/one out” way of life was born since at the time there was no accepted mechanism to balance space between sections. More importantly there were also structural impediments to balancing space between categories:
- It is expensive to shrink a section in aisle one to provide space to a section in aisle four; and,
- While most buyers are willing to accept more space for their categories, few are willing to give it up.
Where We’re Heading
So why a shift in business practice? The concept of efficient consumer response (ECR) has evolved over time. Fundamentally the management approach in place was based on a model that drove profit by maximizing trade funds from suppliers rather than delighting consumers. However, consumer behavior was shifting as the nuclear family enjoying at least two meals a day together at the kitchen table gave way to a generation of kitchen strangers who replaced meals with grazing and fast food solutions. Faced with this kind of a challenge, the retail grocery industry looked to a consumer-centric approach to assortment planning: EIA.
EIA starts with “set coverage.” On the surface this seems like an easy concept – set the breadth of the assortment to consumer need. In other words, for a convenience category, assort items which represent the top 40 percent of consumer needs fulfillment as measured through market data. Next, space would be allocated to the category at retail based on operational constraints. If the current section was not big enough to support the recommended assortment, the organization could then make a strategic decision to source space from elsewhere in the store or to trim the assortment offered in-store. The problem came down to how to determine that 40 percent was the right target. Historically, this challenge stopped many retailers and manufacturers from engaging in EIA. Yet, every day, retailers around the world make decisions as to the appropriate breadth of assortment in their stores. So is it because of the difficulty in determining the right number that category management professionals have pushed back from EIA? I happen to think that the logic inherent in the EIA process is sound; however, it is difficult to bring science to a business activity that is widely regarded as an art rather than a science.
As a result, the industry has been asking for years that providers of decision software provide a space aware assortment planning tool. My initial concern with this approach was that space aware assortment planning starts from the assumption that the allocation of space to category is correct. If the retail organization is looking to macro space planning and analysis tools to make sure that space is balanced using role appropriate key performance indicators (KPI), this is not a bad assumption.
At the end of the day and after a lot of reflection, making the assortment planning space aware is not a denial of the original goals of the EIA process. As long as there are checks and balances in place to ensure that space at retail is balanced to meet the needs of the consumer, then the spirit of EIA will be realized through space aware assortment planning.