Category Planning and the New Age of Automation

05.25.2022 | Mike Troy

A great grocery reset is underway as retailers attempt to keep pace with wild swings in shopper behavior. This isn’t like a normal reset that involves the physical act of adjusting on-shelf product assortments and category adjacencies. Although that is certainly part of it, especially in an omnichannel world where the role of stores is evolving, the phrase “great grocery reset” also relates to a shift in thinking, a recognition that meaningful changes must happen to the slow planning and labor-intensive processes retailers rely on today to produce category plans and physical resets.

The great grocery reset involves increased use of technology to accelerate and improve the relevance of category plans while automating planogram creation. Doing so enables retailers to put space and assortment plans in place faster to better satisfy shoppers in a dynamic demand environment. This is a major change from legacy processes developed decades ago that are slow, involve infrequent changes, and are based on arbitrary calendars rather than shopper and market requirements.

Legacy approaches reflect a simpler time when retailers could afford to be more deliberate with planning decisions. That doesn’t work in a world where the pace of change and shifts in shopper preferences have accelerated dramatically while data volumes on which to make decisions have grown exponentially. The current environment requires greater use of technology and the prescriptive capabilities of AI to ingest data and recommend actions rather than rely on analytics that tell retailers what happened.

Getting to Prescriptive

Retailers are good at knowing what happened or is happening. It’s what to do with those insights that is the challenging piece. That’s why those who aspire to be market leaders understand AI-powered category planning and assortment optimization solutions are the answer. They understand that the dynamic demand situations of recent years require an equally dynamic approach enabled by AI.

For example, retailers were already dealing with meaningful shopper behavior changes prior to the pandemic that challenged conventional approaches to category and assortment planning. Think back to 2019 as grocers adjusted to the growth of online grocery shopping and new challenges of physical and digital integration, order fulfillment, in-stock levels, labor expense and data management. When the pandemic arrived, it brought entirely new challenges and created an operating environment filled with disruption after disruption.

Early on, grocers were challenged by dramatic shifts in food purchasing and a surge in at-home meal preparation. Government stimulus payments further distorted spending and supply chain disruptions affected on-shelf availability and promotional decisions. Grocers’ efforts to plan were confounded by lapping highly distorted prior periods which couldn’t be relied upon as indicators of future demand. As the economy reopened behaviors changed further, dining out became a thing again and shoppers returned to stores. Meanwhile, gas prices were increasing and putting a dent in purchasing power while supply challenges persisted.

As more change was happening on top of more change, it was hard for retailers to understand and effectively communicate the financial performance of the business. Many resorted to sharing results on a two-year stacked basis to smooth out the distortions of dynamic demand. Meanwhile, as suppliers’ input costs increased, they pushed through price increases to retailers who raised prices on consumers even as further fuel price increases led to increased price sensitivity and trade-down behavior. And all of this was before Russia invaded Ukraine in early 2022, sending fuel and food prices even higher and increasing global uncertainty.

Analog Tools Don’t Work in the Disrupted Digital Age

Today’s dynamic demand environment has humbled a lot of retailers. This was evident recently as world-class companies report financial results and executives talk about not accurately anticipating shifts in consumer behavior or the magnitude of fuel price increases. They describe how persistently high inflation, continued supply challenges and an erosion of consumer confidence is clouding their confidence in sales and profit guidance.

Accordingly, some retailers faced with ongoing uncertainty and potentially skittish consumers have resigned themselves to control what they can. Often that means looking across the enterprise for places to reduce expenses to ride out a potential downturn. However, controlling one’s destiny means making bold moves to maintain or even grow investments in areas that improve the ability in the longer term to better serve shoppers and grow sales.

That also means taking the lead on innovation and participating in the great grocery reset. And investing in AI and automation that will power the creation of strategies and tactical plans to capitalize on changed shopper, competitive and market behaviors in a world of increasingly dynamic demand.

Want to learn more? Connect with a solution consultant.

(Hear industry leaders discuss the future of category and assortment planning during a webinar with The Grocer on “Winning at the Shelf in the New Dynamic Demand Era.”)

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