CEO Frank Krum with end users; customer service staffers Janet Burnett and Lana Chase shows what makes ECR work for Golden Cat. Golden Cat convinced a supermarket chain to change its mix of cat-litter to include higher-value items. THE NITTY-GRITTY OF
SOUTH BEND, Ind.-When Lana Chase sits down at her computer terminal, each morning, she can access the previous day's sales of her company's products at H.E. Butt Grocery Co., a big Texas supermarket chain.
Ms. Chase is a customer service rep for Golden Cat Corp., marketer of Kitty Litter Maxx and Tidy Cat. Through an electronic data interchange system, H.E. Butt delivers a daily report on its cat litter sales to Golden Cat's computers.
A sophisticated software program helps Ms. Chase forecast sales for the next few weeks, predicts how much extra will be sold during promotions or because of icy/snowy weather and tells her when to send another order of products. It even divides the orders between trucks to balance the loads.
The goal: to continuously replenish the inventory so H.E. Butt's supply of Kitty Litter and Tidy Cat is just right. The procedure ensures the chain has no "out of stocks" in any product, but not so much stock that it has to waste expensive warehouse space storing stacks of cat litter.
Ms. Chase may not think about it in quite this way, but she's laying the foundation for her company to realize Efficient Consumer Response. She and her boss, Golden Cat President-CEO Frank Krum, are in the vanguard of the package-goods industry's attempts to become more efficient, making the company a model study of how ECR can work to advantage.
ECR is a vague term that tends to get buried in technospeak and alphabet soup: Continuous replenishment, scan data accuracy, EDI, UCS, EDLP, pay for performance, ASN, 214s. What it all comes down to is this: eliminate the inefficient parts of the nation's system for selling grocery products by changing the approach to creating, selling and distributing those products.
In the process, ECR is forcing marketers and retailers to rethink not only their computer systems, but their attitudes toward new products, pricing, in-store merchandising and the division of dollars between trade promotion and consumer marketing.
Since it began working on ECR a year and a half ago, Golden Cat has moved into an elite leading-edge group. The $200 million, single-category marketer is keeping company with multibillion-dollar behemoths like Procter & Gamble Co., RJR Nabisco, Campbell Soup Co. and Quaker Oats Co.
Part of a group that acquired the former Edward Lowe Industries and renamed it in November 1990, Mr. Krum says he saw ECR as a "tiebreaker" for Golden Cat.
Not only was Golden Cat quietly being pushed into more efficient distribution systems by its growing business with Wal-Mart Stores and other mass-merchants, but the company knew it needed an edge to stay on top in the $600 million cat-litter category.
"We were up against first-rate competition from Clorox [Co.] and First Brands [Corp.]," Mr. Krum says. "Even with the best products, great brands and competitive pricing, we knew it would be tough because we're a single-line company. And in this category, what's value for the consumer? You have a product that works when nothing happens.
"The tiebreaker for us would be ECR, starting with systems and logistics; that's something we first learned working with mass merchandisers."
ECR can't happen without continuous replenishment of inventory, which can't happen without EDI-electronic data interchange.
"All this can't happen without the latest in technology," says Tom Palmer, VP-logistics.
So Golden Cat first stepped into ECR by making a serious investment in computer systems and setting up electronic data swaps with key retailers.
From nothing in early 1991, the company now has half its volume, or 45 retailers, talking to it via computers like the one Ms. Chase uses. That eliminated mailed or faxed orders, and speeded the flow of information.
But Mr. Krum, a member of the grocery industry's executive committee investigating ECR, wasn't satisfied. So last year, Golden Cat did a study to see what else could be done to make its business more efficient.
"We wanted to help ourselves deliver the best product for the consumer, but also help our retailers make more money," Mr. Krum says.
The study, conducted by Swander, Pace & Co., analyzed sales at a major supermarket chain with $4 million in cat-litter sales. Before doing anything, category profits were pretty good-4.9% for cat litter compared with supermarkets' usual 1%-2% profit margins.
But Golden Cat theorized and proved it could improve both sales and profits from cat litter with better category management and distribution. The study showed profits doubled with some basic operational changes.
One key was changing the mix of items the chain carried. Products that weren't sold frequently enough-smaller sizes and some undifferentiated private labels-were discontinued, and large bags often shelved at the front of supermarkets were moved into the aisle for better marketing.
In a move similar to ones taken by P&G, Kraft General Foods and others, Golden Cat suggested cutting nearly in half the number of stockkeeping units the test store carried in the cat litter category, to 16 from 26.
The result: Sales of cat litter as a whole went up, as consumers bought higher-value products.
The study also suggested changing distribution procedures. Rather than supplying the retailer with a warehouse full of cat litter-a month, or even two months' worth of needed inventory-Golden Cat wanted to deliver its products to the retailer just in time to be put on the store shelves.
It's basic economics: Rather than have a retailer's money sitting in a warehouse, "We proved we could get the product out of the warehouse, into stores and through the scanner before the retailer even paid us for it," Mr. Krum says.
It makes money for most marketers that use the system as well. In an age of forward buying, where retailers are encouraged to buy extra supplies when manufacturers offer periodic trade deals, marketers like Golden Cat find themselves with uneven production at their plants, requiring overtime pay.
This basic distribution idea, continuous replenishment of inventory, has become the current focus of Golden Cat's ECR activities.
"Continuous replenishment is not the salvation of the industry, but it's an easy first step to see the benefits of ECR," Mr. Krum says.
Golden Cat is testing two different continuous replenishment computer software programs-one created by P&G-to see which is best for its needs. But Golden Cat is already distributing 23% of its sales volume continuously, with 21 retailers participating either fully or as a test.
One unexpected upshot is that Golden Cat now asks its raw-material suppliers, such as the company that makes its bags, for continuous replenishment so it, too, can minimize the space and cost of warehousing.
This new distribution system has led to changes in the way Golden Cat sells its products.
Rather than sending a salesman to talk to a grocery chain's buyer-one trying to sell as much as possible, one trying to buy as cheaply as possible-Golden Cat now dispatches a team of up to eight people, from sales and marketing, finance, customer service, logistics, information systems and EDI, to set a retailer up on continuous replenishment. Each team member works with a retailer counterpart with similar goals.
That new selling team has created a subtle change in Golden Cat's relationships with retailers.
"It's forced us to sit down with the retailer and plot our promotions over a three-or-six-month period to talk about how he's going to merchandise our products," Mr. Krum says. "And that in turn forces both of us to work on the same side of the desk, not opposite each other. It takes the conflict out."
The move away from retailers buying well rather than selling well is likely to be a good thing for brands, and for consumer marketing budgets.
"The way we've been doing business for 15 years is dumb," Mr. Krum says. "We want to move toward pulling consumers into our stores rather than pushing merchandise onto shelves."
The ability for manufacturers to read daily sales reports and restock shelves based on what consumers are buying alters the marketing focus.
"In two to three years, I hope we're replenishing shelves right off scanner data," Mr. Krum says.
The ECR initiative has other subtle downstream effects.
A company searching out unnecessary SKUs, for instance, is unlikely to look desperately for a new line extension to build business; package-goods marketers have been roundly criticized for inflating the number of items supermarkets carry without adding products of real and distinct value.
A company like Golden Cat can invest its savings into product enhancements; in its case, higher-tech deodorizing and clumping litters.
Is it working? Many factors are involved, but Golden Cat's corporate market share is up, and sales last year rose nearly 10%.
"ECR has arrived at the right time," Mr. Krum says. "The consumer wants a good price-value relationship and no-hassle good service. "ECR can help both retailers and manufacturers deliver that."