With the consolidation of the retail grocery industry continuing to progress at breakneck speed, one of the questions that is inevitably going to come to the fore is, "Who is going to assume the mantle of "Category Captain" -- the supplier or the retailer?"

The answer to this question is obviously critical to both parties because it goes to the heart of the "control" and "balance of power" issues that have permeated the industry for so many years. So let's take a look at what we think is going to happen.

Category Management is the only idea to emerge from all consultant-driven frothing of the 1980's and 1990's that appears to have lasting-power. While the industry suffered through such epidemics as DPP, ECR, "partnering", "strategic alliances", "solutions selling" and "home meal solutions", Category Management continued to broaden and deepen its penetration and is now accepted as standard operating procedure.

Supermarket retailers must know that even though Category Management is here to stay, the practice vs. the theory is fundamentally flawed and filled with inherent conflicts which prevent it from being scaleable. As supermarkets grow larger -- and as the need for differentiation on a basis other than price continues to escalate -- Category Management as it is being practiced today will no longer suffice as a tool for retailers to grow their business.

The core issue with Category Management today is the supermarket's unspoken and unwritten strategy of attempting to pass all costs of doing business on to the supplier community. As a part of this, supermarkets have successfully engendered a competition among suppliers for "Category Captaincies." Thus, leading suppliers have built huge and expensive infrastructures to develop category strategies for each category in which their brands compete and for each major retailer who they think will pay out this investment. On their parts, leading retailers have been content with this system because they feel they have avoided the expense of building this infrastructure themselves and yet are still getting the job done. The fact is, however, that with consolidation and the battle for control of entire sections of the country, supermarkets who continue to shunt this responsibility off to manufacturers are not taking control of their business and will eventually lose out to those that do.

If one takes a hard look at the way category management is practiced today as described above -- with the supplier doing all of the analysis and making the recommendations -- and with one supplier frequently in control of the whole show -- one eventually has to come to grips with the unreality of all this -- and the inevitable subconscious hypocrisy that accompanies it. If you are a Category Manager for a leading supermarket chain -- and you are listening to your 10,000th category management presentation -- do ask yourself what is really happening here. Consider the following:

1. There are only a handful of suppliers whose business is large enough and broad enough that they can afford to be objective when it comes to developing category management-based recommendations. The heart of category Management from the supplier's standpoint is the willingness to discontinue one's own brands for the sake of growing overall category sales and profits. Among the approximately 1100 suppliers to the US supermarket business we estimate that they are maybe 5-10 who are large enough and broad--based enough to make category recommendations that might adversely affect their brands. P&G, Kraft, Pillsbury and Nestle are some that quickly come to mind.

On the other hand, there are other leading suppliers like Coke and Pepsi, Duracell and Eveready and Kodak and Fuji who, although large, are in a share growth fight-to-the-death. Do not expect companies like these to be objective. Know that they are paid to advance their own brands. Know that their stockholders would have trouble understanding the concept of "pure objectivity" or building a $3MM/year infrastructure to focus on growing the category instead of one's own brands.

2. The only suppliers who benefit from the practice of category management are suppliers who are already #1 or #2 in their respective categories. It is these suppliers who have built the huge infrastructures to support the practice and who dominate the category management landscape. The principle from the supplier's standpoint is that if one is the share leader in the category, and if one is able to help grow the category incrementally, the supplier who benefits most is the supplier with the largest share. This is the primary reason that share-dominant, large suppliers invest in the practice. It is not for the purpose of growing the category for the US supermarket business. Altruism and objectivity are not part of the formula.

3. There are some decisions that even the most objective supplier Category Captain is not equipped to make objectively. It is partially because so few suppliers can afford to be objective that the supplier community as a whole is simply not in a position to offer the full range of category management-based recommendations needed by leading retailers today. Most supplier-based category management recommendations focus on things like product selection and assortment, shelf space and position and pricing. All of this is pretty much plain vanilla -- and easy to be objective about -- because the facts speak for themselves. Suppliers know that it is to their interest to recommend deleting the bottom ten brands in a quadrant even if their own brands are included because supermarket category managers are smart and will eventually get around to deleting them anyway. The same with shelf space and position recommendations: once the first planogram is developed and the big improvements are made, all the rest is short strokes -- the least leveragable part of the whole category management shebang -- and the part that most suppliers can afford to be the most objective about without the risk of serious loss.

It is when it comes to promotion merchandising that the supermarket's practice of having suppliers develop category management-based recommendations pulls up short. Despite the fact that promotion merchandising is obviously the underpinning of most supermarket growth strategies, suppliers are simply not in a position to lay-out a comprehensive promotion schedule which includes recommendations to promote competing brands. After all, Coke is not in this to advance Pepsi and vice versa. In addition, Coke is not paying for Pepsi's promotions so why should Coke ever do anything of any nature that might help Pepsi improve its position even if it is in the name of "Category Objectivity"?

This void in the promotion merchandising aspect of supplier-developed category management recommendations has left it up to retailers to fend for themselves in developing their own promotion calendars and deciding what brands should be included. As a result, most all promotion decisions are not consumer-based but deal-driven. They are almost never congruent with the "category strategy" developed by the "Category Captain" and therefore tend to undermine the integrity of the entire process. Of course, deal driven new item decisions are often made the same way. "Show me the money" often has more weight than "how well will this new item help me achieve my category growth objectives?"

4. The desire to continue to "produce" can lead to bad recommendations. Once a supplier has attained "Category Captain" status, there is a great desire to continue in that role. Such attainments are usually lauded in internal supplier publications and tend to enhance one's career. Conversely, losing the captaincy -- particularly to a key competitor -- is viewed negatively. The supplier "Category Captain" therefore is susceptible to over-rationalization -- cutting out SKUs that satisfy a smaller consumer niche -- in an ongoing effort to show efficiency improvements and justify their value as Category Captain.

5. The last issue has to do with execution. There is an obvious conflict between supplier objectivity when making category management recommendations at headquarters and the fact that the same suppliers pay big bucks to have brokers or other merchandising services focus solely on achieving the objectives of their own brands at store level. While this tends to be masked somewhat by the broker community doing complete shelf sets, the fact is that on a day-in-day-out basis, suppliers have a natural and predatory interest in ensuring that their own brands are prominently displayed, easily accessible to self-service and properly priced. Brokers and independent merchandising services are not evaluated for what they do for the category in general but for these suppliers' brands specifically.

These flaws with the way category management is practiced at present are only going to escalate as supermarkets continue to consolidate and search for ways to differentiate themselves from other supermarkets. It is in differentiation that "pure" category management as originally conceived shows the promise of a significant payout. To make this work, however, supermarkets are going to have to change the paradigm and take control of the entire process themselves -- appointing themselves as "Category Captains" instead of suppliers. Only in this way will supermarkets eliminate the obvious hypocrisy that accompanies the practice today and be able to take control of their own destinies.