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Slimming Down to Compete More Effectively

By streamlining its merchandising function, a retail chain reduced staff costs and improved performance.

A large grocery retailer was facing aggressive new competitors and deteriorating profit margins. Over time, the company’s merchandising function had become increasingly complex, with resources spread across many regions. It had multiple contact people for each vendor, inconsistent processes, inadequate analysis methods across regions, and inconsistent methods of applying measurements and metrics.

With a new management team in place, the company asked BCG to help quickly transform its organization. The goal was to centralize merchandising activities and to shrink regions. The new organization needed to be simpler, leaner, and faster, with consistent processes and clear roles. And the reorganization needed to happen in less than one year, without disrupting store operations.

Tailoring the Organization

The team looked at common ties among products and vendors, the intensity of category promotions across banners, and other factors to determine the right number of category managers, assistant managers, and merchandising managers for the new organization. At the same time, the case team redesigned most core merchandising processes and developed supporting tools and training programs. To fill out the redesigned organization, BCG created a process to reorganize thousands of employees in just three months.

Cost Reductions in Multiple Areas

Headcount across the company's merchandising function was reduced by 15%. More importantly, the company leveraged its scale to drive a major cost-reduction program. It saved more than 2% in cost-of-goods-sold purchasing, significantly reduced indirect goods-and-services procurement spending, and boosted store labor productivity. Long term, a stronger central merchandising team would help grow the company’s market share through a national pricing strategy, new format strategies, and new categories.

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