A great article from the Nielsen blog, Nielsenwire written by Stuart Taylor, Vice President, Custom Analytics and Kristin Chaudoir, Manager, Price Promo Modeling the reality of sku consolidation and brand rationalization seems to be much less frightening than the buzz would have us believe.
Too Much Choice and Variety: Assortment Realities
SUMMARY: The CPG industry has been abuzz over assortment downsizing. Yet, despite all the talk of major SKU reductions, the average food channel store decreased variety by just 1% in 2009. The majority of grocery retailers plan to either maintain current levels or continue slimming SKU count in 2010. It’s a tricky balancing act, feeding consumer hunger for personal variety while bulking up margins through operational efficiency and store brand sales. The key is determining which products deliver true incremental category sales.
What size is the right size to downsize? Assortment challenges vary by format, region, category and brand, but the objective is the same: satisfy the shopper need for choice and innovation without drowning in an unmanageable sea of SKUs. In 2009, four out of ten food retailers surveyed claimed to have decreased assortment roughly five percent on average. One-third of retailers claimed to have maintained the assortment status quo, while 22% claimed to increase assortment options an average of 3%.
There were many reasons fueling the frenzy. Sixty percent of retailers indicated they downsized to alleviate shopper confusion. The other reasons cited were mostly internally-driven operating decisions including: gives better facings/merchandising (75%), provides better inventory control (71%), high profitability/cost savings (52%), makes more room for store brand products (48%), shrinks shelf space so other areas of the store can be larger (33%) and keeps up with other retailers who are doing it (4%).
Despite media hype anticipating double-digit assortment decreases, the actual total percent of item changes for the year across major categories in the grocery channel averaged a very reasonable 1%.
When More is Too Much
The old school assortment philosophy summed up by one retail executive was simple: “bigger, bigger—how much money can I get for new items?” This “more-is-better” approach eventually evolved into a “more-is-too-much” outcome. In the midst of our economic malaise, retailers found an overwhelming number of consumer product choices at odds with delivering customer value and profits. Many began aggressive SKU rationalization efforts to decrease overhead costs and reduce in-store clutter.
More than half of those retailers surveyed in the 2010 Nielsen Retail Assortment Survey claim to have, or plan reductions of up to 10% of all SKUs on the shelf. Even as redundant products were eliminated, certain segments saw their product counts increase. Store brands enjoyed a 2% expansion over the prior year, while premium national brands held their own, avoiding cutbacks.
The Assortment Reality
When it comes to downsizing, not all categories are created equal; some added SKUs and some lost items. According to the Nielsen study, of the 32 categories analyzed, 23 experienced an average decrease of 2% in the number of items offered. The biggest losers were the cookie (-8%), water (-6%) and shampoo (-4%) categories, which saw the highest number of items removed from the shelf.
Concurrently, the biggest winner categories expanding SKU count included carbonated soft drinks (up 3%), shower gel and yogurt, each growing its product roster by 6%.
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