FMCG manufacturers need to reassess and rationalise their assortment, says NielsenIQ. The global insights company says a majority of SKUs across key categories contribute to less than 2% of overall category sales. This points to a “glut in non-performing products and variants”.
The top three categories with the most underperforming SKUs in Australia are:
- Sweet snacks (81% of SKUs contributing to less than 2% of category sales)
- Carbonated soft drinks (77% of SKUs contributing to less than 2% of category sales)
- Salted snacks (68% of SKUs contributing to less than 2% of category sales).
NielsenIQ Senior Vice President and Analytics Leader (APAC & EEMEA) Didem Sekerel Erdogan says finding and maintaining an optimal assortment has always been a challenge.
“Over the years, there has been a proliferation of brands, products and SKUs in the marketplace as manufacturers compete to satiate consumers’ appetite for new variations, products and experiences,” he says.
“But for manufacturers and retailers, more is not more, but rather the opposite as manufacturers end up investing in production and in-store shelf space for products that do not drive any incremental value, thereby eating into their profit margins and increasing the likelihood of out of stocks.”
According to NielsenIQ, an average of 20% of items will be delisted every 12 months and around 30% of promising innovations do not get enough support to realise their full potential.
Pandemic prompts need for change
Changes in consumer behaviour brought about by the pandemic also require manufacturers to reassess their assortment.
Consumers are streamlining their budgets and have become more discerning about what, where, when and how they purchase products.
Shoppers are also increasingly favoring smaller store formats – moving away from large format stores such as supermarkets towards local independent and specialty grocers.
With the rise in e-commerce and increased trust in online shopping platforms, shoppers are visiting physical stores less often. When they do, they come prepared with lists and they spend less time browsing the shelves than they did before the pandemic.
“The challenge for manufacturers and retailers is to ensure that the products and brands in their portfolio cater to consumers at all ends of the economic spectrum, while also remaining cost-efficient and eliminating wastage,” NielsenIQ Australia Analytics Lead Marcos Senine says.
The case for assortment rationalisation
A recent NielsenIQ study across 19 high importance FMCG categories demonstrated that the overall number of SKUs shrunk by 3% in 2019 and that, on average, 1 in 5 items will be delisted every year. Complementary studies by Bain & Company show that a 10% – 20% SKU reduction can result in up to 10% of savings in production costs, up to 10% reduction in supply chain costs, up to 10% lower inventory and up to 5% optimisation in raw materials and packaging costs.