Jul 9, 2020

By Sue Wilkinson, Senior Director, Information Service & Research, FMI

Over the past few months, a spotlight has shone brightly on the food supply chain because of the many challenges it experienced due to pantry loading by consumers that resulted in out of stocks for myriad categories. While it is not completely back to normal, product suppliers have worked hard to meet the expectations of their retail partners and shoppers by prioritizing core SKUs to simplify, drive efficiency and streamline operations for retail customers. 

The food supply chain disruption has brought up, once again, the question of just how many products do we really need on grocery shelves?

Variety or Duplication

Throughout the decades, product suppliers and food retailers have struggled with this concept. In 1993, FMI released a report written by Willard Bishop Consulting and IRI in cooperation with Frito-Lay, Inc. called “Variety or Duplication: A Process to Know Where You Stand.” It explored a systematic approach to managing product variety in an effort to lower supermarket operating costs and increase sales. The study revealed that there was plenty of duplication on the shelf, reducing SKU count is possible without upsetting the shopper, and SKU reduction, if done correctly, does not have to have a negative impact on sales.

SKU Rationalization

Fast forward to the 2000s where the industry began to implement SKU rationalization, a decision-making process to determine whether a product should be kept or discontinued. A scan of supermarket trade journal headlines during this time period reveals the trend, and FMI’s 2011 Food Retailing Industry Speaks report states that between the years 2008 and 2010 retailers around the country were increasingly focused on SKU rationalization but, “the trend appears to have flattened out, if not reversed. In fact, for 2011, fewer than one-third of retailers believe SKU reduction initiatives will persist.”

Despite a possible reversal of SKU rationalization in 2011, FMI Speaks data over the last 10 years or so indicates that SKU numbers have decreased over time as retailers have adjusted assortments. In addition, the emergence of omnichannel strategies and a growing number of smaller format outlets is likely having an impact on the average number of SKUs offered in typical food retail formats.

What Does The Future Look Like?

During this pandemic, CPG companies have been forced to consider their product lines to meet the needs of food retailers dealing with unprecedented consumer pantry loading. While the concept of reducing SKUs is not novel, the current situation has introduced a new twist— the product supplier is making the adjustments this time.

Moving forward, what will this episode in retailer/supplier relations do to product innovation? When will slower-moving products be introduced back into the normal product line-up? Will shoppers notice the decrease in offerings? Do we really need all this stuff?  It’s too soon to tell how this story will end, but it does offer some food for thought.