MANILA, PHILIPPINES — Now is the time for FMCG manufacturers to reassess and rationalize their assortment in order to better meet the needs of pandemic-hit consumers, and to enjoy greater savings and profitability, according to global measurement company, NielsenIQ
Across the globe, there are structural challenges with assortment across most FMCG categories. Looking at the most underperforming categories in emerging and developing markets, on average, 75% of SKUs contribute to less than 2% of category sales. Beverage, instant noodles, chocolate, and detergent are some of the most underperforming categories in the region’s top 15 markets.
In Philippine supermarkets, for example, a whopping 79% of SKUs in the instant noodles and wine & spirits categories contribute to less than 2% of category sales – pointing to the glut in non-performing products that exist within just this one category alone.
The same can be seen across other top-selling food and non-food categories such as coffee mixes (72%), carbonated soft drinks (71%), dishwashing aids (67%), and hair conditioner (67%), proving that this is not an isolated incident, but rather one that needs to be addressed by the entire FMCG industry. See chart 1.
“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. Finding and maintaining an optimal assortment has always been a challenge. The COVID-19 pandemic, as well as intensifying competition, have elevated this test to a new level,” says Didem Sekerel Erdogan Senior Vice President and Analytics Leader, Asia Pacific and Eastern Europe, Middle East and Africa (APAC & EEMEA), NielsenIQ. “But 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.”
Assortment rationalization provides a triple win
The case for assortment rationalization is extremely strong. In fact, retailers are already reducing their assortment on the shelf without compromising category sales. For example, supermarkets have cut the average number of powdered milk products on the shelf from 45 to just 37 products while still achieving 7.3% sales growth. Even for snack foods, supermarkets have cut their average product count down to 270 from 301 items, and they saw a mere 0.8% sales reduction. See chart 2.
Lou-Ann Navalta, Analytics Leader for NielsenIQ Philippines highlighted that rationalizing assortment is not just about eliminating products with low sales. It requires a more sophisticated data-driven approach, based on the idea of incrementality, which means building a range that can drive profitable growth while drawing the interest of more shopper segments (through niche products, for example).
“By correctly identifying which products to retire and keep, manufacturers can focus production and supply chain efforts on incremental products, but at the same time, eliminate waste, increase profitability and reinvest profits into new product development, which will ultimately capture new shoppers. This is a win for the shopper, a win for the manufacturer, and a win for the retailer,” states Navalta.
Changes in consumer behavior led to the cut in assortment
Changes in consumer behavior brought about by the pandemic required manufacturers to reassess their assortment.
Firstly, consumers who have been financially hit by the pandemic are streamlining their budgets and have become more discerning about what, where, when, and how they purchase products.
Secondly, shoppers are increasingly favoring smaller store formats, like smaller supermarkets, convenience stores, and minimarts that are near their homes, and this only reinforces the need to make the best possible use of limited space.
With the rise in e-commerce as a regular shopping channel, as well as the need for continued safety precautions when shopping in physical stores, shoppers also spend less time browsing the shelves than they did before the pandemic.
Lou-Ann Navalta says: “Financially impacted consumers have less money to spend, less time to shop and will therefore be more deliberate in their spending. The challenge for manufacturers and retailers is to ensure that the products on their shelves cater to consumers at all ends of the economic spectrum, while also remaining cost-efficient and eliminating wastage.”
