What Will Be the Outcome of Assortment Rationalization?
By Lynne Cooke
Memo to consumer packaged goods (CPG) retailers: more than half of U.S. consumers are likely to shop elsewhere if they notice a reduced product selection. Meanwhile, nearly half of retailers indicate continued plans to decrease assortment.
That potential conflict was a hot topic when results of the study by The Nielsen Company were revealed at the firm’s Consumer 360 Conference.
So far, most consumers haven’t observed assortment changes with only seven percent reporting a noticeable reduction in product variety. And although 42% of retailers decreased assortment in 2009 amid considerable industry hype, assortments overall shrunk by only one percent.
Looking ahead to the second half of 2010 and 2011, however, retailers’ strategies call for continued downsizing, then maintaining reduced assortments moving forward. Forty percent of retailers indicate they’ll continue to downsize, with stated targets to cut up to 10% of SKUs on the shelf.
“Reduced assortments are definitely here to stay, and the message to retailers is to choose carefully when it comes to deciding which products to trim,” said Stuart Taylor, vice president, Custom Analytics, The Nielsen Company. “In many cases, strategically reducing assortment can result in an improved customer experience and greater profitability. Cut the wrong product, however, and the potential customer backlash could be costly.”
How costly? Seven percent of personal care product shoppers say that when faced with a shelf that does not contain the item they want, they’ll leave the store without buying the category at all. Often, this translates into the consumer taking their entire shopping basket purchase elsewhere. While seven percent may seem like a small number, consider that just a one half of one percent decrease in shopper closure across the grocery channel could cost as much as $1.5 billion in sales.
Driven in part by the recession, CPG retailers are making assortment changes for several reasons. According to Nielsen, three of four (75%) of retailers are downsizing their product assortment to improve merchandising opportunities, while seven of ten (71%) cite a desire for greater control over inventory. Sixty percent state the moves are made to alleviate shopper confusion, while 52% are reducing selection to cut costs and improve profitability. Nearly half (48%) of retailers are making more room for store brand products.
So what’s a retailer to do? According to Nielsen, the key lies in reducing assortment strategically, while balancing the interests of the retailer, manufacturer and consumers. Nielsen recommends adopting an ongoing, objective process around assortment and applying intelligent analytics to help retailers identify the products that provide the greatest incremental sales benefit.
“Success in today’s competitive retail market is no longer about having the most products. It’s about finding the right mix of products,” said Taylor. “Retailers should be focused on offering the products their customers want most and making it as easy as possible for their customers to find and purchase those products.”
Nelsen surveyed nearly 50 retailers across U.S. CPG channels and consumers in more than 21,000 U.S. households conducting nearly 55,000 shopping trips. The surveys were conducted online in March and April 2010. The company also conducted an industry assortment benchmark analysis, spanning more than 30 grocery categories.
AUGUST 2010
Frito-Lay Optimizes Assortments by Applying Shopper Insights
By Al Heller
Frito-Lay, marketer of six billion-dollar brands accounting for $12 billion in domestic sales, has built more than a 60% share of salty snacks by understanding who the shoppers are and what their behavior is. Armed with these powerful insights, it helps retailers optimize assortments and maximize space productivity in salty snacks by applying deep shopper insights to category management.
“We see affinities toward products and segmentations of products by individual shoppers. We see emotional reactions to different products – and it all comes to life in the category plan,” said Dave Boisevain, director of retail strategy and planning at Frito-Lay, whose portfolio includes Lay’s, Fritos, Doritos and Sun Chips
He detailed three elements of winning at the shelf: optimize assortment (reduce unproductive SKUs so people can find their preferred items); allocate space to be in stock on demand brands and align with growth trends; and merchandise with a flow that matches consumer decision trees.
“In one test store, we removed 10%, 20%, up to 40% of items. When we were in the 20% to 30% range, consumers in that store told us they thought we had better assortment. That made us aggressive [in culling],”
he noted.
The trade also wants to reduce inventory levels “to improve cash flow. No one knows where the new normal for consumers will go,” observed Danny Halim, vice president-industry strategy, JDA Software Group. “The key is to create accurate store-level planograms based on planning…demonstrate this capability to retailers so they buy in, and prove you can execute it. Technology is advanced enough now to provide this capability consistently.”
Halim and Boisevain took part in recent webinar, “Grow Sales & Profits Through Consumer-Driven Category Management,” hosted by CGT.
Frito-Lay is committed to store-level planograms on a massive scale. Some 18,000 routes in the U.S. service more than 300,000 unique customers, including 25,000 large format grocers, supercenters and mass merchandisers. The snack maker has an expert headquarters team that collaborates with retail customers and their category management teams to develop assortments and allocate space.
Then the Frito-Lay headquarters team uses JDA technology to build planograms; it creates a sample set for the retailer, and once cleared to do so, runs “a cycle of about 500 planograms overnight. They’ll be 90% to 95% accurate,” and then a quality control team refines them to suit the retailer’s stated business priorities, explained Boisevain.
The store-specific planogram files then go to a third-party to reset the stores, to the retailer and individual stores to help compliance, and to the Frito-Lay route sales representatives who know what a set should look like and now have the guidance on how it might change. Frito-Lay also shows customer teams where to place new items based on retailer input.
The JDA solutions suite helps automate the integration between category management and supply chain management. Planogram Generator is part of the suite that enables high-level category planning based on consumer insights, identification of consistent demand patterns based on locality, and assortment matches to clusters. Optimized store-specific planograms also conform to such factors as the fixtures and physical constraints of each store, user-defined merchandising instructions, assortments and performance data.
“You can deliver that?” is often retailers’ first reaction, observed Boisevain. “They tend to get on board right away” even though it generates “a little more work for them at the start. They want to trust the process. They’re hands-on in the beginning looking at space allocation at store-level by vendor, and they help to scrub the assortments….If their systems are capable of accepting this level of data at the store-level, they don’t try it and then go back.”
To help build trust, Frito-Lay keeps its category management experts separate from the sales team, and positions them as “the objective partner for the customer on the category. We believe we win if the category wins,” he added.
Meanwhile, Boisevain pushes for greater store-level compliance to raise performance. “We have a DSD sales force of 18,000+ trying to execute against this. Anything we can do to…push [execution] one more percent is another area to drive growth. Execution in how we allocate space and where we place it is one of our next areas to go,” he noted.
The more actionable and specific to changing consumers a category management plan is, the better, suggested Halim. To get to that point requires knowing local consumer demand levels by store, and anticipating and measuring consumer response to different influences – such as price changes, competitor brand actions, and the economy’s effect on willingness to spend.
“Consumer-centric category management also takes a forward view of demand to do category planning. Rather than look at historical point-of-sale data,” involve the supply chain, Halim added. “We can link our supply chain planning capabilities to category management. The next level of integration, from a technology standpoint, will be to create more transparency between what’s happening on the shelf and planning, product manufacturing, distribution and replenishment.”
Al Heller is co-author, Consumer-Centric Category Management (Nielsen/Wiley) and president, Distinct Communications, LLC.
