The 1% Disruption

Articles
July 20, 2010

The 1% Disruption

Is SKU rationalization the 1% solution that Walmart and others thought it would be? Or is it the 1% disruption that derails consumer purchases?

Is SKU rationalization the 1% solution that Walmart and others thought it would be? Or is it the 1% disruption that derails consumer purchases?

We think the latter: more on that in a moment.

First, by 1%, The Lempert Report refers to the average variety decrease in food channel stores during 2009, as measured by Nielsen. Driven by a need to simplify assortments, ease purchase decision making, free up idle inventory and meet operational concerns, here’s what retailers said they did: 4 out of 10 lessened assortment about 5% on average, more than 3 in 10 sustained the status quo, and more than 2 in 10 increased variety an average of 3%, according to Stuart Taylor, vice president-custom analytics and Kristin Chaudoir, manager, price promo modeling.

The categories most vulnerable in 2009 were cookies (-8%), water (-6%) and shampoo (-4%). By contrast, carbonated soft drinks were up 3%, and shower gel and yogurt were each up 6%.

More than half of the retailers surveyed in the Nielsen Retailer Assortment Survey eye SKU reductions of up to 10%. Safer than most will be private label items and premium national brands, they note.

The Lempert Report knows the history of supermarkets eroding their own trip frequencies with behaviors that are inner-directed rather than consumer-centric. We believe this is an instance where supermarket operators could be acting penny wise and pound foolish. Nowhere in the Nielsen report, or in much of the chatter this past year about SKU rationalization, is the practice’s impact on a store’s best customers. Loyalty experts know to look for purchase patterns and protect items that these shoppers buy, even if the collective volume of these items doesn’t look so strong. Cuts made hastily could send these pivotal shoppers elsewhere.

Both the quiet reversals of brand cuts at retailers earlier this year, as well as one figure in this Nielsen report, suggest the loss of shoppers is a concern. For more than 3% of snack consumers, about 4% of dairy and beverage consumers, nearly 5% of frozen food and dry goods consumers, and even more of dry goods, household and paper, and personal care consumers, if they couldn’t find what they wanted, they bought nothing, the Nielsen data showed.

Once they leave your store, you may never get them back. If you feel you must cut, do so fully informed and with customers held in higher regard than any operational matters.