Retailers have slashed product ranges during the Covid-19 crisis to improve both product availability and operational efficiency. There are now over 13,000 fewer SKUs in the top six UK grocers. Some categories have been especially impacted – UK Petcare has seen a 27% SKU reduction. (Source: The Grocer 4th July 2020).
Suppliers themselves have been taking the scalpel to their own ranges. The obvious response to global supply chain interruptions for many suppliers was to reduce product lines proactively, focusing instead on keeping availability going on the core SKUs that account for most of category demand. The pain in Consumer Electronics was even more acute. Production facilities in Asia stopped overnight and SKU counts reduced immediately.
Revenue Growth Management (RGM) provides an ideal framework to bounce back stronger after Covid-19. In this our third article on RGM we focus on Portfolio, the second building block. Our question is… “will your portfolio weather the storm?”
This is the third in a 5-part series on RGM. We recommend a fast, pragmatic approach with a focus on implementation. Get the RGM building blocks of pricing, portfolio and trade spend in perfect balance, working together to rebuild profitable growth.
The truth is, that whilst Covid-19 has caused intense availability issues, it has simply sharpened the focus on the question, unanswered for years: “when is enough, enough? What and how much actually needs to be available?”
Many categories have existed with too long a tail for too long – their fragmentation is simply too great with too many SKUs delivering no genuine differentiation. The “tyranny of choice” has long been talked about but little has been genuinely actioned. If Covid-19 has done nothing else, it leaves a legacy where “shelf-warmers” will be far less tolerated.
Suppliers face a difficult set of questions:
- Which of their self-selected range reductions warrant a return to the shelves? 64% of UK consumers claim that they will continue to buy products that they were forced to try for the first time during lockdown. 39% claim they will buy more private label going forwards (source: Greenshoots Research Shopper Survey 27-28th May 2020). Have buying habits changed permanently? Are your “temporarily” delisted SKUs actually needed?
- Which of the retailer-delisted products warrant fighting for?
- Is the current portfolio fit for purpose against the missions in the winning channels coming out of Covid-19?
- What arguments will convince retailers to re-list and at what cost?
Quantic believes that:
Any SKU must earn its right to appear on shelves. Easy to say if yours have genuine differentiation. Difficult and costly to defend if not. Shoppers only ever buy to satisfy the needs of consumers, so the fundamental question to answer is whether an SKU meets a specific consumer need and is differentiated in some way from the rest of the pack. Is there a real ‘reason to believe’ or are you managing a portfolio of ‘me too shelf warmers’?
Covid-19’s impact on shopper missions and the choice of channels shopped will have a permanent impact on shopper choices and the ranges needed by channel.
Point of Purchase strategies should be precisely that – strategic. Winning supplier Point of Purchase strategies directly support the overall Category Growth Strategy. This means that they have clarity at a category and segment level, by channel on:
- The medium-term impact on channel choice resulting from Covid-19 and the consequent impact on ranges at a category level required by channel.
- The number of SKUs needed to achieve a coverage level determined by that segment’s importance in delivering future Category growth. Growth Drivers, quantified at Channel and Retailer level will be delivered through segments. Which segments need greater coverage and which a lower SKU count?
- The mapping of missions to channels – which SKUs deliver against these missions and which don’t?
- The segment’s profitability for the retailer and their overall contribution to it.
- Duplication and gaps in both their own portfolio and in the category ranges held by their customers. Which SKUs are contributing and which are consuming value?
So how will the winners weather the storm? They will take a total category approach. They will think about Triple-Win – the consumer, the customer and themselves, as the supplier. They will balance a category approach, which optimises for now and demonstrably creates value for the future.
Triple-Win – it’s good for the consumer, customer and you as the supplier
Quantic recommends a pragmatic three step approach
Create the Context
Assess the impact of Covid-19 on the here and the now and form a view of the future. No single view on Covid-19’s impact will be correct; make some assumptions and use these as the context for your recommendations. Review product listings by segment to identify gaps and duplication. Focus on a category approach and not just your portfolio. Assess profitability by SKU and identify contributors and consumers of value. Be prepared to flex according to Covid-19 learnings as we move forward and by retailer, according to their specific strategies.
Build the Plan
Build a Triple-Win plan. Optimise for now. Recommend the assortment that balances appropriate consumer choice, complexity and profitability for today. Recommend how this flexes tomorrow. Make your range recommendations in the context that you have built. Apply your thinking to shopper missions most closely aligned to your prioritised category growth drivers. Select channels most relevant to the shopper mission and design the product mix to drive targeted shopper behaviour changes. Think total category and how your portfolio brings value to the shopper and customer. Create the ‘Picture of Success’ that in addition to product, embraces price, promotion, placement and communication.
Gear up your Portfolio for growth
Prioritise shopper missions and create the right blend of channels and products to drive key shopper behaviours
Implement at Pace
Build a compelling selling story that demonstrates the benefits of your portfolio, merchandising and communication plan to the specific needs of the customer. Estimate the size of the prize and show how this drives shopper loyalty and spend. Implement, adjust and implement again. Be in shape for the busy trading period leading up to Christmas.
And don’t forget…
Portfolio mix must not be considered in isolation of the other RGM building blocks of pricing and trade spend. You need the perfect balance of pricing, portfolio and trade spend to drive and sustain profitable growth. Click to read our article on pricing:
Is your brand and pack price architecture right for these times?
Quantic can help you develop a Triple-Win plan; the right mix of channels and products based on shopper missions. We will help you convert this into a compelling customer selling story and to implement at pace. Get into shape for the Golden Quarter. Contact us today!
