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Less is Best: Food Manufacturers Streamline SKUs for the Better

By Jane Flemming,
President


COVID-19 has impacted the lives of every American. No other way to say it. And, for good or for bad, it has also changed the shape of American business. For those hit hard, like the restaurant, entertainment, hospitality and travel industries, business as they know it will probably never be the same. Some will not recover while others will take months, if not years to get back to normal. But for those fortunate enough to be overwhelmed by demand, traditional models have been broken, supply chain limits are being tested, brands have been forgotten and some employees are more important to their company’s success than ever before.

Indeed, food and beverage manufacturers are facing unprecedented circumstances and must consider radical solutions to solve the problem. They are working overtime to replenish stock depleted by severe overbuying as quickly as possible by ramping up production and delivering goods from their ample existing supply. But, what other solution can potentially help keep shoppers happy during a time when shelves are empty? The answer might surprise you. Make more of what consumers need and less of what you think they want.

During these difficult times consumers are literally scavenging to find and buy the basics, the very staples that foundational meals are made of. Nothing fancy. Nothing atypical. Nothing new. Simply the core items they need every day. Brand no longer matters as much. Convenience goes out the window. Even price is not the deal breaker. Bottom line? Availability has become king.

One approach being taken by CPG companies is SKU rationalization. There are more SKUs—retail speak for Stock Keeping Units–today than ever before. Flavor varieties. Low fat varieties. Size varieties. Different cuts of meat. You get the picture. Every time a manufacturer comes out with a new product or a variation on a product, a new SKU is assigned. As shoppers’ thirst for variety and customization increases, brands respond by adding more and more SKUs.

Donovan Less is Best COVID-19

But now, during a global pandemic that the majority of Americans never thought would happen in their lifetime, consumer demand for specialty items and fancy flavors has been abandoned. Shoppers want toilet paper and don’t care what brand it is, what size the rolls are, or if it has a pleasant smell. It just needs to do the job. This same mentality is true for lots of categories, especially food. For our client, Perdue Farms, one of the largest suppliers of chicken in the United States, realizing that shoppers are stocking up in mass quantities on basic cuts to feed their family, was an eye-opening experience. “We quickly realized we had to make decisions about our operations and supply chain in order to get shoppers what they need, as fast as we can get it to the grocery store to stock it. Trying to continue making every single one of our products just didn’t make sense” said Gudjon Olafsson, Vice President of Fresh Marketing for Perdue. At the same time the company realized that food service sales were way down as restaurants continue to struggle. Pulling product from one area of the business to service another also makes sense. “At this point, shoppers don’t get caught up in what the packaging looks like, they just want what’s in the package. And, bulk packs couldn’t be more popular.”

Our snack client, Meiji Stauffer’s expressed a similar approach. “Meiji Stauffer’s has made the decision to ramp up production of our extremely popular Meiji Hello Panda Chocolate cookie and Stauffer’s beloved Animal Crackers. By limiting the variety of SKUs being offered during this time of high demand, we can continue to make kids, and moms, happy when shopping for their favorite snack foods and treats while isolated at home” said Geoffrey Guilfoile, Brand Manager for Meiji Stauffer’s.

How long will the SKU rationalization last? Interesting question. Even before the coronavirus hit, consumer packaged goods companies struggled with the number of products in their often-vast portfolios of products. What is the right number? How many is too many? What is the right balance? In many instances, operations and marketing teams view the subject through a different, often opposite lens. Operations always wants less. More consolidation. Increased efficiency. Marketing always wants more. Customization. Better effectiveness. According to a Yahoo! Finance article published in December of 2019, a phenomenon called SKU Madness was taking place. Consumers were armed with more cash and companies were coming up with new flavors and products to get people to spend. Manufacturers were literally packaging and repackaging tons of stuff over and over and over again.

Now, less than a few months later, due to unforeseen and unbelievably unfortunate circumstances, this is no longer the case. Consumers no longer have extra cash. People are out of work. Industries are facing crisis. The short-term future is unknown. It’s during times like these that people naturally seem to go back to the basics. Simple solutions that make us feel safe and secure.

Manufacturers are doing everything they can to meet huge demands and keep American families fed. They are cutting back to produce more. Nobody knows what the long-lasting effects of the COVID-19 pandemic might be but a more simplified category management approach with less variety on retail shelves will be our new norm, at least for the remainder of 2020. In some ways, I’d like to say it will last. Manufacturers will learn that spending time making an endless variety of similar products isn’t worth the effort. But it feels like all those times people swear off drinking if they can just live through this hangover. It won’t happen. It may be hard to see now, but it’s a safe assumption that manufacturers will ramp it back up again. Most likely, with a slew of new product launches, and reintroductions of all those things consumers want, but really don’t need.

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