FRBuyer: Should Retailers Save, Not Bury ‘Dead’ SKUs?
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine. A long-time Harris Teeter executive, Mr. Harris is a former chairman of the National Frozen & Refrigerated Foods Association and a member of the Refrigerated Foods Hall of Fame.
A lot of retailers look at detailed profitability reports prior to category reviews or management meetings and look for items that are not generating the "appropriate" amount of profit. Without fail, they'll zero in on some items to chop.
Is it always wise to get rid of those items? Heck, no. Despite what the reports may tell you, you still need a lot of them to satisfy your customers' needs and to compete effectively. Some of these may just need more space, promotion or nurturing to put them on a profitable path.
Say you have an item with two facings and low profitability. You may be considering cutting it to one facing or delisting it entirely. But have you really looked at why the item isn't doing so well?
What's your competition doing on pricing? On number of facings? On promotion? Does everyone else in your market still carry the item? If so, why?
Maybe you need to advertise the item more and it may well be worth your time to discuss promotion levels with the vendor. If overly high, you may have priced the item out of the market. Is your profitability report taking into consideration off-invoices, reclaim, scandowns and other factors that may not be a part of the formula?
Sometimes when retailers look at the profitability report, they get their panties in a wad and don't think straight. Sometimes they'll look at an entire line, but mainly they just look for the low-hanging fruit they can chop off the vine. Fundamentally it's about the right product, at the right price, in the right stores at the right time.
Of course it's not easy. Box stores keep the price pressure on supermarkets, and there's no let-up. Often the best thing to do with low-profit, high-velocity items that your shoppers demand is to have strong private label items going up against them. Then the manufacturer will come back with more promotion money for you.
Above all, work with your vendors, especially if you are considering delisting items. And don't be a slave to those profitability reports. Your customers, and your company, will thank you.
How would you improve on the design and use of profitability reports? Under what circumstances should they be ignored or taken with a grain of salt? Do grocers need to rethink how they manage low-profit, high-velocity items?