Are retailers getting over their SKU management hurdles?
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
Determining which products deserve a spot on shelves — and which no longer do — used to be straight-forward. Retailers simply calculated units (in some cases, dollars) per SKU per store per week. Those landing above a certain number, also known as the hurdle rate, were in; those that fell below were out.
Today, hurdle rates aren’t the only determining factor.
“Hurdle rates alone are actually a really narrow constraint, though there are still plenty of retailers that just draw a line in the sand, and if you’re above that, you stay in distribution,” said Don Stuart, managing director, Cadent Consulting. “But more sophisticated, progressive retailers are moving beyond simply ranking items or utilizing the 80/20 rule and applying more advanced metrics. They’re factoring in whether an item is adding true variety, growth trends, gross margin return on investment, if it offers true incrementality, etc.”
Count Walmart among the latter group, says Greg Mertes, who spent 25 years at the chain before launching Five16 Marketing. “Walmart used to use pure sales-based hurdles,” he recalls. “But now they’re more willing to compromise if a current trend requires.
“In organic and gluten-free, for example, sales hurdle rates have been lowered and products are given more time to prove themselves in the interest of building consumer awareness.”
It that case, it’s all about attracting a certain type of consumer.
At the other end of the spectrum, Walmart has reduced hurdle rates on a group of smaller, less expensive products brought in primarily to help prevent customer migration to the dollar channel, says Mr. Mertes.
Lower hurdle rates may go to products that support a better-for-you brand message; private label because of margin benefits; and truly innovative items that help position the grocer as a leader.
Retailers are also relaxing hurdle rates in growth segments like, say, snack foods, dairy-free products and meat substitutes, notes Jim Hertel, SVP at Inmar Analytics. “They know these items are key to their own growth but that many come from smaller companies with fewer resources, so they may even forego slotting dollars as well.”
DISCUSSION QUESTIONS: Is using sales-based hurdle rates still the best way to determine which items should get space on food, drug and mass merchant store shelves? Are there exceptions that should apply?