How should grocers decide which SKUs to bring back?
By John Haggerty, Supply Chain Consultant and a Contributing Editor for Frozen & Refrigerated Buyer
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
If the estimates are even close, COVID prompted more SKU rationalization in one year than the grocery industry accomplished in a decade talking about it.
These cuts drove efficiency in manufacturing, logistics and store operations, but many delisting decisions were made on the fly, in crisis situations.
First to go were items with lower volume, redundancy, low perceived value and little in the way of uniqueness. Rick Stein, VP of fresh foods at FMI, said, “In a pandemic, it’s easy to justify eliminating the fourth and fifth size of anything.”
Now that we appear to be on the path to the “new normal,” taking the time to study SKU curation will help keep some of the gains made. This requires understanding total costs and profits at the SKU level, and the use of advanced analytics. So, what now?
Joe Watson, VP of member engagement for the Produce Marketing Association, stated, “The greatest value will be solution-based, addressing meals, snacks, convenience and healthy lifestyles.”
Given the trend toward online buying, profitability must be measured with as much granularity as possible. Ideally, that would take us down to the SKU level, but we’ve been conditioned to look at cost per case and cost per mile.
In recent years, some self-distributing retailers have in fact migrated away from case-level to SKU level cost accounting, but this requires collaboration and synchronization involving all departments, including logistics.
There’s a significant opportunity for retailers to optimize SKU effectiveness via cost-to-serve analytics, especially when coupled with dynamic pricing strategies, said Barb Renner, vice chairman and U.S. consumer products leader at Deloitte.
Cost-to-serve analytics can rapidly establish benchmarks for SKU performance and profitability by store and region.
SKUs should also be measured against each other for comparison. A high-functioning integrated supply chain plan for new SKU introductions will reduce conflicting departmental goals by showing costs and profits by SKU and their impact on the entire organization. And data-driven analytics can uncover surprises, like hidden costs, risks and opportunities.
DISCUSSION QUESTIONS: What recommendations do you have around rebalancing SKU assortments following the pandemic-driven rationalization in 2020? Which analytical or common sense approaches should guide which SKUs get returned, retired or newly added?