QUICK READ: P&G has decided to reduce the number of SKU’s in a response to changing consumer needs and as a way to reduce costs. It’s a great strategy but will other brands follow suit?
Efforts to prioritize and focus P&G’s supply chain may have lasting effects according to their CEO. ”There’s potential for this to result in a cutting of the long tail of inefficient SKUs and brands in our categories,” Moeller said.
Let’s face it. Not only is America over retailed, but it’s also over SKU’d. Efforts by brands to be all things to all people has resulted in crowded shelves and confused consumers. How many high protein pastas do we really need?
Grocery chains are also pushing back. It’s hard to get new SKU’s on the shelf that is “me-too” products. The funny part of all this is that much is the adding of new products is being done because of research.
In qualitative research, consumers can tell you what they want but what they want does not always lead to product success. Too many marketers rely too heavily on research instead of listening to what their head is telling them. A visit to a store to see how people shop can alleviate a lot of bad research.
It’s especially getting harder for smaller brands to get shelf space at some retailers. They can’t compete against slotting fees and special packages retailers get for carrying a bigger assortment of a brand’s products.
The other issue with the long-tail approach is that your supply chain becomes longer and distribution can be a nightmare. Brands found this out when consumers started hoarding products during the pandemic. Supply chains became stressed and the result was angry consumers and retailers.
Bigger is not better
Which would you chose; bigger with higher sales and smaller margins or smaller with higher margins and slower growth? Most brands opt for the former because Wall Street is always looking for growth. That’s a huge mistake.
Double-digit growth of sales os not necessary especially when your costs rise as a result. A small past c company based out of Chicago has been selling direct to consumers for years and they are highly profitable. They have resisted the urge to sell via grocery stores because their margins would take a huge hit. “Right now we’re very profitable and can use that money to reward our employees as well as invest in new products,” the owner told me. “If we sold to retailers our sales would likely go up but so would our costs”.
The growth versus profit debate has been going on for a long time. Wall Street wants to see growth even if costs take a hit. Amazon is selling more than ever but their operating costs are eating away at their profit while Wal*Mart is outperforming them.
In the end it comes down to consumers. How many sparkling waters do we really need? It’s time for marketers to think like consumers and ignore what Wall Street wants.