When supermarkets start cutting product lines, manufacturers get nervous and may hastily start preparing powerpoint presentations to justify their product on the shelves. The reality of range cuts is often a more rational affair however.
According to our recent research, an average of 202 product lines per store were cut by major supermarkets between January and July 2015 across all food and drink categories. This was a reduction of 2.1% compared with the same period in 2014 – less for non-food categories (-0.9% down on 2014) where 56 lines were cut.
In many ways, manufacturers have been dealing with range optimisation, or product justification, if you want to call it what it is, for years. There are always new brands launching with ‘improved’ versions of what’s already on the shelves and retailers have to choose which products work best for them in different stores. Consumer tastes also change and product innovation creates more new products for retailers to select from. Alongside the continuous round of supplier agreements is the fact that more shelf space now goes to own label products than ever before.
However the multi-store repertoire of shoppers makes it clear that, while good value is a key goal, this doesn’t mean they don’t want to buy their favourite brands, flavours, formats and pack sizes. Retailers need to pay careful attention to getting the product mix right and keep shoppers loyal to a store. For example, will their customers switch to an alternative product, or will they buy from a rival store instead? Some customers might have developed a strong attachment to a particular organic or fairtrade product from a specific manufacturer, for example.
Without detailed analysis, range reduction is like taking a big stake on red in a game of roulette. Get it right and it can boost sales across the store. Get it wrong and it’s bad for shoppers, brands and ultimately retailers too as shoppers are more likely to switch stores. Pressure from the discounters Aldi and Lidl, who have very limited ranges and continue to take market share, has prompted a change in strategy and tactics.
If deeper cuts by the major supermarkets follow, as we expect, it will be more critical than ever for manufacturers to make sure that key products don’t get delisted with a negative impact for retailer and suppliers.
The best way to get range optimisation right is for retailers to work collaboratively with manufacturers.
To do this both parties should ideally share the same strategic analysis of EPOS data in order to optimise the assortment of products on shelves at different types of stores, particularly with more people shopping across formats and more shoppers shopping online or in convenience stores.
Certainly it is a risky business to remove anything that some customers might enjoy and no decision should be taken without data analysis. It is also misleading to delist lines based purely on rate of sale, as some slow moving lines can have unique attributes that bring incremental benefits to the shopper.
Attribute data is crucial to ensure a retailer has the optimum range in each store. This scientific approach will help identify opportunities for newly-created space in stores and will ensure a category continues to show sales growth because the products stocked more accurately meet current customer needs and reduce retailer costs.
It can also be cross-referenced with analysis on individual shopper behaviour derived from loyalty and other socio-demographic data to discover which products are punching above and below their weight.
Store managers should also retain a certain level of autonomy to adapt this strategy to meet shopping habits across store formats and with regional or local differences.
Range should be a consideration in everything a brand does, from new product development to sales and marketing. The winners will be those producers that can gain competitive advantage through taking a proactive approach to fully understand the category, how their brand meets the needs of the shopper and consumer, how they add value to the category and then optimise their marketing and trade investment to maximise return on investment.
