lease: Now is the time for fast-moving consumer goods manufacturers to reassess and rationalize their assortment in order to better meet the changing needs of consumers affected by the pandemic, and enjoy greater savings and profitability, according to NielsenIQ.
Around the world, there are structural challenges with a variety across most FMCG categories.
Given the underperforming categories in emerging and developing markets, on average, 75% of stock-keeping units (SKUs) contribute less than 2% of category sales. Drinks, instant noodles, chocolate, and detergents are among the poorest performers in the top 15 markets.
In Malaysia, for example, 76% of SKUs in the laundry detergent category contribute less than 2% of the category’s total sales – indicating the abundance of products and non-working variants that are only within that category alone.
The same can be seen across other major categories such as healthy food drinks (75%) and chocolate (74%), indicating that this is not an isolated incident, but rather one that must be addressed by the entire FMCG industry.
“Over the years, there has been a proliferation of brands, products, and SKUs in the market as manufacturers compete to satisfy consumers’ cravings for variety, new products and experiences. Finding and maintaining the perfect assortment has always been a challenge. ”Said Didim Sekeril Erdogan, NielsenIQ Senior Vice President and Analytics Leader APAC & EEMEA, the Covid-19 pandemic plus intense competition has raised this testing to a new level.
“But for manufacturers and retailers, it is not more than more, rather the opposite. The manufacturers end up investing in production and shelf space within the store for products that pay no extra value and thus consume their profit margins.”
Changes in consumer behavior resulting from the Covid-19 pandemic also require manufacturers to reassess their lineup.
Firstly, newly restricted, restricted and cautiously isolated consumers are simplifying their budgets and becoming more discerning about what, where, when, and how to buy products.
Second, shoppers are increasingly favoring smaller store formats, and this only reinforces the need to make the best possible use of the limited space. Over the past three years, it has been observed that shoppers in Malaysia are moving away from large stores such as supermarkets towards smaller formats (5% increase in 2019 versus 2018) such as convenience stores and mini markets.
With increased e-commerce and increased confidence in online shopping platforms, shoppers visit physical stores less often, and when they do, they come prepared with menus and spend less time browsing the shelves than they were before the pandemic.
Managing Director of NielsenIQ Malaysia, Vice President of Analytics in Southeast Asia, Luca de Nard, said financially affected consumers have less money to spend and will therefore be more focused on fundamentals.
“This does not mean that they will not have the desire to indulge in once in a while. The challenge for manufacturers and retailers is to ensure that the products and brands in their portfolio meet the needs of consumers across the economic spectrum, while maintaining cost efficiency and eliminating waste. “.
The argument for rationalization of assortment is very powerful. A recent NielsenIQ study shows that an average of seven items are released daily in Malaysia, and 30% of promising innovations are not getting enough support to reach their full potential. Supplementary studies by Bain & Company show that a 10-20% inventory reduction can result in up to 10% savings in production costs, up to 10% reduction in supply chain costs, up to 10% less inventory and 1% improvement Up to 5% in raw materials and packaging costs.
De Nard explained that assortment rationalization isn’t just about eliminating low-selling SKUs. It requires a more sophisticated, data-driven approach, focused on the idea of augmentation, which means building a scale that can drive profitable growth while attracting interest from more segments of shoppers (through niche products, for example).
“ With the correct identification of induction storage units to be discontinued and held, manufacturers can not only focus production and supply chain efforts on additional brands and storage codes, but also eliminate waste, increase profitability and reinvest profits into developing new products, which will result in The end to attract new shoppers: “This is a win for the shopper, a profit for the manufacturer, and a profit for the retailer,” said de Nard.