Karen Coyle, North America Manager, Bord Bia

A noticeable feature of the US grocery industry in 2009 has been increased SKU rationalisation. The driving factors have been many including cost reduction in recessionary times, retailer zeal to establish private label, simplifying product categories for the recession-stressed consumer and increased use of EPOS data to better understand purchasing patterns and behaviour.

It is forecasted that Walmart’s ‘Win/Play/Show’ category strategy, described as ‘how we go to market, how we define assortments and how we make decisions in terms of what categories we will grow’, will reduce SKU’s by 15% -18%, with devastating consequences for some suppliers. Costco USA’s delisting of Coca-Cola products in November in a pricing dispute has also unnerved suppliers.

In a recent paper, Paul Weitzel of US retail consultancy Willard Bishop, considered how SKU rationalisation may impact retailers, suppliers and categories. He lists how retailers determine category and brand vulnerability:

Variety – What do we need to meet consumer demand?
Profitability – How much money do we make?  
Productivity – How productive is the space?
Working capital – What is the inventory costing and what is the ROI?
Category developments - Is the category growing or declining?

He suggests that (US) food categories which may be vulnerable include bottled water, carbonated beverages, cookies and ethnic/speciality foods.

To prepare for this potential business challenge, Weitzel advises suppliers to assess how your category and brand stack-up in the rationalisation stakes and to develop a strategy to help retailers make space more productive.

For a copy of Paul Weitzel’s paper: Click Here