Efficiencies will win in 2022
The pandemic has forced everyone in the value chain to adapt and things are being done today we never would have considered 5 years ago. One example is suppliers reducing the SKUS from store shelves. The space is hard to get and in many cases food and beverage businesses paid to get the space. With the challenges of inputs, labour, packaging and many others some companies have opted to reduce their SKUS and focus where they can produce products and generate sales. In the end it is about finding efficiencies and focus where you get the best return.
Between now and the end of 2021, we will share 10 SKUFood insights to help you make the most of 2022. We try to help you see the entire value chain and prepare your business to respond to changing customers and consumers. Each week we will share a different theme and some ideas and opportunities for you to consider.
Look at your business differently
I remember the first time I heard a person from Walmart say “the same sales with fewer SKUS delivers a better result”. I really had to stop and think about that. My work in retail often focused on the right mix and variety in the category. We were focused on maximizing sales and profit, but we did not always consider the impact of efficiencies. When you think about the steps required to sell an item, the investment adds up:
- Listing the product
- De-listing another item in the category to create space in the store and the warehouse
- Pricing the product
- Finding a slot in the warehouse
- Changing the plan o gram to make room on the shelf
- Shipping it to the stores
- Changing the plan o gram and putting it on the shelf
- Pricing it at each store
When you consider all of these have a cost, and some need to be multiplied by the number of stores, the dollars required to sell a slow-moving item are significant. Another factor is the cost of inventory which is usually higher for slow-moving items. Many producers, processors and retailers are taking a second look at their business.
Costs are rising and we need to find efficiencies throughout the value chain. One opportunity can be to reduce or eliminate slow moving SKUS. This allows suppliers to focus efforts on the products they can produce and generate a return. It allows retailers to maintain inventory of faster moving items that deliver a better return.
We see many companies considering the reduction of SKUS to improve efficiencies. Consider the following examples from large consumer packaged good companies:
1. Last week we shared a story about Kraft Philadelphia Cream Cheese shortages. Now Kraft have launched a promotion to pay people up to $20 to make desserts that do not require cream cheese. They also make reference to reducing the number of SKUS to focus on the top selling items.
2. A number of snack companies have reduced SKUS to focus on the top selling items. My brother will not be impressed about the lightly salted Lays. His favourite chip.
3. Coca Cola eliminated a lot of items and some brands within the last 18 months. The company decided they had to focus where the market was going, not where it was. Investing to protect shelf space and investing in brands that only sold on discount was not viable. The decision can be unpopular with consumers, but the results do tell the story.
Look at your business differently in 2022. If you can see efficiencies in producing fewer SKUS and delivering the same, or perhaps, more sales consider your options.
Find other efficiencies to protect your bottom line
Review every component or production, processing, logistics and selling to find efficiencies. Costs are rising so if you can find efficiencies that reduce your cost per unit, or even keep it flat consider these a win. Your competitors might just accept them and try to increase their selling price.
Your customers will respect and trust you more
When I worked for a major retailer, I would have a lot more time for suppliers who took an objective view of the industry. I did have some people come into my office and suggest we would both be better off if some items were delisted. I would also want to work with them if they told me how they found efficiencies which allowed them to continue and avoid a price increase. Relationships take a long time to build and these are the things that can make a difference. In today’s market keeping your price the same is a win.
I learned a lesson when I realized that the same sales with fewer SKUS can be a better result. Look at your business to see if there are any lessons to learn.
If you have any questions or require help with efficiencies or how to benefit from them, you can always send me an email peter@skufood.com or call me at (902) 489-2900.
Peter
As we approach a new calendar year, we will continue to share insights to help you position your business for increased success in 2022.
“Food processors who can find efficiencies in 2022 will have a distinct advantage in the market.”
Peter Chapman
If you see things happening let us know so we can share them with our community. We also want to hear if you find this helpful and benefits your food and beverage business!
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