Insights

The Top 6 Hurdles to Growing Assortment-Related Revenue
Article

The Top 6 Hurdles to Growing Assortment-Related Revenue

Bringing attention to the importance of assortment is easy. It’s getting it right that is highly challenging. Here are the top six hurdles companies face in building an optimal assortment.

You’re in the midst of planning for next fiscal year and want to come up with an assortment strategy that is going to support growth across the category. To start, you might consider adding a new product to your lineup based on what your competitors are doing, or what current trends are cropping up in the market.

However, while these factors are good indicators of whether you should add more or less variety, they shouldn’t be considered in isolation. That’s because there are a number of other conditions that also dictate a successful assortment.

Here’s a look some of the hurdles that companies encounter when trying to drive assortment-related revenue.

  1. E-commerce is transforming how the retail industry operates. Last but not least, e-commerce certainly poses another assortment challenge. While omnichannel assortment analytics is in its early stages, the question here is whether brick and mortar retailers should carry so many specialized and niche products. And because e-commerce is effective in capturing revenue for these high-margin products, retailers have a lot to consider.
  2. The sheer number of products on the shelf is cluttering the consumer experience. There is an average of about 39,000 items in a typical grocery store(1). With so many products and such limited space within stores, it can be difficult to build an assortment strategy that captures consumer attention and contributes category growth.
  3. Many new products are chasing the same benefit. A hot new product is introduced and consumer demand for it goes up. Suddenly, manufacturers flock to capitalize on this pocket of innovation and opportunity, causing the benefits of the new product to saturate or, even worse, over serve the market. As a result, the benefit loses value for the number of companies that are seeking to leverage it with related new products.
  4. Category decrementality. Oftentimes companies replace a SKU that has been viable for quite some time with a new SKU because it appears to be at the end of its life cycle. However, this doesn’t mean the product has maxed out its value, so the act of replacing it actually lowers category sales. This is what’s considered “decrementality,” when a new SKU takes away from any incremental growth that previously existed. In return, the shelf’s shopability is compromised and can potentially erode category and store sales.
  5. Consumers are making fewer trips to brick and mortar locations. Additionally, millennials are starting to replace the greatest and boomer generations in the circle of life, resulting in a shift in overall consumer behaviors. In just a three-year period, we saw about 3 billion fewer trips to retail stores. This means that consumer exposure to assortment was reduced and purchases lessened — especially impulse purchases, which previously represented a substantial amount of sales volume.
  6. Consumers have more choices than ever. More and more brick and mortar retailers are entering the scene, causing consumers to spread their less-frequent trips among stores. Altogether this—the store fragmentation coupled with the proliferation of new, weaker items and fewer trips—has made it difficult for assortment practitioners to craft a crystallized strategy to reach consumers.

So what are manufacturers and retailers to do about these challenges? We think leveraging products that have potential expandability is key. Just take a look at some of our latest research.

In a recent validation study, we helped a number of stores make changes across condiment categories by focusing on their expandable features. In the end we found the stores that closely followed our assortment changes (as shown in the dark blue bars) strongly outperformed competitors who minimally changed their selection or did not participate in the study (as shown in the light blue bars).

We also learned that it is possible to drive incremental revenue by taking a new stance with the products currently on the shelf without having to lower the price or add merchandising costs.

For more information, download our Going Against the Grain to Create a Successful Assortment Strategy white paper.

Note

Supermarket Facts 2016. Food Marketing Institute.