As all product manufacturers and retailers are well aware, the fast-moving consumer goods (FMCG) landscape has grown increasingly complex, and paths to purchase are no longer linear. While consumer shopping preferences shift to incorporate digital channels, the footprint of the brick-and-mortar space is evolving—a trend that will have a ripple effect on product assortment and distribution.
In looking at the traditional FMCG landscape, the number of brick-and-mortar stores in the U.S. actually declined last year. That’s the first time we’ve seen an overall store count contraction in FMCG since 2009. And while the dip represented just 0.3% of the total, the 1,047 store closings is far from immaterial.
Given the contraction and the convenience that online channels offer consumers, FMCG businesses need a seamless integration between their traditional and digital offerings. And that means they need to efficiently manage distribution between on- and offline channels, especially in light of the contraction in physical stores that happened in 2017.
So what does that look like? Essentially, successful operators will continually evaluate their portfolios to keep a watchful eye on what will drive future growth and then expand carefully with innovation and divest purposefully. For context, a typical grocery store has about 39,000 items. And while this presents significant variety for consumers, it also presents manufacturers and retailers with a wealth of decisions to think about when they analyze their assortment strategies.
When you have less physical space to work with, what you hold in your portfolio matters even more. And in today’s retail environment, we’re seeing entire aisles posting flat or negative returns—which could put entire product lines in jeopardy of being removed. But a recent Nielsen total store assortment study found that the cost of replacing underperforming SKUs with an unsuccessful one is huge.
Notably, flat or negative performance across an aisle doesn’t mean there’s a lack of opportunity, especially when you focus on incrementality. In fact, stagnant categories can be surprisingly expandable in many cases. For example, declines in demand don’t always require that retailers remove a product or category altogether. That’s because even in situations where declines exist, retailers need to assess if their current supply is enough for current, yet depressed demand.
Retailers need to look introspectively with a strategic lens before divesting of a product or suggest delisting. Analyze slow-performing items and use science to uncover whether there’s potential. After all, there is a key distinction between slow performance and negative performance, as we can see from the cost of even just one negatively performing new SKU.
Manufacturers and retailers should react to assortment issues with measurement and research. On one hand, pay attention to trends outside of your wheelhouse, but avoid pursuing growing trends in isolation. Always proceed with curiosity and proactive research, as trends can sometimes be a predictor of expandability, but they’re not always the primary indicator. When too many companies try to capitalize on the same trend, the market becomes overserved. This can result in product flatlining at best, and a negative impact to the overall category, at worst.
Expandability doesn’t always require starting from scratch. That’s because in many cases, existing products and their benefits have untapped growth potential. In general, five out of six new SKUs fail. So it’s key that you align yourself with the insights, research and consultants you need to be among those that succeed.
For additional insight, download our latest Total Consumer Report.