NielsenIQ: Reassessing assortment on the shelf key to increase profitability and capture new shoppers

As the pandemic has reshaped customer behaviours and preferences, brands and marketers are advised to revise their strategies to better meet their needs and enjoy greater profitability, according to NielsenIQ.

There is a global phenomenon over structural challenges with assortment across most FMCG categories. On average, 75% of stock keeping units contribute to less than 2% of category sales. Beverages, instant noodles, chocolate, and detergent are some of the most underperforming categories in the region’s top 15 markets, including Singapore, Thailand, Malaysia, Hong Kong, and China.

For example in Hong Kong, 70% of stock keeping units in the ready-to-drink tea category contribute to less than 2% of overall category sales. The same phenomenon can be seen across other key categories such as shampoo (65%), chocolate confectionery (64%), sanitary protection (56%) and sauce (47%), meaning that this is not an isolated incident, but rather one that needs to be addressed by the entire FMCG industry.

Manufacturers are then advised to reassess their assortment as customers are now more discerning about what, where, when and how they purchase products. Another reason is that there are more new retailers have entered the Hong Kong market. From valued products to parallel imported goods, consumers now have more choices than before to compare, substitute or expand their shopping basket.

The rise in e-commerce has also increased consumers' trust in online shopping platforms. Many of them still visit physical stores but they may spend less time browsing the shelves than they did before the pandemic. NielsenIQ said the challenge for manufacturers and retailers is to ensure that the products and brands in their portfolio cater to consumers at all ends of the economic spectrum, while also remaining cost-efficient and eliminating wastage.

"Finding and maintaining an optimal assortment has always been a challenge. Over the years, there has been a proliferation of brands, products and SKUs in the marketplace as manufacturers compete to satiate consumers’ appetite for new variations, products and experiences," said Didem Sekerel Erdogan, senior vice president and analytics leader for APAC and EEMEA at NielsenIQ.

NielsenIQ suggests that assortment rationalisation is essential, citing a study by Bain & Company which shows that a 10% to 20% stock keeping units reduction can result in up to 10% of savings in production costs, up to 10% reduction in supply chain costs, up to 10% lower inventory and up to 5% optimisation in raw materials and packaging costs.

Meanwhile, rationalising assortment is not just about eliminating stock keeping units with low sales. It requires a more sophisticated and data-driven approach, focused on the idea of incrementality, which means building a range that can drive profitable growth while drawing the interest of more shopper segments.

“By correctly identifying which SKUs to retire and keep, not only can manufacturers focus production and supply chain efforts on incremental brands and SKUs, but they can also eliminate waste, increase profitability and reinvest profits into new product development, which will ultimately capture new shoppers. This is a win for the shopper, a win for the manufacturer and a win for the retailer,” commented Dickson Chan, head of analytics, NielsenIQ Hong Kong and Taiwan.

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