Dubai: Supermarket shelves loaded up with all the product categories and brands that one can think of – that’s a good thing, right?
Not so, says new findings by NielsenIQ, the market consultancy, which says that overloaded shelves will not fetch desired results for retailers. In fact, it could make for dismal returns.
Take skincare, for instance. In the UAE, 73 per cent of products/brands make up less than 2 per cent of the overall sales in the category, which suggests a “glut in non-performing products and variants that exist within just this one category alone,” according to NielsenIQ.
That should be an eye opener for these brand owners, who would be paying sizeable amounts to retailers to stock their products and with high visibility.
It’s not just happening in skincare alone – with bottled water, 65 per cent of product and brand options add up to 2 per cent of sales; with detergents and milk powder, it’s 61 per cent; and drops further to 60 per cent for chocolates.
By correctly identifying which SKUs to retire and keep, not only can manufacturers focus production and supply chain efforts on incremental brands and SKUs, they can eliminate waste, increase profitability and reinvest profits into new product development. This is a win for the shopper, win for the manufacturer and a win for the retailer
From more to less
“Over the years, there has been a proliferation of brands, products and SKUs (stock keeping units) 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 at NielsenIQ.
“The COVID-19 pandemic as well as intensifying competition have elevated this test to a new level. “For manufacturers and retailers, more is not more, but rather the opposite as manufacturers end up investing in production and in-store shelf space for products that do not drive any incremental value, thereby eating into their profit margins.”
Similar behaviour preferences are visible on online marketplaces too, which should warn brand owners not to repeat the mistakes they are making in the physical world. Unless products are competing specifically on prices or promotions, consumers are picking up the brands they are familiar with. And less prone to giving another brand a try.
As on supermarket shelves, brands have to pay online platforms a hefty premium for sheer visibility. Otherwise, they are just there to make up the numbers – unsold at that.
How can brands get their shelf presence right? At a time when with increased trust in online shopping platforms, UAE shoppers are visiting physical stores less often. And when they do, they come prepared with lists and they spend less time browsing the shelves than they did before the pandemic.
Terence Colle, Sales Leader of Analytics, NielsenIQ Middle East, Africa & Pacific, said: “Financially impacted consumers have less money to spend, and will therefore be more focused on essentials. That doesn't mean that they will not have the desire to indulge once in a while.
“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.”
Cut it down
The ideal option would be for a brand owner to reduce the number of variations on offer to the shopper. A NielsenIQ study found an “average of 522 new items were launched between March and November of last year in the UAE. And around 30 per cent of “promising innovations” did not get enough support to realize their full potential .
Findings by the consultancy Bain & Company show a 10- 20 per cent reduction in SKUs can result in up to 10 per cent of savings in production costs, up to 10 per cent reduction in supply chain costs, up to 10 per cent lower inventory and up to 5 per cent optimisation in raw materials and packaging costs.
“The savings derived from assortment optimization aren’t just theoretical,” says Colle. “One of our UAE clients was recently able to enjoy savings of up to Dh2.8 million just by reducing SKUs in the breakfast cereal category by 7 per cent. Imagine the amount of savings manufacturers stand to benefit from a complete re-assessment of assortment.”
Clearly, that’s food for thought…