123-Delivering More by Offering Less
Over the last fifteen years, the number of items offered in the typical grocery store has increased by over 50%. Customers are beginning to be confused by the number of choices offered at the grocery store. This proliferation of consumer choices is a retail-wide phenomenon. Consumer goods manufacturers have created more varieties, sizes and shadings in order to win more shelf space from retailers and more attention from consumers.
Using the Customer Buying Hierarchy (see Audio Tip #95: The Customer Buying Hierarchy on StrategyStreet.com), the retail consumer would see the product choices as Functions, the consistency with which the products that they want are available as the major form as Reliability, and the ease with which the customer can find, chose and pay for the product as Convenience.
Retailers have decided that the Function innovations of more choices have created Convenience disadvantages in confusion for the customer, so they are cutting back. Wal-Mart found that the average shopper spends twenty-two minutes in its stores. But the confusion caused by the wide variety of products available to the consumer is reducing the number of items they actually put in their shopping carts. Wal-Mart responded to this problem by reducing the choices and shelf space available in slow-moving categories and increasing them in faster-growing sections. For example, Wal-Mart increased space for shaving cream, trash bags, diapers and flat screen TVs. It reduced space for toilet paper, mouthwash and microwaveable popcorn. In total, the variety reductions outweighed the increases in choices in the other sections of the store. Other major retailers are also simplifying choices.
Retailers believe that they are now selling more and creating better profits with their new approach. Consumers need less time to make a purchase decision and there is now more room on the shelves for the retailer’s own private label products, which carry higher margins.
The beneficiaries on the manufacturer’s side are almost universally the top two brands in the category. Brands with #3 or lower positions lose market share and sales. In this case, tough times for the manufacturers help the leading manufacturers. That, by the way, is not always the rule. In fact, it is the exception. (See the Perspective, “Is Bigger Really Better?on StrategyStreet.com.)
The grocery industry has continued to reduce the items, called SKUs, carried in each store. In 1980 there were an average of just over 14,000 SKUs in the typical grocery store. That number rose continuously, reaching a peak of 51,000 in 2008. After that year, SKUs began falling and reached about 31,000 in 2020. This helped the industry improve its productivity and increased its leverage over its suppliers. During this period, national brands struggled as shoppers migrated some of their purchases toward local and regional food specialties. The food industry’s reduction in advertising has resulted in fewer sales at the grocery store.
Despite this reduction in SKUs, or perhaps because of it, the grocery industry continues to consolidate around the larger competitors. In 2009 the top four grocery companies accounted for 38% of total industry sales while the top 20 accounted for 64%. By 2016 the top four commanded 42% of total industry sales while the top 20 accounted for 66%.
The grocery industry reduced choices for its customers in order to save on their resource of time to complete their shopping. See HERE for more explanation.
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