New strategies could lead to more profits: CPG’s and Retailers sharing objectives
The new normal comes with new challenges
Retailers and manufacturers have seen a new shopping behavior during the new normal, and both agree that running fewer SKUs determines a higher efficiency in the whole supply chain.
This is not about reducing purchase options, this is about enhancing purchases of products that tend to have the highest turnover. Innovation is a key driver in all commercial sectors, and is essential to remain competitive, but how can food retailers continue to innovate while promoting more purchases of some products over others?
Innovating in the food retail sector, and especially in food retail, is really complicated due to the high offer and high frequency of purchase. In addition, the customer is relatively unfaithful, taking into account that they usually buy 7 different brands in a quarter in Spain. Therefore, margins are low and retailers have to choose well where to invest in innovation because the changes are very expensive.
Currently, Food retailers are innovating based on the following trends:
- Promoting produce more than ever before
- Enhancing shopping experience and omnichannel development
- Sustainability to meet customer expectations
- Leveraging technology to reduce costs and increase sales
Produce and Technology hold the key
Two of the leading pure players, such as Amazon and Ali Babá, are expanding their physical business by purchasing companies that specialize in produce. On one hand Amazon with the acquisition of Whole Foods, and on the other hand, Ali Babá has purchased a percentage of Sun Art.
It is no coincidence that both leaders of the e-commerce sector are betting on fresh products, without leaving aside the use of technological tools that help to understand how consumers are responding to these new buying trends. Definitely, the path to modernization centers on these two key pillars which are fresh products and technology development. These trends are not seen only in the e-commerce sector but also in the world of physical retail, where many food retailers have been focusing their sale offers on fresh products, compressing product assortment, and replacing them for fresh food.
With the new normal, consumers don’t just buy more, they buy differently. This is reflected in the high rotation of household items, and also in the high demand for fruits and vegetables, becoming essential products for today’s consumers.
Adapting to the new normal & consumers behavior
The new normal has changed consumer habits, such as their product preferences, places, and frequency. The big challenge supermarkets face is reducing costs and being sustainable in the long term.
To rebuild margins, supermarkets must reduce the variety of options they have. This means they should focus their sales on fewer SKUs, buy those items in larger volumes, reaching economies of scale at a higher level.
Furthermore, food retailers will have to adapt their product offerings to consumer trends . For example, people who work from home may demand multi-service or larger-format items. A single serving yogurt could be replaced for a bigger container with multiple serving sizes.
Suppliers have to understand these new consumer behaviors to deliver what retailers really need in their supermarkets.
Despite the need to cut products, suppliers cannot lose sight of the need to innovate. The trend is reflected in the consumption of fresher and healthier food, therefore this is where suppliers should bet on.
Fewer production and fewer offers; meeting customer needs
According to many retail experts, product categories are overloaded with a large variety of brands, similar sizes, flavors, among others. The solution is quite simple; cutting back on less profitable items in order to re-enforce their profitability.
Leaders in the industry such as PepsiCo, Coca-Cola, and Unilever let up their production of larger-format packages and reduce the variety of flavors offerings, helping supermarkets to focus not only on selling the best-selling items but also on improving customer service by reducing the time spent at the store.
In short, there is evidence that as offers increase, new SKUs are not as effective in attracting people to certain categories, instead of that, consumers start feeling overwhelmed due to the high variety of similar products. For this reason, retailers and suppliers are increasingly sure that producing less and offering fewer products is the key driver in meeting customer expectations and improving their shopping experience.