The SKU skew

Aug. 25, 2020
Food and beverage processors are being forced to trim SKUs during the pandemic. Let’s hope this is a trend that will last.

The one thing everyone wants during this pandemic, in the food industry and everywhere else, is for life to get back to normal.

Except that the pandemic is giving the industry a chance to reevaluate many aspects of what’s “normal.” One of these is SKU assortment.

By now we’re all familiar with how consumers, forced by the pandemic to stay at home, are upping their consumption of pantry staples, especially snacks and other comfort foods. Some of these products are doing so well that their processors have been caught flat-footed trying to meet the increased demand. One common mode of adaptation has been to weed out the SKU portfolio – to lessen or suspend the production of marginal SKUs and switch the production capacity to mainstream ones.

Mondelēz International, for instance, plans to trim a quarter of its SKUs in response to shifts in demand caused by the pandemic. Coca-Cola, PepsiCo, Kraft Heinz and Hershey are making similar moves.

Packaging is the aspect of food processing that, in many situations, can most benefit from automation. Because it’s a discrete, repetitive operation, it often has the potential to be sped up or otherwise made more efficient. It’s already done almost entirely by machines, which have a lot more potential than human beings for drastic improvements in performance.

SKU proliferation, however, puts a kink in that potential. Lots of SKUs mean lots of changeovers, which is a big barrier to packaging automation. Packaging equipment is available that can handle changeovers automatically, with servomotors that reconfigure components at the touch of a screen. But it’s not cheap, and most of it can only handle a limited number of configurations. That’s why contract packagers and others who have to do a lot of changeovers rely heavily on manual labor.

Cutting down on extraneous SKUs has, in the short term, brought a needed boost of efficiency, allowing processors to concentrate on more mainstream ones. But will SKU paring extend beyond the pandemic?

Some processors are indicating that it will. The Frito-Lay unit of PepsiCo went from four kinds of chips 45 years ago to more than 60 today; Steven Williams, who heads PepsiCo’s North American Foods business, told the Wall Street Journal he expects Frito-Lay to emerge from the pandemic with 3% to 5% fewer products. Bolthouse Farms cut the number of carrot varieties from more than a dozen down to four; CEO Jeff Dunn told the Journal that after the pandemic, they’ll probably bring back some, but not all.

Let’s hope so. Automation is something the industry needs, and not just for normal operations. If, heaven forbid, there’s another pandemic that requires workers to maintain distance from each other, automation will be just about the only way to make that possible. If SKU trimming is a trend that extends beyond the pandemic, it may very well remove a significant barrier to automation in the food industry.

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