The Pandemic and the SKU Skew

July 15, 2020

Companies are cutting back on marginal SKUs, but how long will that last?

When I started covering the CPG business for the trades lo these many years ago, one thing I liked about the job was how it made me think about things I'd barely, if at all, noticed as a consumer. Among them was the incredible number of SKU “spinoffs” engendered by iconic, or even mildly successful, products. It seemed like every week, Kraft was coming out with a new version of Oreos or PepsiCo with a new flavor of Fritos.

The motivation for this isn’t hard to figure out. Whenever I start to feel sorry for myself, I just imagine what it must be like to be a brand manager at a major CPG company. You’re charged with nudging up the sales figures of some product that’s been around forever, and is already No. 1 or 2 in its category, by half a percent or so – which is like being asked to lower your shoulder and slide a house a few inches to the left. The temptation to goose sales, plus grab more precious store shelf space, by pumping out another SKU must be irresistible.

But this has become yet another of the standard business practices upended by the pandemic.

CPG companies, especially ones that make center-store items, are seeing with a surge in demand for shelf-stable pantry products from consumers sheltering at home. Mondelēz International saw organic sales climb 6.4% year-over-year in the last quarter.

Increase in demand is always welcome, of course, but when it spikes, it’s not always easy to cope with. Like other CPG giants, Mondelēz is cutting back on SKUs. CEO Dirk Van De Put said in an interview that the company plans to trim a quarter of its SKUs to concentrate on pumping out the mainstream products that are suddenly in greater demand.

That prompted plaudits from reader Bruce H. Anderson, who wrote:

“I believe you will be hearing a huge sigh of relief from [distribution center] operators at the news of less SKUs in the DC. Finding slots is always a challenge, and of course keeping the buyers from loading up on inventory is another problem.... So I applaud Mondelēz on what appears to be a rational decision that will have positive effects on their bottom line, as well as the operations of their distributors and the retail stores they serve.”

Sure, but how long will those sighs of relief last? Once the pandemic is over (oh happy day!), I wonder whether CPG companies will return to their old habits, trotting out a new SKU every time sales need a boost.

Actually, to be honest, I don’t really wonder whether. I wonder how long it will take.

Sponsored Recommendations

Learn About: Micro Motion™ 4700 Config I/O Coriolis Transmitter

An Advanced Transmitter that Expands Connectivity

Micro Motion™ G-Series Coriolis Flow and Density Meter

Micro Motion G-Series: market-leading compact design featuring advanced process diagnostic capability.

Embracing Sustainability using Advanced Measurement Instrumentation

A practical guide to greeningyour brewing operationsusing advanced measurementinstrumentation.

Get Hands-On Training in Emerson's Interactive Plant Environment

Enhance the training experience and increase retention by training hands-on in Emerson's Interactive Plant Environment. Build skills here so you have them where and when it matters...