Our very first post on this blog highlighted an Ad Age article about Wal-mart’s move in the US to eliminate all but one brand of lunchbags (Ziploc), in favor of creating space and sales opportunity for their PL brand – Great Value.
The idea was that reducing choice would actually increase sales in the category, through an easier shopping experience and less out-of-stocks on key SKUs.
Wal-mart has retreated somewhat from this approach in a few categories where customers have complained, but in general the results have been as anticipated.
However, the news is getting worse for small brands in Canada.
A recent Globe and Mail article on SKU Rationalization at Canadian retailers should be making suppliers with brands that rank #3 or lower very nervous.
Not only are Canadian retailers embracing SKU Rationalization, the big brand suppliers – the same suppliers with the #1 & #2 brands, are encouraging retailers to reduce their assortment as well.
It makes sense. Now that the big suppliers such as Unilever and Procter & Gamble have pared back their portfolio to focus on “power” brands – this is a prime opportunity to clear the “clutter” on the shelf and split the business opportunity between their brands and the retailers Private Labels.
I also picked up on a whitepaper on this same topic, released today in the US by HJ Heinz and Kantar Retail, which identified a $25 billion USD opportunity for retailers that undertake “strategic assortment initiatives”.
In Canada, SKU Rationalization is already happening at Wal-mart, Loblaw, Metro and Canadian Tire.
Smaller brands have to develop a defence plan that allows them to drive profitable and sustainable growth for the retailer and justify their space on shelf.
The places to “hide” are running out and you can’t spend your way of this corner.