There is a scene towards the end of the Hurt Locker where the hero (or antihero) is back home in the US from his job defusing bombs in Iraq and he is standing in a massive supermarket shed dwarfed by thousands of packs of cereal boxes and unable to make up his mind which one he wants to buy. The outcome, he goes back to work in Afghanistan risking his life solving tricky wiring problems.
Perhaps sadly for me, I was more worried about the poor quality of the product display. It was obviously not a real store – there was no attempt at point of sale, no differentiation. Perhaps the hero could have used his decision making skills to inject a bit of order into the cereal display?
However, some manufacturers may be there ahead of him. The FT says Unilever has cuts 40 per cent of its stock keeping units in the UK, armed with the view that 95 per cent of net revenues are generated by 60 per cent of SKUs. This statistical analysis from the Boston Consulting Group appears to be similar to the famous maxim of John Wanamaker that half the money he spent on advertising was wasted but he did not know which half.
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Half the money I spend on advertising is wasted; the trouble is, I don’t know which half. “
But before we can agree to cut SKUs, Bob McDonald of Procter & Gamble is quoted as saying that the shopper who wants just three variants of toothpaste might still want 10 different kinds of dog food.
After several thousand words on the subject, I can’t work out if cutting SKUs is a good idea or not. The FT summarises this in a bullet point: “Do not rest. Reducing complexity is like painting the Forth rail bridge. It is not a one-off”.
The FT in its analysis of big packaged goods companies has a different outlook to the local shop operator. However, the decisions of these packaged goods companies determines what is available for your shelves and your shoppers. There are two simple questions you should ask of every SKU.:
- what is it for?
- who is going to buy it?
How often you do this should be prioritised by profit analysis. Get your top profit generators correct first.
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