SKU rationalization should turn out to be positive for any brand that has created a loyal following and/or has differentiated itself from the competition. Size is not the key factor in any good SKU rationalization scheme, filling a need is. Smaller brands should find those holes that the big brands don’t fill to make their claim for survival.

Niche brands that are differentiated, offer true benefits to consumers, and generate productive turns at the retail shelf will survive.

I believe that SKU rationalization–as difficult as the process has been for some–will ultimately separate true winning products from me-toos. I believe many of the smaller brands will find themselves on the shelf to drive incremental sales at retail and offer a one-of-a-kind solution to consumers. In addition, many of these niche brands do not have a comparable store brand, which may tip the scales in their favor, also.

I believe there still are tremendous opportunities for smaller or regional brands that provide a real point of differentiation to the customer–retailer and consumer. I agree with the article relative to the mood of retailers to buy local. This mood extends beyond the retailer to the consumer as well.

The key for the smaller players is to think niche and focused. Don’t pretend to act like a big player with deep pockets. Instead concentrate resources at the point of attack. The point of attack is at retail. Develop brands that allow the retailer to demonstrate a point of difference. Help retailers to think like a brand and continue to act like a retailer. By that I mean provide an offering to the retailer that is not duplicated by other retailers, giving the customer a real reason–beyond low prices–to shop the retailer.

However, innovation is only part of the problem. The bigger issue right now is that retailers are over SKU-rationalizing this industry to death.

To help reverse the current retail trend for omitting small brands, licenses, specialties, and niche products from retail POGs, I am teaming up with four colleagues (other consultants and industry leaders) on addressing the topic of SKU “over-rationalization.” Firm appointments and meetings are now set with CEOs, presidents, and senior merchandising VPs at five major national retailers and two major regionals. These presentations and meetings will be held in privacy in off-site locations May through August.

David Biernbaum has it exactly right. We are being SKU rationalized to death, and brands are not being replaced with “niche” brands…they’re being replaced by private label.

The pendulum is swinging way too far, and sooner or later customers will revolt. At that point, they’ll run back to mid-market retailers, and the whole pendulum will start to reverse again.

The answers to the questions posed vary wildly depending upon each retailer’s vision for their total portfolio and specific categories. It’s time to stop portraying SKU rationalization as a scorched earth dart throw. In many cases, SKU rationalization is a long-overdue correction from years of cannibalizing and confusing line extensions and over assortment.

Last year, P&G’s Pantene was Target Chief Executive Greg Steinhafel’s poster brand for rationalizing rationalization; now the brand serves as a great example of how the threat of SKU rationalization can increase innovation. Pantene proactively self-rationalized by cutting SKUs by 25% and product collections by 61% in hair care, completely re-visioned their packaging and merchandising strategy (they lost little to no space post-rationalization), and instituted a new mantra (“better and cheaper”) aggressive enough to make Jim Sinegal proud. Pantene decided to control its destiny and in the process, ward off encroachment from challenger brands such as Alberto-Culver’s TRESemme and private labels such as Walgreens’ BioInfusion. Quite rational of them and others should follow!

The term ‘SKU rationalization’ has been thrown around so much that most merchants don’t even understand the meaning of it anymore. If you carry the Glad brand and it sells very well for you but you want those sales to convert to your own private label brand, is that really rationalization? You know you have the sales with the national brand. I think that should be called ‘SKU gambling’. Merchants must actually look at turns and margin intake before deleting items from the shelf. If that were the case, then the onus would be back on the vendor to provide a product that sells. Just like the knee bone is connected to the leg bone, selling product requires innovation and marketing. The push for private label in the frozen category is huge, so national and regional brands need to come up with products that will ‘outwit, outlast, and outplay’ the private label brand. It is possible. But the bean counters at the helm need to let go of the purse strings and let developers come… Read more »

Small brands, historically the source of innovation, have been suffering for a long time. The main driver of this, in my view at least, has been the consolidation of retail decision-making into central buying offices and the resultant homogenized national assortments. SKU rationalization is also vendor rationalization as it provides better financial leverage and the ability to replenish the quantities required to feed these national (boring) assortments. It also reduces complexity in the buying function.

The trend and multiple announcements on retail “localization” strategies indeed offers the best hope for smaller vendors and the return of something interesting to the sales floors. Smaller brands should, as noted above, focus on the smaller markets and specific needs of those markets.

The latest wave of SKU rationalization is an opportunity for innovation by all branded manufacturers and also an opportunity for mid-size chains and independent retailers to continue to differentiate themselves from the big guys. Many consumers still put a price tag on their time and travel, and if they find a more satisfying shopping experience in stores that have variety and innovation, those brands and retailers can still prosper.

At the risk of oversimplifying Warren’s article: Wal-Mart = big brands, second tier retailers = second tier brands, niche retailers = niche brands; obviously there is a future for the first, and there will (probably) always be future for the last (though by definition the scope of that category is limited); it’s that middle group that seems to have a symbiotic (and doomed) relationship…sad, in a way, perhaps, but is it really a bad thing? After all, what’s the point in having either a brand or a retailer whose sole differentiating attribute is that it’s not as good as somebody else?

Small brands usually enjoy success only when they are purchased by larger brands or enter into licensing partnerships with other, better recognized brands. They need a break. There aren’t many Snapples (Rush Limbaugh endorsement) or Pace Picantes (Campbell Soup acquisition) out there. On the other hand, in the 80s a Raley’s buyer here in the Sacramento area fell in love with Mallard’s, a local restaurant group. With the buyer’s support, Mallard’s launched a high-quality, successful line of refrigerated pasta and sauce items in Raley’s stores. Mallard’s got the break they needed. In another Raley’s story, they supported a line of vitamin supplements with the Captain Carrot brand name. You may remember Captain Carrot, aka Cary Nosler, from nationwide afternoon TV omnibus news shows in the 70s and 80s. Cary is a local fitness guru, and Raley’s gave him the break his brand needed. But neither Mallard’s nor Captain Carrot expanded beyond the region. And Duke’s Mayonnaise, Ale-8-One Ginger Ale, and Cate’s Pickles never made it out of the Deep South. Tastykake and Perdue Chickens have… Read more »

Question:

What will retailers do when all the brands have been “rationalized” out the door and all they have is Private Label and 1 (one) National Brand?

Answer:

They will still be banging the drum for more coop funding. But, with only 1 (one) National Brand left to supply it, they will absolutely not come close to the amounts of money they are receiving today.

Then how will the retailers fund their profit centers? Private Label certainly has a place in retailing and it really doesn’t matter if its as the #1 brand or otherwise. The fact is, I have yet to see a PL brand that contributes at the same rates to dollar sales and dollar profits.

In other words, (this is trite I know), you can’t take gross margin to the bank.

There has to be a balance or midpoint somewhere.