What’s wrong with the (fill in the blank) category?
Through a special arrangement, presented here for discussion is an excerpt of a current article from Frozen & Refrigerated Buyer magazine.
On April 9, The Wall Street Journal opined that “Yogurt’s big sales run has expired.” What’s interesting is that yogurt’s troubles are symptomatic of what’s happening in many categories. Those struggles provide a good template for studying other categories with soft sales.
Why are sales declining? Yogurt sales dropped to $7.1 billion annually from $7.7 billion three years ago. The Journal says vendors blame retailers for cutting prices and paring shelf space. I hear that all the time about every category and it’s nonsense boiled in vegetable oil. Vendors push prices lower in a bid for market share in a competitive market. Retailers take whatever slotting, promos and funny money is offered — happens in every category. So, why are sales declining? Changing consumer preferences. Sure, there could be waning interest in the category as a whole. More likely, it’s inadequate product curation.
Why has shelf space been cut back? Sales declined, so space was cut back. Retailers want to make money. Although they do silly things sometimes, most put their faith in key business ratios. For my money, yogurt has been over-SKU’d and overspaced for several years. Some retailers respond and quickly meet shopper needs in troubled categories. Some don’t.
Are the fastest growing segments getting their share of space? This isn’t rocket science, but reaction on the shelf can be abysmally slow. Anyone in line at the movies also knows that people are clamoring for healthier, more organic and natural foods. Yet when I visit a supermarket yogurt set, the typical planogram, with 306 different varieties (by Acosta’s count), is duplicative and confusing. Too many choices overwhelm the shopper. What’s needed is better SKU curation storewide along the lines of consumer wants and needs. Do you have an adequate representation of niche and local brands that are in high demand and can help you differentiate? Items with less sugar and more plant-based product are up by 20 percent, or about 10 times faster than the growth of all food, Nielsen says. I see too few of these fast growers in many shelf sets while I’m walking stores. Just sayin’.
Discussion Questions
DISCUSSION QUESTIONS: What strategies and tactics should retailers and vendors follow when a formerly hot category begins to decline? Does yogurt’s loss of momentum offer any particular insights or warnings about how retailers are approaching category and assortment planning?
Poll
BrainTrust
Dick Seesel
Principal, Retailing In Focus LLC
Peter Charness
Retail Strategy - UST Global
Retailers make the mistake of overassorting a hot category (in this case yogurt) and then wondering why sales are slowing. Is it because the product is on a cyclical downturn, or was it a self-inflicted wound created by offering too many choices? It’s a common mistake, and not just in grocery stores, because the shopper ends up more confused than motivated.
Understanding the product life cycle is essential to managing the ups and downs of particular categories. The key is to understand whether a business is stable and sustainable over the long run, or whether it is going to decline from its peak. In the second case, smart retailers need a pipeline of up-trending replacement categories, rather than just falling into the over-assortment trap.
Yogurt’s decline comes from many sources. Greek yogurt went nuts a decade ago, then consumers learned about the negative ecological consequence of the acid whey that’s produced when making Greek yogurt. I’m not sure how much shelf space played into the decline.
On the whole, when a category declines, it’s imperative that shelf space be reduced. Better yet, if it’s a trend item, start reducing shelf space as soon as research shows the apex is reached. Be in front of the decline.
The rule should be to handle it while it’s hot. All too often, retailers’ response to a category taking off is to broaden assortments to the point of confusion. Yogurt serving as a perfect example. Brand marketers aren’t blameless as they knock on retail doors armed with data making a case for extreme expansion.
Local sourcing is playing a major role in this conundrum. The focus on local, bolstered by traditional retailers’ efforts to compete more effectively with Amazon and their lot, means that the number of SKUs offered in each store has increased dramatically while the physical store has remained the same size resulting in fewer facings for more items. Also, they have the same number or even fewer merchandisers managing many more lines and this results in less attention paid to any individual line, which results in more out-of-stocks and worse. Technology is helping retailers address some of these challenges, but the bottom line is that they have to decide what they want to be when they grow-up – a full service merchant, a specialist, a digital player, etc. – and then focus on that go to market strategy. Otherwise they might as well raise the white flag now and get it over with.
I would blame the manufacturers, particularly their category management teams. The principle behind CM is that vendors work for the benefit of the category, not themselves – in return, they get bonus points and benefits/prioritization/protection for helping the retailer. If they know that yogurt (or any category) is declining or that there is a shift in segments, they should be helping the retailer re-set the section.
A visit to the yogurt shelf at Whole Foods tells you all you need to know about the category. There is too much choice, too many brands, too many formulations, and too many options. In short, it’s a confusing category to shop which can lead to choice paralysis for customers and increasing levels of competition and discounting by brands.
That said, it’s mainly the traditional brands and formulations which are under pressure and in decline. Many of the new plant based yogurts – such as those made from cashew nuts – are seeing rapid growth as they are seen as healthier and more beneficial by shoppers.
This is arguably more of a problem for CPG firms than for retailers. Quickly adapting to new tastes, thinning down ranges, and trying to restrict promotions are all key. Executing that obviously requires some risks to be taken.
Classic example of claustrophobia of abundance!
Category management is slow and out of date; to be successful today it must become faster and more nimble. Retailers must always be tinkering with categories to determine what will sell best — wait, they do that online already — hmmm. Unfortunately, most brick-and-mortar retailers approach category and assortment with a reactive short term view. New, innovative products that offer existing categories opportunity are not sought out and are therefore a tough sell. Once a category takes off and attracts new entrants it quickly becomes crowded and, all too often, hard to shop leading to decline. 21st century category management must enable faster decisions and take into account shopper needs.
You said it best. Decisions are made based upon slotting, rebates, discounts, and accruals. Retailers, especially supermarkets, don’t make decisions based upon what is good for the customer. Retailers need to focus on customer-centric decision making, not on short term gross margin funding props.
The sheer complexity of ingredient variables offered in a cup of yogurt has become deeply confusing making customer selection an overwhelming and tedious task. Kroger like most grocers offers shoppers a wall of yogurt product selections. Personally, from my experience as a consumer, yogurt is stalling out due to the complexity of selection and the “read the label” a-ha moments of high sugar and high calorie counts. Yogurt brands seem to constantly be messing around with sugar, slyly increasing sugar to spur sales. Effectively counterintuitive to the promised health benefits of yogurt!
It’s high time that traditional category management be reinvented. Here’s why: 1.) consumers do not shop by category … they shop by need; 2.) “establishment retail” timelines are simply too long (by the time they react to a trend it may be over); 3.) over-committing space to a particular sub-category stymies shoppers (I firmly believe less becomes more).
Specifically, as it relates to yogurt, innovation based on flavors and forms can only take a category so far – I refer to this as “iterative innovation – and results in over-stocking simply to keep up with available varieties. “Breakthrough innovation,” on the other hand, can drive truly differentiated categories and attract new shoppers. Imagine a yogurt with a new sustainable means of production, newly-proven health claims, or some entirely differentiated delivery form. That could increase the share of shelf devoted to such a breakthrough.
Bottom line for me is twofold. First, speed to shelf must be improved – brick-and-mortar’s relevance will continue to decline if it doesn’t reinvent cumbersome, painstaking assortment planning practices. And second, predictive analytics regarding trends and breakthrough innovation must be factors to consider in the “new” approach to category management.
Trends change at a faster pace than ever. As more new products introduced, that means more old products are de-listed. Consumers tend to vote with their wallet, Retailers don’t de-list products or reallocate space unless the customer leads the way.
The yogurt category provides a very good lesson to all the players in the Kombucha category. Go to school on this now, so as not to repeat the same mistakes.
There’s something to be gained here from the perspective. “What strategies should we follow” is different than “how can we best serve our customers.” When an organization starts to ask more questions like the latter, the more positive results follow. If we turn our stores into commodities (by being all tactics and strategies to maximize return) customers will treat us that way too. There is of course a place for all the tactics, but they’re most effective secondary to a culture that’s really about serving the human beings that shop with them.
I’d say we need to slow that roll — isn’t it the job of the category captain to prevent the decline in a particular retailer and to analyze it fully? Is the category declining everywhere or just that retailer? I do not buy the questionable research by the Columbia professor that more choices leads to less buying (other academics had difficulty replicating her results.) On the other hand, a proliferation of SKUs could mean it is time to completely reexamine how the shelf is organized.
Watching trends and turn is now being relegated to tightly compacted reports that may miss trends and turn projection(s). Not being closely tuned into your inventory will get you beyond repair and into the vanquished ledgers.
This is a symptom of a much broader business implication for FMCG retailers. It’s not really a “category” (product) question, rather a lack of a “customer intelligence” analytic capability (proactive v. reactive) response, combined with the required in-store investment to meet changing customer tastes and preferences.
From a micro space/category management standpoint, perhaps the immediate opportunity here is to catch up and provide alternative products addressing emerging attributes that customers are now looking for (e.g. grab and go breakfast, probiotics, etc.).
From a macro space/customer-centric standpoint, FMCG retailers already investing in expansion of fresh space having recognized these trends, and they are carving more and more space from commodity center-store products – rather than dealing with static constrained refrigerated space.
Bottled water, energy drinks, yogurt. There are quite a few product types that we could use to “fill in the blank” here. I agree with the author interviewed that product curation is important by the retailers (grocers, convenience stores) to keep the product selection sharp, offer distinctly identified products and minimize shoppers being frozen by too much choice.
In general, it seems that most retailers allow the shelves to overflow with product in a new, hot category and respond after the fact. A more proactive approach might actually increase sales.
Many terrific comments. Two additions: 1. When did “sku curation” become the hot marketing phrase for “sku rationalization?” 2. The issue extends beyond hot categories. Look at all of the legacy consumer packaged goods brands whose values have been severely slashed.
Hot category or legacy brand: follow the consumer, simplify the choice process and deliver on your brand promise.