Specialty SKU Cutbacks Seen Easing in 2021

Mark Hamstra | 25 Jan 2021

The past year has been challenging for many specialty food makers seeking to bring new products to market, and even to retain space on retailers’ shelves, but conditions may be improving as retailers look forward to more normal shopping patterns in the future.

Many food retailers streamlined their SKU assortments in 2020 to focus on fast-moving commodity items that were most in demand, often at the expense of slower-moving specialty items, said Neil Phillips of Relentless Sales & Marketing, a food broker based in Sparta, New Jersey.

“Things are starting to get going again,” he said, citing a recent uptick in receptivity among retailers to hearing new product pitches. “I am optimistic that this year retailers will be reviewing new items.”

Still, the challenges for getting new specialty and natural products onto shelves are as difficult as Phillips has ever seen them, he said.

During the pandemic, many retail buyers have been working from home and have practically eliminated in-person meetings with vendors. Beginning last March, many buyers were not even accepting sample products, although they have started to become more receptive, Phillips said.

In addition, retail labor shortages amid the spike in consumer product demand early in the pandemic contributed to the streamlining of SKU assortments, he explained. Many retailers were seeing so much demand for basic items — hand sanitizer, disinfectants, bathroom tissue, and shelf-stable grocery items such as soups, pasta and frozen foods — that they were devoting all of their resources to keeping those items in-stock.

Charlie Apt, president and chief operating officer of Sarabeth’s Kitchen and chairperson of the Specialty Food Association, agreed that retailer cutbacks on slower-moving SKUs during the pandemic may be impacting specialty food sales. The changing nature of shopping during the past year — with consumers making fewer trips to the store and third-party shoppers fulfilling online e-commerce orders — might also be blunting the excitement and sense of exploration that specialty items tend to bring, he said.

The pressure on specialty suppliers may also be compounded by other factors that have been building since before the pandemic, said Apt, such as retailers’ shift toward more specialty private labels.

Makers streamline offerings
Another factor that might be impacting specialty items is the fact that manufacturers, too, have been cutting back on creating new items during the pandemic to focus on core products, said Apt.

Many suppliers have faced challenges in the form of new workplace safety rules, workplace outbreaks of COVID-19, and diminished demand in the foodservice channel that have limited their capacity to focus beyond their core, best-selling items.

“Some brands struggling with production during COVID have chosen to rationalize their SKUs to divert production into their priority items,” said Jeff Lawrence, growth solutions manager for the Fresh Thyme account at KeHE Distributors. “Retailers not only have to navigate their own priorities but also those of their brands.”

The Fresh Market recently cut back on some SKUs on a temporary basis during the holiday season, said Maren Trocki, director of dairy and frozen at the Greensboro, North Carolina-based retailer, during a recent SFA webinar.

“We consolidated some items—we knew we’d have to reduce displays for ease of getting around,” she said. “We made some updates to planograms, we did some SKU rationalization, even if it was temporary, to make sure stores had key items.”

The retailer removed some items that were having supply chain issues, Trocki, said, “and decided if they came back we’d just throw them on display.”

The moves created space for more fast-moving items, she said. For example, The Fresh Market adding facings of vanilla ice cream for the holidays to accommodate anticipated demand, and removed some flavors temporarily to make room.

“That was true throughout the store,” Trocki said.

The Fresh Market had not typically done temporary SKU reductions such as that in the past, but the chain wanted to make replenishment as efficient as possible and to stay in-stock on the most popular items, she said, adding that the retailer will likely “do some version of that going forward.”

Meghan Flynn, a spokeswoman for The Fresh Market, said that the retailer remains committed to introducing new specialty foods.

“Rather than cutting back, we have brought in a number of new specialty items this year that are exclusive to TFM and/or highly curated,” she said.

Examples include Olipop, a fizzy, better-for-you tonic that is making its East Coast debut at The Fresh Market, and Booch Pop, another specialty beverage seeking to support gut health.

The Fresh Market has also made a commitment to bring in additional specialty food products from diverse suppliers, Flynn said.

An ongoing process
For retailers, rationalizing the SKU assortment is always an important aspect of the category review process, said Lawrence of KeHE.

“Retailers need to rationalize assortments continuously to ensure space is made for innovative items that take advantage of key consumer trends,” said Lawrence.

Culling weak performers drives demand toward the top SKUs, and creates room for new, innovative products, added Rob Bishop, growth solutions manager for the Sprouts Farmers Market account at KeHE.

Reducing assortments can also serve to reduce “choice paralysis” among consumers by simplifying the shelf, said Lawrence.

While traditional supermarkets have long thrived on offering consumers a wide variety of choices in every category, many consumers expect and trust specialty food retailers to curate their assortments to make shopping more efficient.

The disadvantages of streamlining the SKU assortment include potentially disappointing customers who may have become fans of products that have been discontinued, said Bishop. In addition, eliminating specialty items might also reduce important points of differentiation from other retailers, added Kate Barnholt, senior growth solutions manager of natural independent accounts at KeHE.

“Cutting items/brands with unique flavors, health benefits, ingredient offerings, etc. could cause consumers to leave the category or pursue those items in other retailers,” said Lawrence.

In order to survive the inevitable SKU rationalization process at retail, producers need to ensure that their line-extensions and new products are not “me-too” items and that they are truly unique, with attractive packaging and the right pricing, said Bishop.

“Food makers need to identify what makes their product a unique and essential part of a retailer’s assortment, and leverage those advantages to stay on the shelf,” said Lawrence.

It’s also important that new items will grow the overall category without cannibalizing existing items, added Barnholt.

“Identify missing flavor, ingredient or packaging varieties on the shelf and create the solution,” she said.

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