The need for product rationalisation has significantly increased in recent years for a number of reasons. Major events have influenced changes in consumers’ shopping behaviour, affecting retailers, and in turn suppliers.
The Covid-19 pandemic caused retailers to reduce their product range following consumers’ shopping patterns, contributing to the development of a ‘simplification’ trend that has continued to grow steadily.
The UK grocery market has been leading the rationalisation trend since 2020 – between March and June alone, 13,794 grocery products were delisted from the top six UK supermarkets.
In line with the shift in consumer attitude and in preparation for the increased likelihood of a recession in 2023, supermarkets have been looking to simplify the shopping experience and focus on providing more value instead. But where does that leave suppliers?
The increased need for product rationalisation – an unavoidable development?
“Whereas previously it was beneficial for manufacturers to supply more products to offer more choices for consumers, that’s no longer the case.
From an economies of scale point of view, it is now more convenient to produce less sizes and types of items and focus on the fast-moving, popular ones instead. The Pareto principle of 20% of products contributing to 80% of profits is coming to the fore – it’s why you can’t buy white chocolate Maltesers or a mint Wispa bar anymore.
“Consumers’ shopping habits are now mainly driven by value, and manufacturers can use this trend to their advantage, using rationalisation to prioritise the production of products that are profitable to manufacture and sell, and those that are most in demand amongst consumers. This also enables supermarkets to free up essential shelf space to introduce new foods,” adds Ian.
Producing more product variants now translates to bigger risks, particularly where there’s a need to manage multiple supply chains, which is no easy feat in the current climate. Whereas prior to the UK’s exit from the EU, production was often taking place in factories located in Europe, it is now being brought back into the UK.
“The cost of transportation has become more prohibitive, and it is not as sustainable for UK businesses to produce food and manage facilities outside the country. As well as that, the cost of production is no longer cheaper in other European countries – yet another reason why we are seeing production shifting back into the UK,” comments Ian.
If reinvesting in the UK business and market post-Brexit is now a priority, it is not surprising that food and drink supply chains are focussing on what customers want.
What are the challenges for manufacturers?
“Manufacturers dealing with product rationalisation, whether to stay ahead of the curve or as a necessary change stemming from wanting to maximise profit, face a number of challenges, some of which can be unexpected,” says Ian.
“adi Projects continues to see an influx of business from food and drink manufacturers rationalising their product range. The traditional SKU tail is being closely looked at, and suppliers are being ruthless, eliminating products that don’t add value to the business.
“Recently, our team completed a project for a major UK food manufacturer that went through this process.
“It identified a need to rationalise its portfolio after assessing the profitability of its products, and delisting SKUs that were no longer viable, deciding to reinvest into other more profitable production lines instead. In this case, overall production capacity was reduced and lines even relocated to other factories to ensure optimum savings.
“This process perfectly exemplifies the essence of product rationalisation. It’s about establishing which SKUs are no longer lucrative versus those that are, delisting the former and increasing production of the latter. It’s about evolving to cater to changing consumer needs in a smart, future-proof way.”
Rationalising food product portfolios involves challenges that need to be addressed properly, which extend to the logistical issues arising from the need to make changes to existing factories or move operations to new factories.
One of the main priorities involves ensuring there is no significant disruption to ongoing operations, as well as dealing with environmental and health and safety issues and complying with relevant legislation.
“Creating a bespoke plan that takes into account potential risks on all fronts should always be the starting point,” says Ian.
“There is a lot to consider – from safely taking equipment out of the factory, relocating it and getting it up and running somewhere else, to clearing the site and dealing with demolition in a sustainable way.
“It is also important to focus on obtaining additional value wherever possible, which is essential for businesses rationalising their products. There are often key pieces of equipment that can be sold or repurposed and parts or materials that can be recycled and reused to facilitate what is a particularly difficult process, from an economic, environmental and operational point of view.”
Rationalisation can help streamline inventory processes, reduce the amount of dead stock as well as lower storage costs, and therefore improve profit margins.
However, to successfully carry out relevant operations properly, there needs to be a solid strategy into place that takes into account key factors and challenges that are unique to each business’ circumstances.
adi Group has provided innovative solutions for a number of clients dealing with complex product rationalisation challenges, solving each problem at hand with a tailored, strategic approach. To learn more about our services, please visit: adi Group | Quality Engineering Solutions (adiltd.co.uk).