Sku rationalization in convenience retail

May 2010

Copyright © 2010 Balvor LLC. All Rights Reserved.

117 South Cook Street #339

Barrington, Illinois 60010

phone: 847.722.2732

fax: 847.382.1801

[email protected]

Retail Participant Summary

NACS/BALVOR SKU RATIONALIZATION SURVEY


Retailers completed the online survey between 2/25/10 and 3/1/10

1 - 10 Stores, 30.1%

11 - 50 Stores, 33.8%

51 - 200 Stores, 15.8%

201 - 500 Stores, 9.8%

500+ Stores, 10.5%

Number of Stores Operated(Percent of Respondents)

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Q: How many store do you currently operate? (n=133)Source: NACS/Balvor SKU Rationalization Survey, March 2010.


While 30 percent of convenience retailers offer more than 4,000 SKU per store, the average is just over 3,000

0.3%

6.6%

12.6%

14.5%

19.1%

15.5%

8.5%

22.9%

1,000 or Less 1,001 to 1,500 1,501 to 2,000 2,001 to 2,500 2,501 to 3,000 3,001 to 3,500 3,501 to 4,000 4,001 or More

Average Number of SKUs Offered Per Store(Percent of Respondents)

3

Q: How many unique products does/do your store(s) carry on average across all categories sold inside the store, at any point in time? (n=133)Source: NACS/Balvor SKU Rationalization Survey, March 2010.

Weighted Average based on store count

3,011


Over 70 percent of the retailers indicated that the number of products offered has increased over the last 5 years

Increased, 72.2%

Decreased, 14.3%

Remained the Same,

12.0%

Don't Know, 1.5%

Change in SKU Counts Offered Inside the Store (Percent of Respondents)

4

Q: Over the last five (5) years, on a per store basis, the number of products/SKUs offered has…? (n=133)Source: NACS/Balvor SKU Rationalization Survey, March 2010.


RETAILER PERSPECTIVE

Given convenience retail is not the same as big-box retailing, find out what “SKU

rationalization” means to convenience retailers. And, even though convenience is different,

learn how convenience retailers are likely to handle freed up space if they did end up

discontinuing products. Lastly, understand what the primary factors are that would explain

why retailers are offering so many low-volume products.


Most convenience retailers view SKU rationalization as a way to offer the right products as opposed to reduce SKU count

as is the case in larger retail formats

4.2%

5.0%

31.1%

59.7%

Reducing the absolute number of products carried.

Other (please specify)

Determining the right number of products to carry.

Offering the correct mix of products.

Retailer Perception About SKU Rationalization(Percent of Respondents)

6

Q: When you hear the term "SKU rationalization," which one of the following best represents what it means to you? (n=119)Source: NACS/Balvor SKU Rationalization Survey, March 2010.


More retailers are likely to use freed up space to strengthen the in-stock position of top-sellers in the largest destination

categories if they removed existing SKUs

51.5% 50.0%

35.0%33.3%

27.2% 26.6% 26.1%

18.0%16.4%

Cigarettes Beer OTP Packaged Beverages

(na)

Salty Snacks Packaged Ice Cream

Candy Health & Beauty Care

General Merchandise

Retailers That Would Give More Space to Category Top-Sellers(Percent of Respondents)

7

Q: If you removed existing SKUs in the following categories, what would you most likely do with freed up space? (n=119)Source: NACS/Balvor SKU Rationalization Survey, March 2010.


Over half of the retailers are likely to add new products in snacking categories if they removed existing SKUs

58.8%55.0% 54.8%

52.3%48.0%

45.0%

34.5% 34.2%

23.3%

Salty Snacks Packaged Ice Cream

Candy Packaged Beverages

(na)

OTP Beer General Merchandise

Health & Beauty Care

Cigarettes

Retailers That Would Add New Products to Category(Percent of Respondents)

8



Nearly half of the retailers would shift space from the low-share categories elsewhere if they removed existing SKUs

49.1% 47.7%

25.2%

19.1% 18.3% 17.0%14.4% 14.0%

5.0%

General Merchandise

Health & Beauty Care

Cigarettes Candy Packaged Ice Cream

OTP Packaged Beverages

(na)

Salty Snacks Beer

Retailers That Would Shift Space Away From the Category(Percent of Respondents)

9



Overview of what convenience retailers would do with freed up space related to removing existing SKUs

CategoryGive more space to top-sellers in the category

Use space to add new products in the category

Shift space to another category

Cigarettes 51.5% 23.3% 25.2%

Beer 50.0% 45.0% 5.0%

Packaged Beverages (na) 33.3% 52.3% 14.4%

Salty Snacks 27.2% 58.8% 14.0%

OTP 35.0% 48.0% 17.0%

Candy 26.1% 54.8% 19.1%

General Merchandise 16.4% 34.5% 49.1%

Health & Beauty Care 18.0% 34.2% 47.7%

Packaged Ice Cream 26.6% 55.0% 18.3%

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Q: If you removed existing SKUs in the following categories, what would you most likely do with freed up space? (n=119) Source: NACS/Balvor SKU Rationalization Survey, March 2010.


Nearly all retailers agree that serving their customers is a key factor explaining why many low-volume products are

offered in their stores

18.5%

16.8%

26.1%

30.3%

42.0%

41.2%

50.4%

47.1%

45.4%

46.2%

Be eligible for additional monies from supplier

Maintain comparable assortments as key competitors

Remain compliant with manufacturer contracts

Ensure that we offer a complete variety

Serve valued customers that shop the store(s)

Retailer Level of Agreement(Percent of Respondents Agreeing with Statements)

Completely Agree Somewhat Agree

11

Q: Please indicate your level of agreement with the following statements. You carry many of the lower-volume products in your store(s) in order to… (n=119)Source: NACS/Balvor SKU Rationalization Survey, March 2010.

Top-Two

88.2%

75.6%

73.1%

67.2%

59.7%


RETAILER PRACTICES

Understand how often other retailers are reviewing assortment and what tools, techniques,

and performance metrics they are using to support the decision-making process.


Retailers are typically completing semi-annual resets for larger categories while many are adjusting even more

frequently in high-share categories

13

Q: How often do you make major adjustments to product assortment in your store(s)? (n=109)Source: NACS/Balvor SKU Rationalization Survey, March 2010.

2.8%

6.4%

13.8%

22.9%

36.7%

45.0%

54.1%

52.3%

33.0%

20.2%

4.6%

8.3%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

Low-Share Categories

Moderate-Share Categories

High-Share Categories

Assortment Review Frequency(Number per Year)

4+ Times per Year 2-3 Times per Year 1 Time per Year Less than 1 Time per Year

Wtd. Avg.

2.1x/yr

1.8x/yr

1.3x/yr


The range of clustering techniques employed by retailers expands as the number of stores operated increases

14

Q: Do you use any of the following store clustering techniques to adjust product assortment among your stores? (n=109)Source: NACS/Balvor SKU Rationalization Survey, March 2010.

27.3%21.2%

27.3%30.3% 30.3%

67.5%

38.5%

60.5%

75.0% 74.4%

82.4%77.8%

44.4%

88.9%

66.7%

By geography By trade area By demographics By category set size By store type

Prevalence of Store Clustering Techniques(Percent of Retailer Indicating “Yes”)

1 - 10 Stores 11 - 50 Stores 51+ Stores


Most retailers use internal sales data to support assortment decisions while broader data sources vary by number of stores operated – especially related to wholesale and syndicated data

15

Q: How often do you use the following information sources when making decisions about product assortment in your stores? (n=109)Source: NACS/Balvor SKU Rationalization Survey, March 2010.

90.9%

60.6%

12.1%15.2%

18.2%

6.1%

85.0%

72.5%

30.0%

5.0%

22.5%

15.0%

100.0%

50.0%

63.9%

13.9%19.4% 16.7%

Internal sales data Wholesaler shipment data

Syndicated sales data

Consumer panel data

Market basket data Purchase decision tree research

Use of Various Data Sources to Support Assortment Reviews(Percent of Retailers Responding “Always” or “Most of the Time”)

1 - 10 Stores 11 - 50 Stores 51+ Stores


Unit volume – a proxy for consumer demand – is the most often used metric when determining what products to offer

16

Q: What data metrics do you often use when making decisions about which products to remove from your store? (n=109)Source: NACS/Balvor SKU Rationalization Survey, March 2010.

50.9%

62.0%

76.1%

79.8%

85.3%

Gross margin percent

Gross profit per unit sold

Gross profit contribution

Dollar sales contribution

Unit volume contribution

Key Metrics Used When Making Assortment Decisions(Percent of Retailers Indicating “Always” or Most of the Time”)


Background and Contact Information

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David BishopManaging PartnerP: [email protected]

David specializes in small-format retailing and his focus in convenience crosses foodservice and merchandise categories. He’s examined various strategic topics impacting the business, including:

• Tobacco outlook & practices (‘10)

• Motor fuel retailing trends & outlook (‘10),

• Youth access prevention to tobacco at retail (‘09),

• Private label trends & practices in convenience (‘08)

David is currently a member of CSD’s Supplier Advisory Board and NACS’ Convention & Events Committee.

Balvor LLC is a sales and marketing firm that provides a range of consulting, sales support, and analytic services to leading retailers, product suppliers, financial analyst, and other organizations.

In convenience, Balvor works primarily with senior marketing and merchandising teams that are interested in developing more effective merchandising guidelines, enhancing collaborative supplier practices, and evaluating various in-store programs and practices.

In addition to the SKU rationalization survey, Balvor has examined retail trends and practices in foodservice, private label, and tobacco for either NACS or other trade organizations.

During May and June of 2010, David is examining how convenience retailers are adapting foodservice strategies in collaboration with Convenience Store Decisions.

mailto:[email protected]

Sku rationalization in convenience retail

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