Product rationalisation to impact FMCG supply chains

28 August 2018

The retail supply chain will have to contend with both product rationalisation and increasingly complex specifications, a report has said.

The SCALA UK Logistics Report on the grocery and FMCG sector said the average SKU count for suppliers would likely reduce by 10% due to product rationalisation and demand, and the report said there was “significant range rationalisation within certain retailers”.

Rationalisation, however, was not happening everywhere. Some discounters were increasing their product range while traditional retailers were looking to increase choice and innovation – for example personalising packet sizes for different types of customers.

Dave Howorth, director at SCALA, said the impact of changes to the sector were two-fold. “It may well help suppliers reduce logistics costs for supplying to major retailers, through larger loads and fewer delivery points. However, with retailers now requesting more bespoke products and pack sizes, the knock-on effect for manufacturers is added complexity, and therefore cost.”

The report also said the rising market share of discounters and convenience retailers meant logistics providers in the grocery and FMCG space would have to contend with “a larger network of smaller retailers”.

“Chains such as Aldi and Lidl are gaining more market share to challenge those at the top,” said Howorth. “While increased competition is positive for consumers... for the logistics sector, there are serious implications.”

Howorth added the recent Sainsbury’s/ASDA merger and the Tesco/Carrefour agreement highlighted an “innovative approach” to cost reductions but could be detrimental to manufacturers.

“The major retailers have, for some time, been looking at what the discount retailers do well and have initiated processes to rationalise product ranges and simplify their businesses to better manage their costs. This, alongside products increasingly becoming absent from retailers’ shelves, could mean the end for suppliers that become viewed as redundant in the not-too-distant future,” said Howorth.

The “big four” retailers – Asda, Morrisons, Sainsbury’s and Tesco – have seen a decline in recent years, with their share of product volumes down 5% since 2015, the report said. Convenience retailers, on the other hand, are expected to grow by 49.8% in value over the next five years, compared to growth of 5.9% for traditional supermarkets.

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