CPGs chuck unprofitable products … huh, weren’t they already doing that?

Excerpted from The Chicago Sun-TImes, “Foodmakers cutting the fat” by Emily Fredrix, February 14, 2009

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Food companies from Sara Lee to Heinz are trimming their offerings to focus marketing dollars on their higher-margin, best-selling brands and retain consumers, who are trading down in the recession.

Those top brands are more likely to hold their own, and getting rid of lesser-performing brands helps companies showcase top products as retailers cut inventory. Heinz aims to remove two items for each one it introduces. Sara Lee hopes to cut its offerings 8 percent this fiscal year.

It’s all shaping up to mean fewer choices for consumers.

But will they mind?

Probably not, analysts say, noting that if these products had a big following, companies would keep them around.

The nation’s grocery shelves could stand some trimming. They’re straining with about 50 percent more products than 10 years ago, including new formulas, flavors and sizes of existing lines, he said.

The trend of cutting SKUs — or stock-keeping units, the unique identity each product carries — has caught on the past three or four years. It accelerated last year as companies homed in on their most profitable brands.

Excess sizes, types and flavors of products increase the cost of everything from marketing and production to sales. And, during the recession, it’s particularly important to conserve cash. 

Most profit for many companies is concentrated in a small number of brands anyway. It’s not uncommon, he said, for 20 percent of a company’s products to account for 80 percent of its profitability.

The lines Kraft is cutting are not “major businesses,” CEO Irene Rosenfeld said recently.

Indeed, when products are removed, sales volume drops. Kraft said this month that sales unit volume fell 5.2 percent for the three months ending in December as consumers reacted to price increases and retailers cut inventory. Within that, eliminating product lines hurt volume by 1.5 percent.

Edit by NRV

Full article: http://www.suntimes.com/lifestyles/health/1431224,CST-NWS-brand15.article

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