Impulse shopping behaviour is moving towards online commerce: NielsenIQ India

Now is the time for fast moving consumer goods (FMCG) manufacturers to reassess and rationalize their assortment in order to better meet the changing needs of pandemic-hit consumers.

Across the globe, there are structural challenges with assortment across most FMCG categories. Looking at the most underperforming categories in emerging and developing markets, on average, 75% of SKUs contribute to less than 2% of category sales. Beverage, instant noodles, chocolate, and detergent are some of the most underperforming categories in the top 15 markets(footnote1).

In India, a whopping 77% (footnote2) of SKUs in the Carbonated Soft Drinks category contribute to less than 2% of overall category sales - pointing to the glut in non-performing products and variants that exist within just this one category alone.

Footnote 1 Russia, Singapore, Thailand, India, Indonesia, Turkey, UAE, Saudi Arabia, Greece, Malaysia, Australia, Hong Kong, China, Vietnam, Philippines

Footnote 2 NielsenIQ Retail Measurement Service 2020

The same can be seen across other key categories such as Sanitary Napkins (76%), Chocolates (75%), Shampoo (74%), Toilet Soaps (74%) and Biscuits (72%) showcasing that this is not an isolated incident, but rather one that needs to be addressed by the entire CPG industry. This issue becomes even more prominent as FMCG manufacturers struggle to manage their supply chains to prevent out of stock, and as they determine which products to prioritize.

“Over the years, there has been a proliferation of brands, products and SKUs in the marketplace as manufacturers compete to satiate consumers’ appetite for new variations, products and experiences. Finding and maintaining an optimal assortment has always been a challenge. The COVID-19 pandemic as well as intensifying competition have elevated this test to a new level,” says Didem Sekerel Erdogan, Senior Vice President and Analytics Leader, Asia Pacific and Eastern Europe, Middle East and Africa (APAC & EEMEA), NielsenIQ. “But for manufacturers and retailers, more is not more, but rather the opposite as manufacturers end up investing in production and in-store shelf space for products that do not drive any incremental value, thereby eating into their profit margins and increasing the likelihood of out of stocks.”

Changes in consumer behaviour have implications for assortment

Changes in consumer behaviour brought about by the pandemic also require manufacturers to reassess their assortment.
Firstly, newly constrained, existing constrained and cautiously insulated consumers (footnote3) are streamlining their budgets and have become more discerning about what, where, when and how they purchase products.

Secondly, shoppers are increasingly favoring smaller store formats, and this only reinforces the need to make the best possible use of limited space. For the past three years in India we have observed shoppers moving away from large format modern trade stores towards more traditional trade outlets.

With the rise in e-commerce and increased trust in online shopping platforms, shoppers are visiting physical stores less often, and when they do, they come prepared with lists and they spend less time browsing the shelves than they did before the pandemic.

With several cities bringing back restrictions, there is a surge of home delivery sales via hyper local players, ecommerce , as well as tele calling the local retailers for home delivery . Having the right assortment that is optimized by channels and region has never been more important.

Vijay Udasi, Head of Analytics, NielsenIQ India and Indonesia says: “Financially impacted consumers have less money to spend, and will therefore be more focused on essentials. That doesn't mean that they will not have the desire to indulge once in a while, and particularly as a means to treat themselves as this pandemic resurges. The challenge for manufacturers and retailers is to ensure that the products and brands in their portfolio cater to consumers at all ends of the economic spectrum, while also remaining cost-efficient and eliminating wastage.”

Footnote 3 Definitions: Newly Constrained (NC) – experienced worsening household income/ financial situations and are consciously watching what they now spend, Existing Constrained (EC) – were already watching what they spent prior to COVID-19 and this has not changed, Cautious Insulated (CI) – limited income/ financial situation impact, but watching what they spend a lot/ much more, Unrestricted Insulated (UI) - same/improved income/ financial situation and do not have to watch what they spend

Assortment rationalization provides a triple win

The case for assortment rationalization is extremely strong. A recent NielsenIQ study demonstrated that an average of 1059 SKUs are launched monthly in India, with only 10% of those items getting sufficient distribution to survive. Complementary studies by Bain & Company show that a 10% - 20% SKU reduction can result in up to 10% of savings in production costs, up to 10% reduction in supply chain costs, up to 10% lower inventory and up to 5% optimisation in raw materials and packaging costs.

Udasi highlighted that rationalizing assortment is not just about eliminating those SKUs with low sales. It requires a more sophisticated and data driven approach, focused on the idea of incrementality, which means building a range that can drive profitable growth while drawing the interest of more shopper segments (through niche products, for example).

“By correctly identifying which SKUs to retire and keep, not only can manufacturers focus production and supply chain efforts on incremental brands and SKUs, but they can also eliminate waste, increase profitability and reinvest profits into new product development, which will ultimately capture new shoppers. This is a win for the shopper, win for the manufacturer and a win for the retailer, and is even more so today.” Udasi concluded.