Sales and Distribution — Managing Assortment

Nowadays items on sale in retail stores are usually distinguished by a bar code that is scanned at the checkout.  Every book for instance has a unique International Standard Book Number (ISBN). In FMCG an item’s bar code is referred to by various abbreviations — stock keeping unit (SKU) number, Universal Product Code (UPC) in the U.S., European Article Number (EAN), Global Trade Item Number (GTIN), Japanese Article Number (JAN) etc.

The average supermarket has roughly 10,000 to 20,000 SKUs in stock. That sounds like a large number of items, but it is small compared to what the suppliers have to offer.

To gain some understanding of the scale, some time back I asked for a count of the number of active items on Nielsen’s item master in Singapore.  I was told that there were 2,137 shampoos, 4,714 facial products, 3,441 biscuits, 2,376 chocolates and 2,110 soft drinks. Besides wondering what all you can do to your face these days, there is the question of how retailers cope with this glut.

Brick and mortar stores can stock only a small fraction of the items that manufacturers have to offer. They need to manage this carefully because assortment is a key driver of store choice. It impacts consumers’ perception of their chain, their store loyalty and the amount they spend in store. The limited shelf space that is available in a store must be optimized so that consumers may benefit from a wide range of choices, with minimum incidence of stockouts.

From the manufacturer’s perspective, the brand’s range and its distribution is aligned to its marketing strategy. In trade channels however it is faced with a battle for shelf space. Ultimately how much of the brand’s range is stocked by a retailer is a function of several size factors:

  • Size of the store.
  • Size of the category. Importance of the category. Destination categories, for instance, would get higher priority on space.
  • Size of the brand. Importance of the brand. Brands that are better aligned with the identity of the retailer get higher priority.
  • Size of item.

Bigger stores accommodate more categories and offer more space for each category. For instance supermarkets stock over 30 SKUs of Campbell’s soup, whereas provision stores on average stock less than 5. Campbell’s management team needs to take a decision on which items it will sell through which store in each of the channels, and ensure that these items remain in stock.

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