A practical approach for CPGs to drive profitability by striking the right balance between variety and complexity
Today's consumers want greater product selection and they value variety more than ever before. Today, over half of the world population has mobile internet access, growing at 4.8% CAGR1. E-commerce2 drives over 13% of total retail sales in top-10 developed countries. The continued growth of e-commerce is helping drive SKU variety and complexity. CPGs (Consumer packaged goods companies) are facing enormous pressure to balance consumer demands with product variety. The result is often ever growing levels of stock keeping units (SKUs) and corresponding supply chain complexity. SKU proliferation can be seen as an indicator of innovation, signaling a positive outlook for CPGs. More often, when new products and variations are not strategically introduced and rigorously assessed, they fail to produce the anticipated bottom line results.
1 Source: Global Entertainment & Media Outlook 2019–2023, PwC
2 Source: UNCTAD
Most CPGs are willing to launch a new SKU as long as its standard Gross Margin (Gross Sales - Standard COGS) is positive, without looking for true, incremental bottom-line profitability.
The concept of holistically determining the true health of a portfolio is simple on the surface. In reality, companies face significant challenges:
Leading CPGs nurture healthy, high-performing product portfolios by following a proven, pragmatic approach.