Driven by supply chain issues, tighter operator menu management and internal inventory management initiatives, distributors are reportedly reducing the number of SKU’s they carry. We believe the major portion of the reductions are in manufacturer brands.

Recently, US Foods indicated SKU reduction to be in the magnitude of 15%.  While Sysco, Performance Food Group and other large distributors haven’t formally announced the magnitude of their SKU reductions, they are estimated to be in a similar range as US Foods.

While SKU reduction in concept may not necessarily be a negative, for some suppliers, it can impact growth, future marketing promotions, product development, and certainly order size and order management.

During the last several years the pandemic disrupted operations of virtually all trading partners. Manufacturers specifically had production challenges due to work force challenges, raw material/packaging availability and other disruptions.  Some multi-channel manufacturers had to make difficult decisions regarding limiting availability in foodservice to supply priority customers or retail, which many regard as a more profitable channel. 

As the food industry and foodservice specifically has recovered from the depths of the pandemic, the industry continues to react to the current business challenges.  A partial list of issues that will likely remain as industry challenges and invite further pressure on assortment includes: inflation and the higher cost of money, supply chain challenges (including driver shortages), weather related product supply and cost issues and highly pressured operators.   Furthermore, branded manufacturers now expect to see greater pressure as major distributors refocus on their own brands.

 SKU reductions are likely to be an ongoing challenge.  So, here are a few suggestions as to what manufacturers can do to protect their SKU’s?

  1. Proactively manage your own SKU’s.  If you have a “long tail” of underperforming SKU’s, clean them up.
  2. Identify the SKU’s you think may be vulnerable to distributor elimination and take steps to “reinvigorate” them via promotion, pricing, or other “go to market” efforts.
  3. Strengthen the core of your SKUs by tightening the focus on creating more “pull” or contract business with local leverage operators and small-mid size multi-market operators. If products are specifically intended for specific segments ensure sales and marketing efforts are aligned. 
  4. Ensure new product introductions have a real reason for being that will genuinely interest operators.  Too many past new product introductions were pack size, product count or other minimal differences from current SKUs, thus just “lengthening the tail”.
  5. Participate in a distributor’s “VISKUS” (Virtual SKUs packed/shipped from manufacturer or Re-D) program to retain slower moving SKUs.
  6. Stay in constant communication with distributor and operator customers, which may allow you to pre-empt reduction of your SKUs.

As we head into Q4, projections are for continued growth this year and 5.5% growth* in 2023.  We wish all trading partners continued success and hope you don’t get SKU’d on growth.

*Source: Technomic

By: Gary Karp