August 2020

Holly Whitefoord

Is Less More? The Remarkable Rationalisation of Retail

It’s clear that the coronavirus pandemic has changed our world forever.

Given this, it’s entirely unsurprising that it has sparked fundamental changes in what we find on shelves when grocery shopping.

When the pandemic hit, the priority was to ensure the nation was kept fed. But how has the pandemic redefined the future of consumer choice? And what can we learn from a US retailer whose entire proposition was built on a precision listing strategy?

We felt, as a creative branding agency, it would be appropriate for us to explore the issue from a design thinking and highly-pragmatic perspective. As a design agency with over 30-year’s experience in grocery/ retail, we have a comprehensive understanding of the sector.

P&W has engaged with on own-brand packaging design and development projects for retailers around the globe, including: Tesco, Kroger, Coop, M&S, Eroski, Panda, Seicomart and Tesco’s US venture, Fresh & Easy.

March Madness

We all remember the nation rushing out to stockpile toilet roll, pasta and cupboard essentials. I was holidaying in St Ives, Cornwall when the initial lockdown measures were put in place. This was early days, when Boris Johnson “advised” pubs, bars and restaurants close on the 20th March. The popular seaside resort, usually full of hubbub (even out of season), felt deserted. And people were fearful in anticipation for what was yet to come.

Unnerved locals and holiday makers alike had swarmed the shops and purchased everything. No chicken. No milk. No butter. Flour, eggs, pasta, rice and soup were nowhere to be seen. The friendly greengrocer on Fore Street was a godsend, but it too had bare shelves by noon.

In fact, we were not alone. This experience echoed across the grocery landscape for many consumers. During lockdown 76% of UK shoppers reported to Which? that they had experienced product shortages when shopping and many were faced with barren shelves.

This panic-buying put a massive strain on food supplies. Retailers scrambled to restock shelves whilst simultaneously implementing new safety measures to safeguard their customers and employees. Food manufacturers worked tirelessly and buyers had to rethink ranges and make drastic changes to ensure continuity of supply. At the request of supermarkets, suppliers concentrated on rationalising their ranges to core SKU’s.

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They simplified their supply chains to increase volume and meet demand.

Is Less More?

So as lockdown is easing, will the delisting of thousands of SKU’s prove just a temporary measure? Or are consumers satisfied with a reduction in variety?

To consistently provide food and essentials to the country throughout the first weeks of the pandemic, it was necessary for supermarkets to make changes. Retailers also had to contend with Brexit-related supplier issues (which, in turn could actually open up new doors for UK suppliers and entrepreneurs).

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The first way they made changes, was to increase the efficiency in their supply chains by rationalising ranges. The second method was alleviating packaging pressures by offering a reduction in line extensions that people could make do without.

However, to provide more normality, it is important that supermarkets provide consumers with options. Variety ensures consumers are kept content; it’s what we’re all used to. And innovation of products keeps us excited. Variety and innovation also help to ensure traditional supermarkets differentiate themselves from discounter stores.

The consolidation of SKU’s is a topic that’s being discussed by many throughout retail, the food industry, manufacturers and more.It could help to rationalise the overabundance of choice, jumbled supply chains and superfluous costs to the industry, and ultimately, to the consumer.

Over the years, product categories have been congested with numerous brands and gratuitous choice. An excessive variety of product and pack sizes and a myriad flavour choices. By permanently cutting back on the less lucrative and slower-selling items, supermarkets could augment their productivity while enhancing the shopping experience.

What Can We Learn From A Rationalised Retail Offering?

Bear with me while we take a step back in time.

In 2007, Tesco fulfilled its significant ambition of entering the North American market. It had already expanded successfully across Europe and the Far East, including: Slovakia, Poland, Hungary, Malaysia and Thailand. The Fresh & Easy Neighborhood Market totalled 199 store openings over just 6 years across the West of the US.

P&W helped bring the Fresh & Easy retail offering to fruition by providing our brand consultancy and packaging design services. We worked closely with the Tesco/ Fresh & Easy team, UK suppliers and the American advertising agency Deutsch.

Fresh & Easy provided an entirely unique and methodically personalised approach for theAmerican market. Based on a small-to-medium sized, easy-to-shop store formats with a strong emphasis on freshness and convenience, the Fresh & Easy retail brand was a distinctly different offering. The retail strategy formed, was around four key areas: convenience, affordability, freshness and simplicity.

There was a strong focus on rationalisation of SKU offerings. 50% of all products on shelf were own-brand. This was a massive point of difference from competitor retailers, like Trader Joe’s and Vons. The imperative was that there were no more than 3 offerings of the same product on shelf: own-brand, leading brand and value brand.

This approach was revolutionary in the US market, where there is typically a mind-boggling amount of variety. By contrast, Walmart (the world’s largest retailer) stocks 142,000+ different items at its Supercentre stores. These stores are often more than three football fields in size. The average US grocery store has 306 different yogurt varieties (according to Acosta). It was found by the Fresh & Easy research team that this vast variety of products often leads to consumer confusion and frustration.

As Fresh & Easy’s design partner, P&W provided a distinctive design language for the Fresh & Easy brand. Our branding and packaging solutions needed to sum up what the exciting new venture stood for.

The design project resulted in an individual corporate identity and a strong brand architecture. This, combined with innovative, creative ideas resulted in positive competitor differentiation. P&W eliminated visual clutter to enhance the shopping experience.

Fresh & Easy first launched with 1,000+ own-label products. Within four years, this plateaued at its critical mass of around 3,000. SKU’s ranged from everyday core products, to speciality and premium foods and ultimately to targeted sub-brand and seasonal ranges. The Phase 1 packaging design strategy represented minimalism, honesty and clarity. The design process and approach for Phase 2 was more confident, engaging and competitor-aware. The overall Fresh & Easy offering across all areas of store (including frozen, bakery and impulse) to consumers was uncluttered, cohesive and self-assured.

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Our Fresh & Easy own-brand packaging design solutions resulted in 22 international marketing and design award wins. This included a prestigious DBA award won for commercial success of the brand.

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And most importantly, customers responded very positively to the offer with their loyalty. Fresh & Easy stores became trusted shopping destinations for many.

Sadly Tesco ultimately decided to exit the US market in 2013. Among other factors, the exit was due to geographic positioning and to the 2008 recession. Fresh & Easy intentionally positioned stores in areas that did not have much foot traffic(“food desert” areas). Their commendable strategy was to provide fresh, easy to prepare food and convenience to consumers who’s only other local food sources were fast-food outlets.

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These areas happened to be in Arizona, California and Nevada. When the financial crisis hit in 2008, the economy in these areas crashed. According to Euromonitor International, Arizona saw unprecedented unemployment rates of 10.4%, California 12.4% and Nevada 13.2% (when the national average of 9.6%). Consumers in these states massively cut back on spending. This, woefully, had a detrimental effect on Fresh & Easy.

What Can We Learn From Fresh & Easy?

50% of consumers sited that Fresh & Easy’s packaging was a key reason they liked the stores. Data proved Fresh & Easy pleased consumers to such an extent that it secured an almost perfect recommendation score of 96% (the next highest being Trader Joe’s at 65%).

Given this feedback, we think this is significant evidence that an easy-to-navigate store with an un-cluttered approach to packaging design was preferred by the vast majority of consumers.

The entire Fresh & Easy initiative was much maligned by competitors and critics of Tesco. It certainly proved to be a bruising financial blow for Tesco. However, it is difficult to deny that it was a brave, audacious endeavour, underpinned by ground breaking strategic marketing principles.

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Significant Cuts in SKU’s

Despite the future of supermarket buying strategies yet to be determined, one thing is clear. Cuts to SKU’s are being made. In fact, delisting SKUs was already a growing trend for Tesco. Back in 2016, Dave Lewis lead the retailer’s initiative to delist a third of its 90,000 products in an attempt to combat the streamlined success of the discounters Lidl and Aldi.

It’s been reported by Assosia that a colossal 13,794 grocery products have been delisted from the UK’s top 6 supermarkets since March 2020, a 9% decline [Assosia w/c 15 June 2020 vs w/c 2 March 2020]. Asda’s range alone has been cut by 3,847lines (15.7%). And Morrisons has cut 2,906 products (about one in seven of all SKU’s).

Items that didn’t have high household penetration were the first to go. More space was allocated to in-demand items like toilet roll, sanitisers and pasta.

In grocery stores, the average number of product offerings were reduced by 7.3% during the four weeks endedJune 13th, according to Nielsen data. Frozen was down 8.5%, meat by 7.1% and dairy by 6.6%.

Hard hit in the grocery sector are small food and drink brands who don’t sit on large reserves of cash. They aren’t able to stay afloat if they have large quantities of product wastage. However, leading brands have also been acutely affected. Companies such as Unilver and Coca-Cola halted production of various smaller-sized packages and less popular flavours. And household names such as Actimel, AirWick and Yorkshire Tea saw numerous lines delisted from stores.

Perhaps now, since shopping habits have altered dramatically, consumers will be more open to trade diversity for consistently low prices. A consolidation of SKU’s could also end up making supply chains more efficient and the consumer shopping experience much more pleasurable.

Is Simpler Better?

So, today, have consumers missed the variety they previously had? Are supermarkets contemplating “Do we need to go back to the way things were?”. Has the Coronavirus pandemic and Brexit demonstrated the value in a simplified range?

A more refined selection of SKU’s should result in savings for suppliers, which, in turn, will mean savings to supermarkets. Ultimately, savings made from a reduction inSKU’s should be passed on to benefit consumers.

Only time will tell if we go back to the huge variety of different SKU’s we were used to pre-Covid-19.

However, the Morrison’s site presently shows:

• 104 different toothpaste SKU’s

• 25 different types of tomato soup

• 69 varieties of apple juice

• 91 different options for crackers and savoury biscuits

With a staggering amount of choices still available to consumers, it’s doubtful that most consumers would mind (or even notice) a few less options when it comes to the flavour of their cat’s food, the scent of their air-freshener, or switching to a different brand of vegetable oil.

With a huge recession imminent, Brexit looming, the financial and political horizon is daunting the future of the UK grocery sector is still largely unconfirmed. However, the limited SKU’s at Fresh & Easy stores resulted in a positive shopping experience for US consumers. So perhaps a culling of slow-selling, superfluous SKU’s will results in a more cohesive pleasing shopping experience for UK consumers, with savings coming at a time where they’ll be needed the most.