Pepperoni was getting out of hand at Hormel.
The food giant last year was selling 71 different versions of its Hormel Pepperoni brand. There was diced pepperoni. Turkey pepperoni. Mini-slices of turkey pepperoni. Pepperoni sticks. Pepperoni with 50% less sodium. Pepperoni with 25% less fat. Thick-sliced pepperoni. The list goes on.
But Hormel is removing, consolidating or repackaging 25% of the items as part of a company-wide strategy to prune unprofitable items across dozens of its brands like Spam, Applegate and Jennie-O, the company said in June. Around 80% of Hormel’s profit comes from a small number of products, like Hormel Bacon and Fire Braised-brand meats, while the rest of its tens of thousands of items often drive up costs and sit untouched in warehouses and on shelves for long periods.
Hormel is reviewing its product lineup to invest in items with higher profit margins, improve lower-performing items and “remove production complexity,” a spokesperson for Hormel told CNN.
That’s just one example of companies eliminating an endless assortment of products to boost profit. For consumers, it means that they now have fewer choices for everything from sneakers to toys to coffee.
It’s a reversal of years of companies trying to give customers unlimited choices and shelves getting more and more cluttered with dozens of variations of the same item.
Historically, brands wanted to broaden their choices to gain more shelf space at stores and react to the latest customer trends. But during the beginning of the pandemic in 2020, customer demand skyrocketed and global supply chains ground to a halt. Companies sped up production lines for their primary, top-selling items and ruthlessly pared down their niche offerings, a strategy known as “SKU rationalization.” Today, companies are thinning offerings because their sales volumes have dropped after years of raising prices. Food prices have gone up around 26% since 2020.
Since companies no longer can hike prices without pushing away customers, they are turning to cutting clunkers to maintain their profit, said Rob Wilson, a managing director at L.E.K. Consulting who works with brands and retailers.
“They can’t raise prices too much anymore, so this is where they go,” he said. Cutting products boosted companies’ profit margins by 0.9% compared to 2019, L.E.K. Consulting found in a study last year.
The more versions a brand offers, the higher their supply chain and distribution costs. With slimmer lineups, companies can narrow their advertising, distribution and sales efforts, focusing investments on a smaller number of items.
Too much mayo
Levi’s, Starbucks, Under Armour, Dollar General, Five Below, Hasbro, Hain Celestial and other companies are cutting down their choices.
Levi’s said in April that it cut 15% of clothing across its portfolio as part of its strategy to sell more clothing directly to consumers through its own stores and websites, a spokesperson told CNN.
Dollar General is taking about 10% of its products off shelves.
“We may have five or six different variants of mayonnaise on the shelf today. We can easily drop one or two of those. The consumer is not going to know the difference,” Dollar General CEO Todd Vasos said last year in an earnings call. The strategy is going to make customers’ choices “a little simpler” and reduce re-stocking work for store employees, he said.
Dollar General did not respond to CNN’s request for comment.
Toy maker Hasbro has slashed around half of its products, which accounted for just 2% of the company’s revenue.
These products were “duplicative and unprofitable, clogging the network and creating cost for us and our retailers,” Hasbro finance chief Gina Goetter said earlier this year. The company, for example, would have a US version of a toy, a European version and a version for Asia, so it cut it down to one across the three regions, a Hasbro spokesperson told CNN.
Companies believe that reducing choices can make it simpler for overwhelmed consumers struggling to decide which type of toothpaste to buy, for example.
“In some places, that extra choice doesn’t make sense,” BJ’s Wholesale Club CEO Bob Eddy said last year. “There are only so many mint toothpastes you need.”
Source: https://edition.cnn.com/2024/11/08/business/levis-dollar-general-product-choices/index.html
