Background
This simple blog will be most useful for people with limited experience dealing with major supermarkets, such as Coles and Woolworths.
Many within the industry will suggest 60-80% of new products fail (i.e. delisted within 2 years). Half the battle for supermarket suppliers is getting ranged by major supermarkets. The other half of the battle is staying on shelf. This simple blog explains why brands and SKUs get delisted and what actions suppliers can take when they see the warning signs.
If your product isn’t contributing to category performance, there is a risk of deletion.
All supermarkets and categories have different category review processes and reasons for SKUs getting delisted. This blog provides a general overview.
Why FMCG brands / SKUs get delisted
One of the more challenging tasks for a category manager is delisting brands / SKUs that are not improving category performance. The category manager can use a variety of reasons why. The following list is the most common reasons why brands / SKUs get delisted.
1. Sales Rate / UPSPW
‘The shelves are not made of rubber’ so category managers will range SKUs that shoppers want. This is described as being shopper led. UPSPW (units per store per week) is a common KPI highlighting actual shopper demand for a brand / SKU. The higher the UPSPW, the more shopper demand there is. Ranking reports (by UPSPW) are regularly used to highlight low performing SKUs that may be delisted.
Solution:
Suppliers need to understand the factors limiting UPSPW. They are numerous and could include supply issues, product / price / promotion and in-store execution. Suppliers need to be able to clearly define the issue and propose a solution to the supermarket. Please note that supermarkets will range low UPSPW SKUs as a ‘service line’ to meet a specific shopper demand. For example, a full range of fresh herbs to appeal to foodies.
2. Category Contribution
Category managers focus on building categories to improve financial and strategic outcomes. When evaluating brands / SKUs they will consider how they improve the overall performance of the category. For example, if 2 brands / SKUs are selling the same product to the same shopper should the supermarket range both?
Solution:
Suppliers need to articulate how their brand / SKU helps the supermarket improve overall category performance. This is called a category story, not a product story.
3. Lack of Support
Supermarkets expect suppliers to actively support their range in their stores. This includes price promotions, marketing activations (including retail media) and in some cases exclusivity of ranging. The supermarket is then hoping to have a better offer for their shoppers’ vs other supermarkets.
Solution:
Suppliers need to develop a marketing / promo campaign that aligns with the supermarket promo calendar. The challenge is to ensure there are no clashes between the different campaigns the supplier has with different supermarkets.
4. Margin and Commercial Issues
Category managers have KPIs including margin (profit). Products may be delisted if the retailer margin is too low. Other commercial factors like over reliance on price promotions, high rates of waste (markdowns) etc may also lead to delisting.
Solution:
The supplier needs to review the supply chain to ensure that it allows reasonable margin / commercial outcomes for supermarkets. It is common for suppliers to highlight all the support provided to supermarkets in this discussion. For example, suppliers field force visiting stores to build promotional displays, ensure stock rotation etc is part of the overall commercial benefit to supermarkets.
5 DIFOT / Supply Chain
Numerous recent factors including COVID, wars and the weather have highlighted that supermarket supply chains can be disrupted. From a supermarkets perspective supply issues leads to loss of sales in store. It is normal for supermarkets to expect DIFOT of 99% +.
Solution:
Ensuring stock availability based on the agreement (JBP / joint business plan) between the supplier and supermarket. The plan can change and supermarkets can provide updated plans via their portals (planned orders) or if requested by a supplier. The replenisher is normally the best contact person for suppliers. If there are any supply issues suppliers need to clearly communicate issue ASAP and advise of a solution.
6. Lack of Innovation
Supermarkets are always looking for opportunities to improve category performance. Suppliers that invest in innovation, to better serve supermarkets and their shoppers, are less likely to have brands / SKUs delisted. Historically the focus was on NPD (new product development) but now has evolved to consider all aspects of the overall shopping experience. For example, suppliers developing sustainable supply chains, using recyclable packaging etc.
Solution:
Develop a supply chain to better serve supermarkets and their shoppers. The innovation should address pain points that supermarkets and their shoppers currently experience.
Supplier / Supermarket alignment
The previous section has highlighted specific reasons and solutions for brands / SKUs being delisted. What is important (and other overlooked) is supplier actions / behaviour. There is no ideal relationship but certain supplier actions / behaviours can improve the relationship. My blog, There is no perfect category relationship , provides more details.
Suppliers should understand the supermarket expectations, e.g. margin, UPSPW, to ensure their internal measures are aligned with supermarket KPIs. It is normal during the category review process an invite letter, including expectations, is shared with current and potential suppliers. This is a formal indication of supermarket expectations. If you are unsure of the KPIs for the next review, then reach out to the buyer. If you are surprised by a formal notification of potential deletion, it is a warning sign that you do not know the supermarket expectations.
To ensure alignment suppliers need to create internal reports, including supermarket measures such as DIFOT, margin and UPSPW. Ideally these reports will be automated. If not basic excel spreadsheets can be a starting point. Very importantly these numbers need to be reviewed regularly. For some categories, e.g. fresh produce / short shelf life, daily review is required. For most categories weekly review is OK. This data can highlight a potential deletion early and suppliers can take corrective actions.
Supermarkets also share data re supplier / SKU performance with their suppliers. Coles has supplier central and Woolworths Partnerhub portals. These portals offer standardised reports highlighting SKU / brand / supplier performance vs supermarket expectations. These reports are regularly updated, i.e. daily, weekly and monthly. Suppliers should ensure they use these reports regularly to assess the performance of their SKUs / brand. Suppliers can also purchase scan data for better understanding of brand / SKU performance in the category.
To minimise the risk of deletion suppliers’ need to regularly review their brand / SKU performance vs supermarket expectations. If the data suggests potential deletion further analysis to highlight the reason why is required. Then corrective actions can be implemented.
Please note that supermarkets regularly change their expectations. This is an on-going process.
Data Depth / Quality
From personal experience the reports that both suppliers and supermarkets use will have issues with data quality. There are numerous reasons why. Many practitioners will rely heavily on data (fact-based decision making) so suppliers need to ensure the data used (including supermarket data) is good quality.
After reviewing internal reports and/or supermarket reports if they are any issues with data then they need to be highlighted. If questioning a supermarkets’ data, then the supplier is expected to provide supporting evidence. Importantly this action ensures both parties are making decisions on reliable data.
A simple (and very common) example of data quality is DIFOT. If a supermarket orders more than the plan (including their planned orders) and suppliers don’t supply in full then DIFOT is less than 100%. This is not a supplier issue. The issue was the plan was not accurate. In this instance it is OK for suppliers to reach out and highlight DIFOT vs the plan is 100% and the issue was larger than expected orders. Another common issue with DIFOT is transport companies missing slots due to driver and mechanical issues, and weather conditions. Again, suppliers need to explain why DIFOT is less than 100% and it is not a supplier issue.
Suppliers who actively review and manage the data / information in the relationship will decrease their risks of brands / SKUs being deleted.
Real World Insights / Why
Data (normally numbers in a report) are meaningless in isolation. There are a large number of factors that can affect the data. For example, the current war in Iran has led to increased fuel costs, declining shopper demand (volume) due to COL (cost of living) pressures. A number in a report, e.g. declining UPSPW, does not explain why this has occurred.
Suppliers need to regularly analyse data so they can explain what is driving the result. Some things, such as war in Iran, are out of the suppliers’ control. Suppliers then need to update supermarkets with their real world insights and change plans if required. Category managers manage a large number of categories / SKUs and rely on suppliers to assist them understand what is driving the result for SKUs.
Suppliers that actively manage their partnership with supermarkets (not just quote numbers in a report) are less likely to have SKUs deleted. It is normal for suppliers to recommend changes to the initial plan based on real world insights.
FAQ Section
Why do supermarkets delist products?
Supermarkets normally delist products that have low sales (UPSPW), margin and do not improve category performance.
When do supermarkets decide to delist products?
Supermarkets can decide to delist products at any stage. Suppliers need to constantly monitor performance vs supermarket expectations. Formally delisting normally occurs during a category review. Category reviews are normally once or twice a year, depending on the supermarket and category dynamics.
Do supermarkets normally re-range a delisted product?
No. Supermarkets have limited shelf space and will focus on SKUs they believe will improve category performance. Suppliers can submit a new SKU (including revised version of old SKU) that addresses the reasons why the original SKU was deleted.
How can I avoid being delisted?
Regularly review brand / SKU performance vs supermarket expectations. If brand / SKU is underperforming analyse what is driving the result. Then approach supermarket, explain issue with reliable data, and propose updated plan to improve brand / SKU performance.
Summation
This blog has provided a simple overview of why supermarkets delist brands / SKUs. The key message for suppliers is that you are responsible for managing the performance of your brand / SKU with the supermarket. This requires on-going analysis of results vs supermarket expectations and changing plans, if required, to minimise the risk of deletion.