Simplify to Grow

Brand lessons from Mondelez 25% sku reduction

With 70+ brands globally, Mondelez has long pursued a “local-first” strategy with a pipeline of innovation to meet evolving markets and changing consumer needs.

But - unless strategic decisions are taken to remove existing, slower selling lines – innovation quickly leads to brand proliferation, driving complexity, increasing operational costs, and eroding profit margins for branded organisations and retailers alike.

This concept is tied to the familiar pareto “80:20” principle and confectionery is no exception to this rule.

With over 150 brands in the category, just 20 confectionery brands represent ~65% brand £sales [data analysed from The Grocer Top Products reports].

Plus, the top 20 brands in confectionery have increased their share from 63% to 65% since 2011, so the tail of smaller, slower selling brands is getting longer....

Variety is important to consumers, especially in impulse categories like confectionery. But variety doesn’t mean more of the same …

Variety (noun) = the characteristic of often changing and being different

If the options available are not differentiated i.e. they don’t appeal to different consumers’ needs or for different occasions, then variety soon turns into duplication and proliferation.

Proliferation can creep up on companies and categories over time. 

In the depths of the Mondelez annual report is a section entitled Simplify to Grow a simple yet powerful statement of intent that Mondelez are putting into action.

Dirk Van de Put Mondelez Chairman & CEO explained in an investor interview July 2020

“My experience in many other consumer goods companies is that, in general, what has happened over the years is that people are chasing growth.

• And as a consequence, they keep on launching new products
• And that gives you a short-term benefit.
• But at a certain stage, you need to clean that up….
• Clients want great customer service, they want a cleaner shelf, they want to make sure that they can serve their customers, and we have the same initiative.
• We were already obliged in this crisis to work with a much smaller set of SKUs in order to make sure that the key SKUs are on the shelf. And what do we see?

Our sales are better, the shelf looks cleaner and we get some benefits from it”

The concept of cutting off a long tail is not new, and the idea of simplification to grow makes perfect sense.

The question many are asking is why hasn’t this happened sooner?

And why aren’t more CPG companies harmonising their portfolios?

In our experience, the answer lies in Michael Porter’s theory on strategy that strategy is about making tough decisions.

Strategy is about making choices, backed by supporting evidence, rigorous thinking and getting others on board.

Strategy is about trade-offs, saying no to certain options and taking calculated risks.

If it was easy, everyone would be doing it.

Change brings opportunities as well as challenges.

As these are unprecedented times perhaps there is no better time for brand managers to look at lessons from successful companies such as Mondelez.

Time to take stock, walk away from brands or skus that are a drain on resources and focus their efforts on the markets and the brands that have the propensity for future growth.

It’s time to make choices. 

The original article was published on LinkedIn on 29 Sep 2020