When a leading global beverage distributor faced a significant decline in profits, despite an increase in products and marketing, Middlegame used CIA® proprietary software, strategic insights and proven analytics to evaluate product assortment and, ultimately, help increase profits.
1 Situation Review
Product Assortment: When Is Too Many Too Much?
For two years, this leading beverage distributor had increased the number of SKUs it was offering in Morocco by 10.3%. But unlike the company’s proprietary carbonated concoction, unit sales remained flat. While product choices had expanded, the beverage distributor was facing a 3.3% increase in out-of-stock products. In addition, overall sales volume showed only a slight gain of 0.9 percent, despite significant increases in marketing.
2 Opportunity Assessment
Sizing Up the Best Opportunities
The commercial and operations team generated a number of channel-specific scenarios, all of which reallocated marketing efforts and investment in stock from products that failed to meet the threshold to those that were successful. The completed analysis demonstrated that the client did not need to make additional investment in stock. In fact, shoppers were better able to make purchasing decisions when retailers maintained variety but reduced redundancy. Using the analytics, retailers were able to invest at the same level with a more informed approach.
3 Scenario Definition
Analyzing the Flow from Product to Profits
Middlegame experts used the CIA® modelling engine to evaluate how each SKU or type and size of beverage container contributed incrementally to the portfolio, based on unit case volume and gross profit. Results revealed that multiple SKUs failed to meet the finance team’s acceptable threshold for ROI. These under-performing products were draining much-needed resources from the SKUs that did exceed the established financial criteria.
4 Expectation Analysis
The Right Formula for Success
Middlegame’s strategic data and analysis predicted that by modifying product assortment, the beverage distributor would experience a 5.8% increase in volume or unit cases and +3.2 % in gross profit for the brand. At the same time, the new allocation of resources would strengthen the company’s overall portfolio with a net impact of +2.4% in gross profit.
5 Client Actions
Refreshing Insights. Rewarding Profits.
The beverage distributor’s senior management accepted recommendations to trim current product offerings and the commercial team performed a controlled test within a series of stores. The volume response in the testing paralleled Middlegame’s predictions, while profit gains greatly surpassed forecasts, paving the way for a national rollout of a SKU rationalization program.