Bakery & Snacks SKU Rationalization

Client Background

The client, a multinational bakery & snacks manufacturer with annual revenues of ~$3.5 Bn, managed a diverse portfolio of more than 500 SKUs across biscuits, cakes, crackers, and savory snacks. Over the years, the company had expanded aggressively, launching multiple product variations (flavors, pack sizes, seasonal editions).

However, despite overall brand strength, sales growth was stagnating. Internal analysis suggested that a large portion of SKUs were generating minimal sales contribution while consuming significant shelf and supply chain resources. The company wanted to identify which SKUs were worth retaining and which should be rationalized - without alienating retailers or losing consumer loyalty.

Research Objectives

The company engaged FMI with five clear objectives:

1. SKU-Level Sales & Profitability Analysis - Evaluate the contribution of each SKU to revenue and margins.
2. Portfolio Optimization - Identify which SKUs to retain, expand, or discontinue.
3. Retailer Insights - Understand category managers’ perspectives on SKU proliferation.
4. Competitive Benchmarking - Assess how peer companies manage portfolio breadth.
5. Strategic Recommendations - Provide a roadmap for SKU rationalization and reinvestment into high-growth formats.

Challenges Faced

1. Long Tail SKUs - Over 100 SKUs contributed less than 1% of sales individually, but together accounted for nearly 25% of supply chain costs.
2. Retailer Pushback - Retail partners often equated SKU proliferation with “choice” for consumers, and delisting risked conflict.
3. Cannibalization - Some SKUs were cannibalizing sales of core profitable products.
4. High Logistics Cost - Distributing niche SKUs led to warehousing inefficiencies and increased transport costs.

FMI’s Approach

FMI designed a multi-pronged research methodology to combine hard sales data with stakeholder perspectives:

1. Data Analytics
   • Collected 3 years of client’s SKU-level sales, margin, and logistics data across Europe and North America.
   • Applied Pareto analysis to map contribution: top 20% of SKUs generated 72% of sales, while bottom 20% contributed only 3%.
2. Retailer & Distributor Interviews
   • Conducted 20 in-depth interviews with category managers from Tesco, Walmart, Carrefour, and regional supermarket chains.
   • Found that retailers preferred fewer SKUs with higher turnover to reduce complexity in shelf management.
3. Competitor Benchmarking
   • Assessed SKU portfolios of 5 peer companies in bakery & snacks.
   • Discovered that competitors with leaner portfolios (300-350 SKUs) achieved 5-8% higher shelf productivity than the client.
4. Consumer Surveys
   • Surveyed 2,000 shoppers across Germany, UK, France, and USA
   • Revealed that seasonal or niche SKUs had low repeat purchase intent (<20%), while core SKUs consistently scored above 60%.

Solution Delivered

Based on data-driven evidence, FMI recommended a portfolio rationalization strategy:

• Delist ~100 SKUs (20%) - primarily low-velocity seasonal flavors and pack-size variants.
• Retain and Expand Top 50 SKUs, focusing on best-selling flavors and high-margin multipacks.
• Reallocate Shelf Space - shift freed-up space to high-velocity SKUs and new premium “better-for-you” product line.
• Streamline Supply Chain - reduce warehousing complexity by consolidating SKUs at regional distribution hubs.

Results

• Cost Savings: Rationalization saved the company $22 Mn annually in logistics, warehousing, and production costs.
• Sales Velocity: Average SKU sales velocity improved by 11% across key retailers within 9 months.
• Retailer Relations: Instead of pushback, retailers welcomed the move, citing higher category productivity.
• Focus on Innovation: The company reinvested savings into developing a new high-protein snack bar line, which contributed an additional $15 Mn in sales in year 1.

Key Takeaway

This case illustrates how data-driven SKU rationalization not only reduces costs but also strengthens retailer partnerships and sets the stage for focused innovation. Relying on portfolio analytics, rather than gut instinct, turned a cluttered assortment into a lean, profitable growth engine.