French food giant Danone is cutting the variety of products it sells to retailers as it seeks to cut costs, a top executive has told Reuters.
Supermarkets and the makers of packaged food are struggling to combat rising costs, with products ranging from crude oil to paper packaging becoming more expensive due to a protracted pandemic-led shipping crunch and Russia's invasion of Ukraine.
Those factors are prompting one of the world's top food manufacturers to rethink how it sells its best-selling products which range from Activia yoghurt and Evian water.
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Inflation Concerns
"Inflation is a dynamic, particularly in Europe, that we need to start to get used to," Ayla Ziz, Danone's global head of sales, said.
The company is cutting back on SKUs, meaning that some supermarkets will have fewer variations of Danone products when it comes to flavours and sizes, she said.
Having fewer SKUs would help cut costs per type of product, she said, adding that Danone was reviewing its "entire portfolio" with every customer to see which SKUs it wants to discontinue.
Consumer companies like Danone make many versions of the same product - from big and small tubs of the same yoghurt to different flavours and value packs.
It's not pulling a whole product line from the market, but simplifying its range means some of these could be sacrificed to make it cheaper for retailers to stock and manage a smaller, less complex inventory.
She did not identify which ranges might be targeted. "It's not a global cut of some products," Ziz said.
Improved Efficiency
Maria Castroviejo, senior analyst at Rabobank Research, said the measures make sense for companies trying to be more efficient. Many companies did something similar at the start of the COVID-19 pandemic.
"If you have to make a lot of small batches of different products, you have more disruptions, you have to find have more ingredients," she said.
Danone wants to "stay competitive" so it is not cutting back on promotions but, rather, selling fewer types of products will also help it save logistics costs.
Ziz said Danone is also investing in software that helps it price products to a more precise degree that consumers will be able to accept.
These moves come as food manufacturers continue prolonged talks over prices that started last year with supermarkets which have been particularly tough in Europe as shipping costs climbed to a record high.
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