CNN Money's website has a good article documenting how large retailers are streamlining the number of branded products on their shelves. As you might expect, Wal-Mart features prominently in this development. The article describes how retailers are reducing their product assortments, i.e. Do we really need 50 different types of toothpaste on the shelf?
Why might retailers streamline brand and product assortment?
1. Private label offers an attractive, value-oriented option for consumers, and it provides attractive margins for the retailers.
2. Reducing assortment offers an opportunity to drive higher volumes on a smaller set of SKUS, thereby increasing inventory turnover (thus driving return on assets higher).
3. Fewer SKUs means less confusing displays for the consumer, and more opportunities to showcase particular products in a more prominent way.
4. A reduction in SKU count and brand assortment may reduce logistics costs and administrative expenses, particularly if the retailer now has to deal with fewer suppliers and supplier locations.
5. Pitting brands against one another in a battle for shelf space enables retailers to extract concessions from key suppliers, thereby reducing costs of goods sold and increasing margins.
6. Retailers may have an opportunity to reduce the square footage of their store footprint, particularly as they experiment with urban and "neighborhood" store types.
Of course, large retailers are not necessarily breaking new ground here. Smaller retailers have been very successful with this limited SKU strategy for some time. Consider, for instance, the small but highly successful New England grocer, Stew Leonard's, as well as the popular national chain, Trader Joe's.