Maximizing the right assortment of products, brands and categories is important to the bottom line. Objectively determining the right “mix” is one of the most complicated decisions suppliers must make.
FSIP hosted a strategy session in Chicago and attendees were able to discuss the strategic importance of portfolio management. We used the Boston Consulting Group Growth-Share Matrix to guide the discussion.
In retail, product portfolios are typically organized by state (e.g., frozen, shelf-stable, etc.). It is not as simple in foodservice. Products may be organized by state, category, preparation method and/or business unit. How an organization determines this could be dependent on brand equity or growth opportunities in new channels. For large CPG-rooted companies, foodservice is a new channel for many of their brands.
Many manufacturers use mergers and acquisitions to grow their product portfolios, with some acquiring new businesses every year as a core strategy. Manufacturers note that it takes time to create economies of scale in production, thus it is easier to buy another company that already does that well. This allows an organization to grow their core competencies instantly without the time needed to ramp up production or develop the market for a new product. However, it is important to stay true to the organizational identity during the scouting process.
It is critical to use data to inform new product development and in determining products to cut from the portfolio because both processes are complex. When adding a new product, manufacturers want to avoid cannibalization, especially when lower margin. Discontinuing a product is even more complex due to the added layers in foodservice with brokers, distributors, redistributors, etc.
Because it takes time and capital investment to grow production capabilities, many manufacturers focus their portfolio growth strategies around mergers and acquisitions. It is critical to vet the market before making either type of investment to mitigate risk. Similarly, it is important to have an evaluation process in place for portfolio management to ensure the organization has the right product mix to meet current and future market demands.
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