Beyond the Tail: How a Strategic Approach to Simplification Fuels Growth

Re-investing to grow—vs. merely cutting SKUs—helps CPG companies unlock efficiency while boosting volume-driven growth.

By Carlos Cruz, Cameron Javor, Soyoung Kwon, and Flavio Mologni

Tempo di lettura min.


Facing pressure to restore profitable growth, consumer products companies see a lifeline in simplification. Unfortunately, the traditional approach—SKU reduction via cutting the tail—treats the symptom, not the disease. Our Simplify to Grow framework flips the script with a focus on growth, not cost cutting, helping clients realize a sales uplift of up to 5%. By leading with consumer needs and breaking down organizational silos, we help you create a sustainable model that keeps complexity out (and profitability in). The push for simplification is driven by factors including heightened competition, shifting consumer preferences, and evolving retail dynamics. Inflation-driven price growth hasn’t been enough to protect margins, and CPGs are feeling the heat from consumers and retailers alike: more than 80% of consumers (85% in the US, 88% in Europe) plan to further reduce spend on fast-moving consumer goods despite a significant drop in retailer margins in recent years (15% in the US, 25% in Europe). To counter these forces, we help CPGs cultivate a virtuous cycle: By creating a streamlined offering that considers consumer needs and occasions to maximize household penetration, CPGs in turn drive shelf productivity. This helps retailers, who will respond by reinforcing the complexity reduction. As a result, manufacturers see better profit and sales—and lower complexity and costs. Why simplification fails For most CPG companies, portfolio simplification is incremental and routine. By treating simplification as a functional task instead of a strategic priority, CPGs fail to create meaningful, sustained value. Blind spots are also an issue. Many companies don’t understand how much of a silent killer complexity can be, leading to increased waste, transportation costs, and production downtime for small runs (see Figure 1). Moreover, they often miss the distinction between bad complexity and the good variety (such as the addition of new SKUs to meet emerging consumer needs). Figure 1 Products often have hidden complexity costs that erode margin and profitability When companies focus on cost-cutting vs. consumer-centric growth, they often create a negative cycle. To sustain volume, retailers may try to protect the shelf with untested new SKUs that don’t reduce complexity or costs. Throwing more at the shelf in hopes that something will stick can make it harder for consumers to distinguish product benefits. Moreover, CPG companies themselves may lose steam if a “big swing” doesn’t deliver results. When CPGs don’t properly embed governance in their approach, the complexity will inevitably return—leading to reluctance to prioritize future efforts. What we do differently Simplify to Grow demands a mindset shift—from merely cutting costs to strategically building a more productive shelf that prioritizes “good complexity.” We provide a roadmap for unveiling hidden costs, building C-level buy-in, and engaging retailers with a win-win vision. Our differentiated approach stems from a deep understanding of the market, consumer and retailer behavior, and the strategic moves that cultivate growth and profitability. It factors in the intricate balance between operational efficiency and consumer-centric growth. CPG companies are encouraged to make decisions with a complete profit-and-loss (P&L) perspective, breaking down departmental siloes to ensure that both commercial and operational impacts are fully considered. The engine for simplification is a five-part flywheel (see Figure 2). We help you kickstart the machinery with a bold ambition. A compelling story that clearly articulates your commitment to consumers, customers, and your organization serves as your north star as you build momentum across these five areas. Figure 2 Simplify to Grow helps you build and sustain a growth flywheel Consumer-right We start with your consumer, not your portfolio. To uncover the products that truly create value, we ask: How do your consumers shop? What drives their demand? What do they value, where and when do they consume, and what role does convenience play? We analyze your consumer needs and occasions, along with category partitions, penetration and distribution, and competitor benchmarking to help you identify priority portfolio areas. This includes taking a close look at incremental profit pool velocity (IPPV), which measures the combined impact of three performance drivers: SKU return on sales, household incremental penetration, and SKU unit profit pool. As the most effective key performance indicator (KPI) for setting portfolio priorities, IPPV can help steer decision-making toward the SKUs that deliver higher shelf productivity. Retailer win-win Simplify to Grow hinges on CPG companies and retailers co-creating a strategy. Joint business planning and the sharing of consumer and category intelligence helps build mutual success in the marketplace. This means shared decision-making about SKUs, profit pool growth scenarios, and KPIs for new assortments, along with virtual shelf-testing and field pilots. By building a sustained partnership with retailers, CPGs can design a winning portfolio that focuses on customer growth. Value chain efficient Complexity can’t be fixed without an understanding of the real costs involved. We help you build a complexity P&L statement by mapping sources of complexity across the full supply chain. From here, we de-average shared costs, re-allocate them based on complexity drivers, and factor in hidden costs such as waste. We pinpoint efficiencies so costs are not absorbed by other SKUs, and we leverage the complexity P&L to determine the operational benefit of streamlining. End-to-end value creation Traditionally, simplification is tackled in siloes. Our approach is holistic: From day one, we help attain sponsorship from finance, marketing, commercial, and supply leaders. Under this joint governance and execution model, teams work together to diagnose the real costs of complexity, then make balanced trade-offs that generate value and help the business overall. When all functions have equal skin in the game, the company maximizes commercial impact. Momentum and muscle Simplification won’t succeed as a one-off exercise; to create lasting change and keep out complexity, we guide you to new ways of working that sustain benefits, such as embedding SKU productivity into sales and operations planning, focusing on new product development, creating new budgeting processes, and instilling coaching and incentive programs to encourage good behavior on your simplification journey. Finally, we help cement your new capability with tools such as SKU performance dashboards and real-time shelf scenario models that allow you to track progress. This ensures not only near-term growth but also a long-term competitive advantage. Once the engine is fully running, we help you track growth and amplify your team’s capabilities with a suite of advanced tools and best practices to manage change and make trade-offs between performance, reliability, and capacity. A side benefit of building a simplification machine? By focusing on a smaller set of core products that meet consumer needs, companies often find opportunities to invest more effectively in brand building, marketing, and innovation. Fuel growth the right way The benefits of simplification extend across the entire business, positively affecting both the top and bottom lines. Key outcomes include better shelf placement, higher on-shelf availability, more focused brand investments, faster speed to market due to more agile processes, and reduced inventory, to name a few. All of this translates to happier employees, more satisfied customers, and a boost in sales and margins. Navigating the challenging landscape of profitable growth requires new thinking. Reducing complexity is table stakes, but smart companies recognize that how it’s done matters—and a high-performing strategy goes well beyond cutting the tail. With our help, winners can re-invest to grow with a disciplined, integrated approach to decision-making and the engine to create lasting change.

Facing pressure to restore profitable growth, consumer products companies see a lifeline in simplification. Unfortunately, the traditional approach—SKU reduction via cutting the tail—treats the symptom, not the disease. Our Simplify to Grow framework flips the script with a focus on growth, not cost cutting, helping clients realize a sales uplift of up to 5%. By leading with consumer needs and breaking down organizational silos, we help you create a sustainable model that keeps complexity out (and profitability in).

The push for simplification is driven by factors including heightened competition, shifting consumer preferences, and evolving retail dynamics. Inflation-driven price growth hasn’t been enough to protect margins, and CPGs are feeling the heat from consumers and retailers alike: more than 80% of consumers (85% in the US, 88% in Europe) plan to further reduce spend on fast-moving consumer goods despite a significant drop in retailer margins in recent years (15% in the US, 25% in Europe).

To counter these forces, we help CPGs cultivate a virtuous cycle: By creating a streamlined offering that considers consumer needs and occasions to maximize household penetration, CPGs in turn drive shelf productivity. This helps retailers, who will respond by reinforcing the complexity reduction. As a result, manufacturers see better profit and sales—and lower complexity and costs.

Why simplification fails

For most CPG companies, portfolio simplification is incremental and routine. By treating simplification as a functional task instead of a strategic priority, CPGs fail to create meaningful, sustained value. Blind spots are also an issue. Many companies don’t understand how much of a silent killer complexity can be, leading to increased waste, transportation costs, and production downtime for small runs (see Figure 1). Moreover, they often miss the distinction between bad complexity and the good variety (such as the addition of new SKUs to meet emerging consumer needs).

Products often have hidden complexity costs that erode margin and profitability

When companies focus on cost-cutting vs. consumer-centric growth, they often create a negative cycle. To sustain volume, retailers may try to protect the shelf with untested new SKUs that don’t reduce complexity or costs. Throwing more at the shelf in hopes that something will stick can make it harder for consumers to distinguish product benefits. Moreover, CPG companies themselves may lose steam if a “big swing” doesn’t deliver results. When CPGs don’t properly embed governance in their approach, the complexity will inevitably return—leading to reluctance to prioritize future efforts.

What we do differently

Simplify to Grow demands a mindset shift—from merely cutting costs to strategically building a more productive shelf that prioritizes “good complexity.” We provide a roadmap for unveiling hidden costs, building C-level buy-in, and engaging retailers with a win-win vision.

Our differentiated approach stems from a deep understanding of the market, consumer and retailer behavior, and the strategic moves that cultivate growth and profitability. It factors in the intricate balance between operational efficiency and consumer-centric growth. CPG companies are encouraged to make decisions with a complete profit-and-loss (P&L) perspective, breaking down departmental siloes to ensure that both commercial and operational impacts are fully considered.

The engine for simplification is a five-part flywheel (see Figure 2). We help you kickstart the machinery with a bold ambition. A compelling story that clearly articulates your commitment to consumers, customers, and your organization serves as your north star as you build momentum across these five areas.

Simplify to Grow helps you build and sustain a growth flywheel

Consumer-right

We start with your consumer, not your portfolio. To uncover the products that truly create value, we ask: How do your consumers shop? What drives their demand? What do they value, where and when do they consume, and what role does convenience play? We analyze your consumer needs and occasions, along with category partitions, penetration and distribution, and competitor benchmarking to help you identify priority portfolio areas.

This includes taking a close look at incremental profit pool velocity (IPPV), which measures the combined impact of three performance drivers: SKU return on sales, household incremental penetration, and SKU unit profit pool. As the most effective key performance indicator (KPI) for setting portfolio priorities, IPPV can help steer decision-making toward the SKUs that deliver higher shelf productivity.

Retailer win-win

Simplify to Grow hinges on CPG companies and retailers co-creating a strategy. Joint business planning and the sharing of consumer and category intelligence helps build mutual success in the marketplace. This means shared decision-making about SKUs, profit pool growth scenarios, and KPIs for new assortments, along with virtual shelf-testing and field pilots. By building a sustained partnership with retailers, CPGs can design a winning portfolio that focuses on customer growth.

Value chain efficient

Complexity can’t be fixed without an understanding of the real costs involved. We help you build a complexity P&L statement by mapping sources of complexity across the full supply chain. From here, we de-average shared costs, re-allocate them based on complexity drivers, and factor in hidden costs such as waste. We pinpoint efficiencies so costs are not absorbed by other SKUs, and we leverage the complexity P&L to determine the operational benefit of streamlining.

End-to-end value creation

Traditionally, simplification is tackled in siloes. Our approach is holistic: From day one, we help attain sponsorship from finance, marketing, commercial, and supply leaders. Under this joint governance and execution model, teams work together to diagnose the real costs of complexity, then make balanced trade-offs that generate value and help the business overall. When all functions have equal skin in the game, the company maximizes commercial impact.

Momentum and muscle

Simplification won’t succeed as a one-off exercise; to create lasting change and keep out complexity, we guide you to new ways of working that sustain benefits, such as embedding SKU productivity into sales and operations planning, focusing on new product development, creating new budgeting processes, and instilling coaching and incentive programs to encourage good behavior on your simplification journey. Finally, we help cement your new capability with tools such as SKU performance dashboards and real-time shelf scenario models that allow you to track progress. This ensures not only near-term growth but also a long-term competitive advantage.

Once the engine is fully running, we help you track growth and amplify your team’s capabilities with a suite of advanced tools and best practices to manage change and make trade-offs between performance, reliability, and capacity. A side benefit of building a simplification machine? By focusing on a smaller set of core products that meet consumer needs, companies often find opportunities to invest more effectively in brand building, marketing, and innovation.

Fuel growth the right way

The benefits of simplification extend across the entire business, positively affecting both the top and bottom lines. Key outcomes include better shelf placement, higher on-shelf availability, more focused brand investments, faster speed to market due to more agile processes, and reduced inventory, to name a few. All of this translates to happier employees, more satisfied customers, and a boost in sales and margins.

Navigating the challenging landscape of profitable growth requires new thinking. Reducing complexity is table stakes, but smart companies recognize that how it’s done matters—and a high-performing strategy goes well beyond cutting the tail. With our help, winners can re-invest to grow with a disciplined, integrated approach to decision-making and the engine to create lasting change.