- Mondelez credited an "unprecedented" gain in market share in the second quarter to the company's supply chain execution, executives said on a Wednesday earnings call. "Our supply chain has kept functioning quite well throughout a shortage of labor or lockdowns providing us with a competitive advantage," said CEO Dirk Van de Put, adding 85% of the company's revenue base gained market share in Q2.
- The company will reduce its net SKU count by 25% to further reduce cost, complexity and inventories while attempting to solidify these gains beyond the pandemic, Van de Put said. The SKUs to be cut represent just 2% of the company's total sales, he said.
- Simplifying the business was part of the Mondelez pandemic playbook in the first quarter as well, but executives did not offer a sense of scale when they first discussed it in April. Wednesday, Van de Put confirmed the strategy would last throughout 2020. "So we were already obliged in this crisis to work with a much smaller set of SKUs in order to make sure that the key SKUs are on the shelf," he said. "And what do we see? Our sales are better, the shelf looks cleaner, and we get some benefits from it."
In the first full quarter affected by the pandemic, Mondelez executives saw the brands that win at the grocery store will be the brands that make it to the shelf consistently. Beyond sourcing and manufacturing to keep products in stock, the company's direct-store-delivery (DSD) capabilities gave it an additional advantage, CFO Luca Zaramella said.
As competitors' supply chains catch up from pandemic-related production slowdowns, Van de Put said the execution benefits of an SKU reduction would help the company to maintain its gains, at least in part.
He described the current moment as an opportunity for a long-overdue overhaul of the system by which new SKUs are created at Mondelez. But the 25% reduction in net SKUs will not be easy internally.
"It's always a big discussion because the teams feel uncomfortable doing it," he said. "What has happened over the years is that people are chasing growth. And as a consequence, they keep on launching new products. And that gives you a short-term benefit. But at a certain stage, you need to clean that up."
In addition to hanging onto market share, executives expect to see cost savings and productivity gains begin to accrue in Q3 and offset the increased costs of operating amidst a pandemic in Q4.
"Your supply chain costs go down because of longer runs, less changeover, less inventory, less waste, and it also has a big benefit on your cash. So it's a good exercise to do," said Van de Put of the SKU reduction.
Focusing on core SKUs was a common play among major CPG companies in the early months of the pandemic and recent executive comments from Mondelez and Coca-Cola suggest that many pandemic-driven SKU reductions will stick even as world economies inch back toward normal.