Source | Retail Circle ID | retailsphere Author | Retail Jingyan In today's retail industry, every move by ALDI is a focus of attention, especially its 1,000-square-meter store with 1,500 SKUs achieving daily sales of 1 million yuan, creating an industry myth. Some find it unbelievable, others see it as a "god-making" movement, but after ALDI's new stores repeatedly hit new highs, curious visitors revealed its extreme cost-performance products, silencing all doubts. The minimalist product assortment instantly became a hot topic, and the concept of wide categories with narrow SKUs, following assortment adjustments and naked sourcing, became the hottest professional term in 2025. Is wide categories with narrow SKUs applicable to every retail enterprise at every stage? The author communicated with multiple retail bosses at different levels, and the answer is affirmative. Wide categories with narrow SKUs: The beginning of shelf awakening As we all know, the retail industry has always been labeled as a finance-like industry because almost all products have payment terms, with most contracts stating "monthly settlement for distribution, reconciliation on the 15th of the next month, payment on the 25th." From this clause, we can see that settling last month's payment at the end of this month means that the products in the retail enterprise's stores and warehouses actually belong to the suppliers. Retail enterprises are not particularly concerned about product sell-through or contribution because they can return slow-moving products before the next settlement without loss. Some even delay payments due to poor inventory turnover. Suppliers, before supplying, have precisely calculated capital costs and return costs, adding them all to the supply price. The ones paying for these fees and costs are neither the retail enterprises nor the suppliers, but the customers. When e-commerce platforms were not well-developed, customers paid a price premium far exceeding the product's value due to information asymmetry. The rise of e-commerce platforms and community group buying, by simply removing premiums, broke the 20-plus-year balance between suppliers and retailers, which retailers call "involution." When normal gross margins cannot support operating expenses, changing settlement methods becomes a must. Suppliers give up contract fees, capital costs, and return costs, supplying at naked prices. Retail enterprises pay upfront for goods, using part of the reduced procurement costs to compete and part to support store expenses. Suddenly, they realize that the turnover speed of their own funds becomes the key to survival. Having more products on shelves to meet different customer needs becomes the biggest burden. The abundance of products with similar functions, specifications, price bands, and multiple brands leads to high turnover rates, forcing retailers to wield the axe of assortment reduction. Wide categories with narrow SKUs is not an automatic behavior of retail enterprises but a necessary means to survive in competition and a necessary path to improve retail efficiency. This is an awakening and revolution from managing shelves to managing products. Some enterprises force assortment reduction by setting procurement targets and linking them to KPIs. Can this achieve the effect of wide categories with narrow SKUs? The answer is no. Wide categories with narrow SKUs: Category management is the foundation Some say that the category management concept introduced to China by international first-line FMCG brands like P&G in the late 1990s was driven by shelf-grabbing, but it cannot be denied that they brought the most advanced product management concepts. Since the 2000s, with the gradual maturity of ERP and CRM systems in the retail sector, advanced technology has been widely applied. The product organization structure table has become standard, with each smallest category representing a consumer preference, serving as the basis for mature retail enterprises to build product assortments. This method has been around for over 20 years, but in many retail enterprises, the highest-selling subcategory in some mid-level categories is "Other," with cross-category items everywhere. On such a rough product management foundation, an assortment reduction campaign under the banner of wide categories with narrow SKUs is like a blind man swinging a knife wildly, unable to kill the enemy and most likely harming himself. The prerequisite for wide categories with narrow SKUs is to set an effective width based on the served customer groups and correct the product organization structure table. Then, with a rigorous attitude, classify the currently operating SKUs into the correct positions in the table, review whether there are missing categories, and for missing ones, benchmark against comparable excellent enterprises to first introduce representative products from the small (sub) categories we plan to operate. In implementing wide categories with narrow SKUs, adding products first is a key step to ensure subsequent actions do not deform and current operations do not decline. Wide categories with narrow SKUs is a methodology; there will never be a one-size-fits-all template. With different store sizes, customer groups, operational advantages, and target categories, each retail enterprise should set products with different price bands, functions, brands, etc., in the smallest categories based on its own operational needs, showcasing operational characteristics by adjusting the number of products in the same small (sub) category. At this point, products without characteristics, not matching target customers, or completely replaceable by other products are naturally screened out; these are the ones to be eliminated in the narrow SKU action. The selected products can cover a wider range of applicable customers. For multiple stores in a system with different sizes, keeping the product structure skeleton unchanged and adjusting the number of SKUs in small (sub) categories is an effective means to maintain operational and management efficiency. Of course, in product selection, supplier cooperation and other factors are also dimensions to consider, with choosing products with stable supply being an important criterion. In ALDI's stores, products with the same function never appear repeatedly because each selected product is a top performer in its category. Let us set aside our attention and amazement at ALDI's hit products and carefully analyze its product composition; it will bring greater shock and insight than the hit products themselves. Wide categories with narrow SKUs: Category growth is the goal Many supermarket buyers told the author in communication that wide categories with narrow SKUs puts enormous pressure on them. The lack of product knowledge is fully exposed in this process. In the previous multi-SKU operation, they only needed to introduce well-performing brands and products in the market, as long as the price was not higher than competitors, the job was done. If products didn't sell, it wasn't the buyer's problem. After implementing wide categories with narrow SKUs, they found that research on categories and products was basically not done in previous work, and product research and configuration are exactly what a competent buyer should do. Letting each SKU show its maximum value and produce the best business results is the surface display of wide categories with narrow SKUs. In the retail industry, rent and labor costs are the two largest expenses. Operators can examine whether there is huge labor waste in employees' daily work. In retail business activities, sending an order starts the business process: tracking orders, receiving, displaying, warehousing, returns, and settlement—each process requires employee time. The more redundant and ineffective products, the more ineffective work for employees. Talking about improving labor efficiency without focusing on effective SKUs is nonsense. "Out-of-stock is a crime" is a statement no one in the industry denies. Best-selling products are the most prone to stockouts, and this is a key topic in various operational trainings. Many retail enterprises have sales where 50% of sales come from less than 5% of total SKUs. Missing an order for each bestseller, supply chain delays, or untimely self-procurement can significantly impact sales. At the same time, ineffective products occupy the display space of bestsellers, affecting sales due to insufficient exposure. The operational losses from stockouts due to insufficient basic display quantities are often not quantifiable, but according to the author's tracking of a retail enterprise, through the practical application of wide categories with narrow SKUs, a mid-level category reduced SKUs by 32%, expanded displays for effective products, increased availability to 96%, and without adjusting retail prices, category sales grew 13% year-on-year. In an interview with the head of this enterprise, she told the author that they did "a right but difficult thing." Breaking an old model and promoting a new method for a traditional enterprise means leaving the comfort zone of long-term survival. This action must be a top-priority project, only achievable with consensus at the decision-making level. Deciding the fate of a company is not something the procurement department or a single buyer can accomplish. Wide categories with narrow SKUs: The first move for private brands Private brands are now seen by many retail enterprises as an important means to establish price image, obtain higher gross margins, and achieve differentiation. But which private brands to develop? Many enterprises lack clear systematic planning. They see Pangdonglai making beer and do the same; they see ALDI making cooking oil and do the same. Imitation and copying are the current logic for many retail enterprises in private brands. Private brand homogenization is also spreading in the second half of this year. How to create private brands suitable for one's own enterprise and give customers unique recognition is already a consideration for many retail enterprises. Wide categories with narrow SKUs provide a clear direction for creating private brands. Wide categories with narrow SKUs can concentrate dispersed product demand into a single SKU. During a visit to a retail enterprise, the head, Mr. Zheng, said: "We plan to select star products from categories with large sales volumes in our enterprise and express them through private brands. This ensures basic sales, gives customers a better cost-performance feeling, and allows for more accurate orders to reduce capital risk. We believe this is the safest way to build private brands." Perhaps Mr. Zheng's choice can also provide some reference for enterprises hoping to build private brands.
Final Thoughts
The white-hot competition in retail has been ongoing for over two years. Quality retail, discount retail, and instant retail have become proven models that can run. Regardless of the model, efficiency is the foundation of survival. Wide categories with narrow SKUs may seem like an adjustment to product structure, but it is actually the key to customer insight and efficiency improvement for retail enterprises. ALDI has set an example for us. Idealistic enterprises can proceed step by step, but they cannot remain indifferent. Since it is a necessary process, and while most enterprises are still at the same starting line, doing it early rather than late is not just a lead of one position but perhaps a divergence in different directions.