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CPG companies face a growing challenge: optimizing product assortments to meet ever-shifting consumer preferences. Traditional methods like manual store audits and periodic sales reporting often fall short, do not give the whole picture and lead to retail blindspots, inefficiencies, resulting in issues with on-shelf availability and visibility.
McKinsey estimates that AI-driven changes in the CPG and retail industry could generate up to $660 billion annually. The solution lies in assortment optimization through AI.
With real-time data and machine learning, CPGs can create smarter product assortments that better align with critical in-store shelf execution, such as on-shelf availability, planogram compliance, promotional implementation, and shelf share.
In this article, we will explore how AI can help CPGs simplify and improve their assortment strategy, boost profitability, and reduce churn to help them stay ahead in a dynamic marketplace, ultimately.
Why Do CPGs Need Assortment Strategies?
Assortment optimization is the practice of selecting and managing the right products for the right markets at the right time. It involves using data-driven insights to align product offerings with consumer demand, ensuring that every item in a retailer's assortment maximizes value. Here's why CPGs cannot afford to ignore this strategic approach:
- Maximizing Shelf Space: With limited space in stores, it’s vital to ensure every product on the shelf is the right choice.
- Reducing Wasted Inventory: Without a strategic assortment, CPGs risk on-shelf product unavailability and misplacement, leading to reducing excess inventory costs.
- Enhancing Customer Loyalty: Offering or strategically placing products on the shelf that resonate with local tastes fosters customer loyalty, keeping them coming back for repeat purchases.
- Staying Competitive: As competition intensifies, CPGs need to adapt to trends and market demands to differentiate themselves. A robust assortment strategy gives them the agility they need to stay ahead.
Without a clear and dynamic assortment strategy, CPGs risk losing touch with consumer needs and falling behind competitors.
Also read: Product Assortment: Strategies and Optimization in Retail.
AI steps in to fix these inefficiencies, enabling businesses to react swiftly and precisely to changes in consumer behavior.
Why Traditional Assortment Strategies Fail at On-Shelf Optimization?
Many CPG companies still rely on traditional assortment planning methods, but these approaches often overlook what matters most at the point of sale, what ends up on the shelf, and how well it performs there. Static plans and outdated data often lead to poor shelf presence, stockouts, and missed consumer expectations. Here's why these strategies fall short when it comes to shelf-level execution:
1. Static Planning Leads to Shelf Irrelevance
Traditional assortment strategies are often built once and rarely updated. This rigidity means that shelves don’t reflect current demand, regional trends, or seasonal shifts. As consumer preferences change, shelf assortments stay frozen, resulting in underperforming SKUs taking up space while high-demand products are missing.
2. Lack of Store-Level Data Hurts Local Shelf Performance
Without store-specific insights, brands rely on broad assumptions to guide assortment. This often leads to sending the same products to all stores, regardless of what actually sells. As a result, shelves carry irrelevant inventory in some locations while others face stockouts, both of which reduce sales and erode consumer trust.
3. Inability to React Quickly Impacts Shelf Visibility
When market trends shift, brands need to adapt their assortments rapidly to ensure the right products are available and visible. Traditional strategies lack the agility to support real-time updates, leading to planogram misalignment, delayed product rollouts, and empty shelves during peak demand.
How does AI Fix These Inefficiencies?
AI-driven solutions address these inefficiencies by providing businesses with the tools to react quickly and with precision. With AI, companies can ensure that their assortments remain relevant, profitable, and responsive to market shifts. Here’s how AI enhances your assortment strategy:
AI analyzes vast datasets from diverse sources, such as in-store sales, inventory, and planogram compliance, in real time. This immediate processing of data allows businesses to adjust assortments quickly, reducing the risks associated with outdated product offerings. With this capability, CPGs can make informed decisions on the fly, ensuring that they never miss a crucial opportunity to meet consumer demand.
In addition to real-time data analysis, AI uses machine learning algorithms to predict trends, forecast on-shelf demand, and recommend the most profitable products for your assortment. These advanced algorithms go beyond simple analysis, recognizing hidden patterns from detailed analytics.
ParallelDots’ ShelfWatch provides the real-time shelf data CPG brands need to support these AI-driven improvements. By capturing accurate and up-to-date in-store information, ParallelDots enables companies to make data-driven decisions that improve their assortment strategies. With its AI-powered shelf monitoring tools, businesses can ensure products are correctly placed and available when needed.
Also read: AI-Powered Analytics in the CPG Industry Use Cases
AI, therefore, helps businesses fine-tune their assortments to align with demand perfectly, optimizing product placement and in-store inventory levels across different regions.
Practical Applications of AI in CPG
CPG companies can harness AI to streamline their product range by pinpointing slow-moving items and eliminating unnecessary SKUs, which simplifies their assortment and enhances operational efficiency.
AI also plays a key role in reducing product turnover by aligning stock more precisely with consumer demand, helping to prevent in-store stock unavailability. Its forecasting abilities provide early warnings on emerging trends and the future, ensuring the right products are consistently available.
A great example of this is demonstrated in a case study with a top food products company, where ParallelDots’ ShelfWatch solution improved on-shelf availability and planogram compliance across more than 10,000 general trade outlets.
Although the case primarily focuses on on-shelf availability, the improved planogram compliance and product placement directly support smarter assortment strategies by ensuring hero SKUs are visible and properly positioned according to data-driven standards.
This led to a 30% improvement in planogram compliance within two months, reducing execution gaps and driving cost savings. Distributors found the tool easy to adopt, streamlining communication and making assortment execution more consistent.
Benefits of AI in Assortment Optimization
AI’s impact on assortment optimization goes far beyond smarter decision-making; it drives tangible business results that improve your profitability and customer satisfaction. Implementing AI-powered strategies can unlock several key benefits for CPG companies, including:
- Increased profitability through targeted product replacement
- Enhanced cross-selling via complementary product grouping
- Improved shelf efficiency and space utilization
- Reduced inventory costs by minimizing stockouts and overstocks
- Greater responsiveness to market trends and consumer needs
Together, these benefits ensure your assortment strategy aligns with consumer needs and contributes directly to stronger financial performance.
Future Trends in AI and Assortment Strategy
The future of assortment optimization is set to become even more dynamic as AI technologies continue to advance. One significant trend is the shift toward dynamic planning, where assortment strategies move away from being static and become more flexible to adapt to changes in consumer demand quickly. AI enables CPGs to monitor market conditions in real-time and adjust their product offerings accordingly, ensuring that assortments remain relevant and aligned with what customers want at any given moment.
Alongside this, category management is evolving with AI playing a larger role in decision-making. Category managers will have access to more sophisticated AI tools that provide deeper, data-driven insights. This shift empowers them to take a proactive approach rather than simply reacting to market changes. With continuous AI input, assortment strategies will be refined and improved consistently, helping CPGs stay ahead of trends and make smarter, more informed decisions that drive growth.
Also read: AI in CPG: Boosting Store Sales for Beverages, Personal Care & Packaged Foods Category
How Do ParallelDots’ AI-Driven Solutions Help in Assortment Strategy?
AI-driven solutions help CPGs go beyond basic data analysis to optimize their assortment strategies. Key solutions often sought by CPGs include in-store visual shelf data, real-time data processing, and predictive analytics. These features enable CPG brands to develop more agile, responsive, and efficient assortment strategies that cater to dynamic market conditions. With the right AI tools, CPGs can fine-tune their assortments, optimize product placement, and stay ahead of consumer trends.
So, how does ParallelDots contribute to this transformation?
ParallelDots provides a suite of AI-driven solutions designed to address the core challenges in assortment optimization. Here’s how AI-driven solutions from ParallelDots can significantly improve assortment strategy:
- Achieve Perfect Store Execution: Analyze shelf space and availability in real time to ensure the presence of Must-Carry and priority SKUs. Monitor competitor activity, validate planogram compliance, and optimize product placement to drive sales. This level of execution ensures that your assortments are always aligned with market demand and competitive pressures.
- Real-Time Shelf Data: ShelfWatch allows continuous monitoring of critical shelf conditions, including POSM (Point of Sale Material) Compliance, and End Caps and Gondola Compliance. This real-time tracking enables CPGs to quickly identify and correct issues, keeping product placement and promotional displays aligned with strategy. Additionally, monitoring On-Shelf Availability ensures products are consistently stocked where they are needed, reducing missed sales due to stockouts.
- AI-Driven Category Optimization: With continuous data analysis, businesses can optimize assortments across multiple categories to maximize overall performance. This includes ensuring price tag compliance that supports assortment goals. AI identifies product groupings and assortment mixes that improve shelf effectiveness and drive higher sales.
These AI-powered features let CPG companies gain a comprehensive, customizable approach to assortment strategy, ensuring shelves are optimized for consumer demand, promotional effectiveness, and category performance across every store location.
Conclusion
AI is transforming how CPG companies approach assortment optimization, offering the agility and precision needed to keep pace with rapidly changing consumer demands. ParallelDots stands out as the ideal partner for CPG and retail companies seeking to implement these advanced AI-driven strategies. With its comprehensive suite of tools designed to monitor shelf conditions and optimize categories using real-time data, ParallelDots empowers companies to make smarter, faster decisions that drive growth.
Book a demo today to discover how ParallelDots can elevate your assortment strategy and keep your business ahead of the curve.
