Business cases & teardowns
How a beverage manufacturer optimized SKU portfolio to focus on high-margin SKUs and reduce operational complexity.
A beverage company undertook a deliberate SKU portfolio optimization to elevate margins, simplify supply chain complexity, and accelerate decision making by concentrating on core, high-margin products with scalable production.
July 26, 2025 - 3 min Read
In a competitive beverage landscape, a mid-sized producer faced fragmented demand signals, multiple packaging formats, and a sprawling SKU count that diluted profitability. The leadership team initiated a project to map every SKU against its economic contribution, shelf presence, and supply chain footprint. By aligning product attributes to clear financial outcomes, the company could see where marginal gains existed and where losses accumulated. A cross-functional task force spanning finance, operations, sales, and procurement conducted a thorough review of profitability, growth potential, and risk. This structured analysis created a baseline that enabled targeted pruning without sacrificing customer reach or brand equity.
The first phase focused on data hygiene and standardization. Analysts centralized SKU definitions, harmonized packaging codes, and corrected revenue recognition models to reflect true margins. They also integrated demand forecasting with production planning to reveal bottlenecks and redundant SKUs. This transparency exposed a surprising ledge of underperforming items that consumed labor, packaging material, and cold-chain capacity with minimal sales upside. Rather than simply cut, the team designed a two-tier approach: protect strategic SKUs tied to core brands while sunset underperformers in a predictable, low-disruption manner. The result was a cleaner product universe and a stronger basis for ongoing optimization.
Aligning portfolio focus with profitability and strategic capability.
The company then established a clear set of criteria for deciding which SKUs deserved continued support. Margin contribution, growth potential, seasonality, and supply risk formed the core pillars, but the team also weighed customer concentration and channel profitability. Items that did not meet a minimum hurdle were placed on a sunset path with defined milestones and customer transition plans. This framework allowed managers to forecast tax effects, warehouse utilization, and promotional spend with confidence. Crucially, the team embedded a governance cadence so the portfolio could respond quickly to market shifts without reigniting misalignment between sales promises and production capability.
Practically, the pruning process relied on a staged rollout. Early cuts targeted low-volume SKUs with high handling costs and little cross-sell potential, freeing capacity for more scalable products. The next wave targeted slightly higher volume items that consumed disproportionate freezer space or cold-chain resources. Throughout, the company preserved regional variations to avoid alienating key customers while still driving efficiency gains. To cushion customers, planners offered alternatives within the same brand family and ensured backfill options were available. This measured approach minimized customer disruption while creating room for investment in packaging formats and line flexibility that supported long-term growth.
Turning insights into sustainable competitive advantage.
The second pillar of the transformation targeted manufacturing complexity. The team analyzed changeover times, line utilization, and supplier lead times to identify where SKUs caused frequent downtime or forced expensive setup changes. They discovered a cluster of SKUs that shared production routes, temps, and packaging lines, enabling a consolidation plan that reduced changeovers and improved line efficiency. By standardizing equipment standards and reducing SKUs with bespoke pack sizes, the factory floor gained predictability. The savings manifested in improved on-time delivery, lower defect rates, and a leaner raw material inventory. Executives could reallocate capital toward capacity expansion for the most profitable products.
Beyond the shop floor, procurement benefited from a tighter SKU list. Purchases could be centralized through a smaller vendor base, with better pricing leverage and fewer supplier risk events. Consolidated packaging formats simplified carton, labeling, and warehousing. The purchasing team negotiated longer-term contracts tied to forecasted demand for the core SKUs, stabilizing inputs and stabilizing costs. This shift not only reduced administrative burden but also improved supplier collaboration, enabling better contingency plans for raw materials or packaging disruptions. With fewer SKUs to manage, procurement gained time for strategic projects such as packaging innovations and sustainability initiatives.
Building resilience through disciplined, data-driven decisions.
Strategic product rationalization extended to customer-facing activities. Sales teams reassessed assortment plans with retailers, proposing a more focused shelf strategy aligned to high-margin SKUs. In conversations with distributors, the company highlighted a streamlined lineup and a reliable supply cadence, which reinforced trust and reduced the risk of stockouts. Marketing shifted resources to support flagship products and tested selective promotions that amplified margin return rather than broad discounting. The balance between brand storytelling and financial discipline helped preserve consumer perception while delivering stronger bottom-line performance.
To maintain momentum, the organization implemented a robust KPI ecosystem. Metrics tracked included gross margin by SKU, contribution margin per distribution channel, and inventory turns at the SKU level. Leadership scheduled quarterly reviews to assess portfolio health, with explicit triggers for re-evaluation or reintroduction of items if market conditions shifted. The governance framework also incorporated scenario planning for price elasticity, new product introductions, and potential line extensions. By maintaining disciplined review rhythms, the company could capture incremental improvements and prevent backsliding into old, sprawling SKU practices.
Sustaining gains through continual optimization and learning.
The portfolio optimization unlocked financial resilience. By focusing on high-margin SKUs, the company achieved a meaningful lift in operating margin and a more predictable revenue mix. At the same time, complexity costs declined as fewer SKUs required fewer changeovers, simpler forecasting, and less waste. Management observed faster decision cycles as planners no longer gnawed through hundreds of minor items. The clarity around which products to prioritize also improved capital allocation, enabling strategic investments in automation and digital tooling that supported scale. Employees responded positively to clearer goals and measurable progress, reinforcing a culture of disciplined and data-informed execution.
Customer experience did not suffer despite the narrower portfolio. In fact, some retailers welcomed the predictability of stock availability and consistent quality. The team preserved essential regional flavors and seasonal variants within the high-margin core, ensuring that key consumer touchpoints remained intact. The company also launched pilot programs that tested limited pop-up SKUs aligned with brand narratives and sustainability commitments. These pilots were designed to learn quickly, with exit criteria and learnings documented for future portfolio decisions. The result was a more reliable customer journey that still resonated with brand values.
The final phase established a learning loop that fed back into the portfolio governance. Data scientists built dashboards that highlighted early warning signals: demand drift, supply disruptions, and margin erosion at any SKU level. The organization invested in scenario analysis to evaluate the impact of price changes, packaging redesigns, and distribution realignments. This proactive stance helped managers anticipate events rather than react to them. Training programs reinforced best practices in portfolio management, ensuring new leaders inherited a culture that valued clear criteria, rigorous testing, and disciplined execution.
In the end, the beverage manufacturer demonstrated that portfolio optimization is not a one-off project but a sustainable capability. By centering decisions on profitability, operational simplicity, and customer reliability, the company achieved a leaner SKU landscape without sacrificing growth potential. The lessons extended beyond beverages, offering a blueprint for any organization confronting expansive product lines and variable demand. With governance, data integrity, and cross-functional alignment in place, the enterprise stood ready to adapt to evolving market conditions while maintaining strong financial performance and enduring brand strength.
