Assortment nesting: definition and key challenges

To best adapt their offer to the characteristics of the different points of sale, major food retailers use the principle of nesting (or "gigognité"), a set of rules used to determine which products to include in the assortment of each store.

This principle, often poorly understood by brands, is nevertheless a strategic asset for retailers. That is why we are going to dissect this practice, evaluate its advantages and limitations for retail, and ask ourselves how brands can benefit from it.

Nesting of assortments: definition and context

"Gigognité" refers to a series of objects nesting into each other or sliding under one another, like Russian dolls. In retail marketing, this term is used to refer to the stratification of a chain's offering. Indeed, there are different store formats, grouped into categories called strata. These include, for example, convenience stores (proxi), discounters, hypermarkets, etc. 

These strata are defined based on criteria such as size, location, revenue, customer profile, etc. This shopper-centric segmentation allows retailers to create assortments tailored to the needs of each store typology. Nesting assortment thus consists of a product hierarchy for each category, with stores offering an increasingly deeper selection depending on the stratum to which they belong.

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Marketing, commercial, and financial objectives

The nesting assortment thus allows retail chains to centralize their marketing mix approach, particularly in adapting supply to demand. But nesting also addresses a branding and consistency challenge, as it allows consumers to find certain products across different stores within a network, the available selection being one of the criteria that helps a chain stand out from its competitors.

Nesting also helps solve shelf space and storage issues: optimizing assortments must enable each point of sale to offer a selection tailored as much to its logistical and commercial constraints as to local demand. Finally, nesting supports purchasing negotiations for retailers, as it guarantees high volume turnover for strategic SKUs. It is therefore a true pillar of cost leadership strategy.

Inflation is driving consumers to turn primarily to private labels (store brands), pushing retailers to reduce the number of national brand SKUs on shelves in favor of their own private labels. We have thus shifted from an abundance strategy to a new era of optimization and sizing. While nesting is not a new tool in itself, it remains one of the levers that retailers pull to optimize their supply chains and maximize linear shelf space value.

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How nesting assortment works

The nesting assortment therefore consists of a chain of products ranked by strategic importance score in terms of revenue or retailer strategy within each category. To define this hierarchy tree, scores or indexes must be assigned to products to rank them. This action falls under category management and is carried out at the corporate headquarters or central procurement level, with the goal of building a network-wide system.

Let's start with a simple model: 

Product A → Product B  → Product C

‍In the chain above, Product A is necessarily a common and top-selling product. In grocery retail, the 80/20 rule is generally assumed: 20% of products generate 80% of revenue, and vice versa. In our model, A corresponds to the product that all points of sale must offer.

The rule to understand regarding nesting is that a store offering Product B must absolutely offer Product A. And a store that has listed Product C must also list Products A and B. As a result, nesting is an ascending rule: whatever SKU is present on the shelf, all products preceding it in the hierarchy must also be available on that store's shelves. Conversely, a store can choose to offer only Product A. The nesting rule is still respected in this case.‍

Assortment profile

Under this logic, each store is assigned an assortment profile relative to each product category. This profile corresponds to the number of products to include for each category: 

• Profile X: A;

• Profile Y: A + B;

• Profile Z: A + B + C.

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Example

Let's take the case of a chain category manager for the "beers" subcategory, who has determined the following indices: 

• Private label beer = 1;

• Regular beer = 2;

• Non-alcoholic beer = 3.

The profiles could be organized as follows:

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Limitations and exceptions to the nesting rule

Despite the theoretical alignment of assortment profiles with stores, nesting can clash with local barriers, particularly for cultural reasons. For example, the level of salted butter and olive oil consumption corresponds to regional cooking habits. Conclusion: nesting rules generally apply but are often subject to adjustments based on physical shopping behavior tracking. There may therefore be optional products to match local demand specifics.‍

Data analysis and smart assortment

Nesting is therefore intended to streamline the value proposition across a network of stores operating in diverse ecosystems (demographic, purchasing power, competition, etc.). It can be described as a top-down mechanism, from corporate headquarters to the physical shelf.

But, as we have just pointed out, this engineering layer cannot map out every possible consumer scenario, nor anticipate potential changes. This is why retailers also use bottom-up methods, adapting their strategies based on observed purchasing behavior.

To do this, retailers collect a vast amount of customer data through loyalty cards. By linking sales to individuals, retailers can determine customer segments based on their buyer journey or the complementarity of the products they purchase.

‍Modern retail therefore relies on a dual approach: nesting to theorize an optimized value proposition for each stratum, and field data analysis to reveal winning tactics based on real consumer behavior. This complementary approach is fundamental. Indeed, while e-commerce fully exploits algorithms to identify the most suitable offers, physical retail must also contend with logistics constraints and costs.

‍Moreover, a full bottom-up logic would mean that demand dictating supply. However, the purpose of marketing and branding is precisely to influence purchasing behavior. In other words, retailers must find a value proposition that impacts the habits of shoppers, rather than just reacting to them.

What is the impact for brands?

This evolution is quite complex for brands, because retailer strategies increasingly rely on proprietary data that manufacturers cannot access. Furthermore, the goal for retailers is often to offer private label products to lower prices while protecting their margins. For example, if a retailer notices that organic products are slowing down due to high costs despite rising demand, this indicates an opportunity to introduce a private label item to meet an existing need at an "acceptable" price point.

Brands must therefore follow certain best practices to defend their positions on shelves. 

• Master the concept of strata, and know their retail network: here, the goal is to know which assortment profile corresponds to which store. In a trade marketing logic, the field representative communicates with the department manager or store manager to understand the theoretical model and know how to position their products in the assortment or carry out picking; 

• Optimize real-time data collection in stores by using a mobile retail shelf auditing app. This is the best way to speed up strategic data feeding into the CRM, analyze retailer and competitor practices, and optimize the brand assortment;

• Adapt products to different retail formats: for example, a product that sells well in a hypermarket might require a smaller pack size or a different formula to suit small city formats;

• Launch new products: nesting can reveal opportunities for brands. Knowing the rules governing shelf-space listing can help them redesign their product lines to fit more closely into the retailers' strategy and benefit from their commercial policies;

• Adjust brand positioning: finally, updating a brand's offer can impact its market positioning and, consequently, how shoppers perceive it. 

This is therefore a critical strategic challenge for brands, which must try to understand raw supermarket nesting rules to leverage them rather than suffering the consequences of carrying product ranges ill-suited to their retailers' strata.

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Useful resources: 

• The complete guide to grocery retail

• Sales optimization in large retail networks