Why Stores Are Dropping Your Favorite Items (and Lowering Prices)

Companies are cutting niche products to streamline production and lower prices—here’s how it could affect your next shopping trip.

Nov 18, 2024

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A few of the different varieties of Hellman’s mayonnaise that you can purchase at a grocery store

If you’ve noticed fewer choices in the grocery aisle lately—whether it’s that specially sliced pepperoni or a favorite limited-edition potato chip flavor—you’re not alone. Companies across industries are purposely cutting back on the wide range of products they once proudly stocked. For some consumers, fewer options can feel like a letdown. But this reduction may signal a shift toward something more streamlined, potentially saving money for both companies and consumers.

The move toward fewer options isn’t unique to one or two brands; it’s a widespread strategy where companies are rethinking variety in favor of efficiency. And while variety has its appeal, it also comes with costs—costs we all see reflected in higher prices. By focusing on a few core products rather than dozens of differentiated versions, companies hope to trim those extra costs. In an economics context, those firms are moving from “monopolistic competition,” where brands differentiate themselves through variety, toward a model closer to “perfect competition,” where efficiency is crucial.

Photograph by Justin Sullivan Getty Images

Perfect vs. Monopolistic Competition

To understand why companies are cutting back on variety, it helps to compare two types of market structures: perfect competition and monopolistic competition. We’ll start with the setup for perfect competition. In this market, you’ve got lots of small firms, each producing an identical product—think of products like onions or potatoes. When you buy these items at your local grocery store, you likely don’t know, or even care, which specific farm grew them. These products are standardized, so firms compete solely on price. To stay in business, each firm has to be as efficient as possible. That means producing products as long as the price they receive covers the additional cost of production and reducing costs where they can. Economists call this setup allocative efficiency, where the price matches the cost of producing an additional unit, and productive efficiency, where firms produce at the lowest possible average cost. In perfect competition, the price of the product doesn’t have any extra costs factor into it.

Most consumer goods, though, fall into a different category: monopolistic competition. Think of all the different brands of hot sauce, bread, or clothes we see in stores. In this market structure, companies produce products that are slightly different from one another, hoping to attract specific groups of consumers. Each brand tries to stand out with unique features, branding, or advertising, which helps justify potentially higher prices. The problem? This differentiation leads to higher production costs, which in turn leads to higher prices than what we’d see in a perfectly competitive market.

A major side effect of monopolistic competition is what economists call excess capacity. Firms that are selling differentiated products will have trouble producing at the lowest possible average cost. In other words, they aren’t productivity efficient. They produce enough to meet niche demands but could theoretically produce more at a lower cost per unit if they didn’t need to maintain such a wide variety of offerings. This “excess capacity” is part of the reason companies are now trimming down their product lines—it’s an attempt to become more productively efficient by removing products with a small following and reducing average costs for all their other products.

The Cost of Choice

Companies have relied on offering more choices as a way to attract customers and carve out a niche in crowded markets. New flavors, limited editions, and specialty versions allowed companies to differentiate their products and hope that this variety would increase revenues. But with consumers more price-sensitive than ever, maintaining all these options has become a tougher sell. Adding new variations to boost demand now increases the price of other items, which has made it difficult for customers to justify the purchase.

Take Hormel Foods, for instance. The company recently announced plans to cut back on its 71 different types of pepperoni (yes, 71) to focus on a slimmer lineup. This move simplifies operations and lowers costs, which should ultimately result in lower prices. This isn’t just happening in food: Levi’s has started paring down its clothing options and Hasbro is streamlining its toy portfolio. For these brands, a small number of products drive most of their profits, which makes it hard to justify the cost of keeping so many lower-performing items on hand.

A screenshot from Hasbro’s 2023 Annual Report [Source: **Hasbro**]

The Efficiency Shift at the Store

Retailers are also embracing what’s called “SKU rationalization,” a strategy of cutting down on the number of unique product variations (SKUs) they have on shelves. By focusing on a smaller selection of high-performing items, companies can reduce distribution and inventory costs, which in turn can lower prices for consumers.

For example,e Dollar General announced earlier this year that it would pare back products like mayonnaise from five or six to just a few. Its CEO noted that most consumers “are not going to know the difference.” Fewer product options mean retailers can focus resources on what sells best, ultimately lowering the per-unit cost. It’s the same strategy that allows stores like Aldi and Trader Joe’s to offer lower prices—selling just a few versions of each product keeps storage and distribution costs down.

Of course, this shift has its trade-offs. While most consumers will see lower prices on staple products, those with specific preferences or dietary needs might have to look elsewhere. For them, the market could feel like it’s moving backward, away from the personalized options they may have grown accustomed to.

Perfect Competition Isn’t the End Goal

It’s important to note that these efficiency improvements don’t mean markets are suddenly becoming perfectly competitive. Companies are still operating in monopolistic competition, differentiating their products to maintain brand identity. All they’re doing is reducing their product lines to reduce costs. They’re still investing in branding, advertising, and other strategies to make their remaining products stand out on the shelves. This keeps average costs, and therefore prices, higher than what we’d see in a perfectly competitive market.

Companies aren’t reaching the full efficiency of perfect competition, but they are becoming more efficient. By reducing their excess capacity, they’re getting closer to minimum average costs. The result? Lower average costs should lead to lower prices, making everyday goods more affordable for more consumers—just without the premium that comes with niche variety.

Final Thoughts

Consumers may find themselves adjusting to a shopping experience with fewer choices. You might see your favorite special toothpaste flavor vanish or find that the snack aisle has fewer limited-edition options than before. But with these reduced options comes a hidden benefit: reduced production costs should eventually translate into lower prices on everyday items. For most consumers, that trade-off might not feel so bad—after all, not every product needs a dozen variations to serve its purpose.

For those who rely on niche products, the shift will be frustrating. But for many, the efficiency gains should lead to a more affordable marketplace. Essentials should be easier to find and less expensive overall. It’s a small step closer to market efficiency, even if it comes at the cost of endless variety. At a time of increasing prices and tighter budgets, fewer choices might mean a little more money in our pockets—and that’s a trade-off most of us can appreciate.