Big Heads and Long Tails in Retail

The Pareto Principle states that, for many events, roughly 80% of the effects come from 20% of the causes. The principle certainly finds expression in grocery sales data and the following diagram is quite typical of what one can observe.

pareto

In retail parlance, the top product classes or SKUs are called the big heads and the rest, the long tail.

It has been said that any retailer that fails to actively manage the big heads won’t be in business for long. Discounters like Aldi and Lidl play primarily in the space of big heads, and the efficiency with which they are delivering quality big heads at a low cost is robbing full-service retailers like Tesco and Woolworths of their most significant sources of revenues everywhere and this tide is not turning any time soon!

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