But the reality is that the customer preferences are very fragmented. Assuming that my preference mean is SKU 1 (produced by Producer1), another SKU2 (produced by Producer2), which might be slightly off the so called preference mean for me, might just be the preference mean for the next person. If I have the option, I will go to the Super Market1 that stocks SKU1, while the next person will go to Super Market2, that stocks SKU2. So far so good. But as years go by, Super Market1’s management (as well as Super Market2’s management) will be pressed to show continuous growth. So, to expand their sales, they will expand to target both me and the next person, thus carrying both SKUs after a period of time.

Similarly, Producer1 will also start making SKU2 and so on….

Fragmentation is a by product of free market economy, and will continue until the marginal cost of fragmentation is higher than the marginal revenues/ profits gained from it. I presume that this is what happens, when old SKUs get dropped after a period of time, while new SKUs keep getting added, allowing for incremental steps in which the product remains in close alignment with evolving customer preferences.