Much has been made of the challenges facing retailers in today’s grocery marketplace. However, their manufacturing trading partners are contending with equally pervasive disruption and the effects have been significant, with most of the top 100 brands continuing to lose market share to smaller competitors.
The issues impacting large CPGs are many — and they’re growing. For one, shoppers are increasingly brand agnostic. They’re looking to manufacturers to address a need state and, if they have confidence that the product can meet their need(s), it matters not the brand.
At the same time, there is growing demand across shopper segments for specialty, healthy and functional foods, as shoppers are moving well beyond “low sodium” or “sugar-free” line extensions in their efforts to eat better and improve their nutrition. As a result, they’re turning to new and emerging brands to help them reach their goal of establishing a better diet. And the barriers to entry for these emerging brands have never been lower. Leveraging available technology, even the smallest food producer can achieve speed to market with enviable alacrity.
Further complicating matters is that at the center of everything is the “mantra of me” — shoppers’ deepening expectations of a personal connection with brands. So what must big CPG brands do in order to address these challenges and protect profitability?
Reclaim Competence At Consumer-Driven Innovation
The current “innovation model” of big brands acquiring smaller, emerging brands and then extending their distribution across vast retail networks is quickly losing viability in the face of rising costs and increasing market complexity. Innovation needs to be brought back in-house and re-established as a core asset.
Being perceived as innovative and in tune with consumers provides a key advantage over competitors; shoppers want to engage with brands they view as helping them address need states and live better lives. By creating small, dedicated teams to act as startups within business units — and informing their efforts through social listening — brands can effectively focus on consumer needs and reignite internal innovation.
Re-Establish Trust In The Consumer-Value Proposition
Along with everything else they’re facing, brands today must contend with a growing distrust of large corporations, including “big food.” Regardless of whether or not the distrust is warranted, it exists and it has to be addressed.
To rebuild that trust, brands must be transparent and forthcoming and their leaders must be likable, believable and accessible. Brands need to understand who they are as a brand — and who they aren’t. And the brand must stand for something beyond profits.
Aggressively Explore All Methods Of Selling To Consumers
This, of course, includes selling directly to them. Engaging in direct-to-consumer sales allows brands to effectively define, and directly express, the consumer-value proposition without it being filtered or changed by an outside party.
The result is a better buying experience that is free of the barriers and obstacles that can complicate and hinder the relationship between brands and consumers. In addition, direct-to-consumer is a proven path to valuable consumer data that makes success easier with new demographic segments and niche markets.
Develop A Culture Of Speed
While it’s not an easy ask for large organizations, big brands must find a way to create a definitive structure focused on driving faster growth. Brands can, and should, take advantage of large-scale operations by placing those closest to consumers, those most closely connected to the marketplace, in decision-making roles. This includes empowering them to stop activities that aren’t contributing to profitable growth.
The “need for speed” can also be met by partnering with emerging players (when internal capabilities are insufficient) to respond rapidly to shifting consumer trends or regulatory changes. Investing appropriately in very early-stage companies can enable big brands to optimize, and accelerate, their response to changes in shopper behavior/attitudes.
Succeed At Smaller Scale
The once tremendous competitive advantage that big brands exercised in producing millions of cases of product and driving production cost down on a marginal basis no longer exists. Succeeding through volume in spite of low margins is also quickly disappearing. Now, brands must concentrate on serving niche audiences/market sub-groups demonstrating demand for niche products.
Although many more startups fail than succeed, they are driving explosive growth and taking serious share from the big players. Large CPGs must match up with these challenger brands, operate with the same sense of urgency and adopt a similar mindset of developing brands that have deep connections with consumers.
According to PwC Global’s study of 2017 CPG trends, small CPGs (those with sales of less than $1 billion) outperformed the competition in 18 of the top 25 categories. This is an undeniable wake-up call for big brands to re-examine their product portfolios, their consumer-engagement mindsets and their plans for future growth.
Achieving greater speed to market, speed to admit failure and speed to shed activities that are not measurably driving success must be prioritized. Dismissing emerging brands as merely “ankle biters” is a good way for large CPGs to lose a leg. But, by identifying and fulfilling consumers’ needs — both physical and philosophical — big brands can thrive in the new world of grocery.
Jim Hertel is Senior Vice President, Inmar. In this role he is responsible for business development, client service, new-solution creation and strategy development for Inmar Analytics’ retail and manufacturer clients. Prior to Inmar’s acquisition of Willard Bishop, a food retail consulting company, Hertel was Willard Bishop’s Managing Partner. Throughout his career, Hertel has developed insight-based growth strategies for companies including Anheuser-Busch, Campbell Soup Company, Kraft Foods, Unilever, Wal-Mart, Coca-Cola and Purina.