The Times They Are A-Changin’September 27, 2017
It is an indisputable fact of business that the retail industry is always changing and by the time you’ve finished this sentence, it’s changed again. Just a few weeks ago I was invited to participate in an industry conference hosted by UBS that focused on this same premise. Speakers from Lidl, Walmart, and Amazon Fresh, gathered to explore disruptive themes in CPG and food retail. I was invited to share my perspective about private label as one of the ‘grand disrupters’. Given the invite-only nature of the conference, this is my first chance to share insights from that day. Here are my top takeaways:
CPGs need a new game plan.
Private label brands are pressuring CPGs again, thanks to the proliferation of discounters, Amazon’s acquisition of Whole Foods and retailers’ renewed commitment to private label. As if those weren’t enough hurdles, executives also noted that mass marketing campaigns are now considered ineffective for national brands. To counteract this sea of change in marketing, panelists suggested using personalized messages to reach consumers and increasing R&D spending as well as speed-to-market capabilities. The funk that national brands are in doesn’t have an end in sight.
Private label is moving on up in food retail.
Private brand penetration has begun growing again as a result of increased retailer commitment, a slowdown in branded innovation and less brand loyalty among Millennial shoppers. The growth of Aldi and Lidl are also supporting this trend. What this all means for middle-end grocers who can’t easily cut costs is that they are the most vulnerable grocery retailer type.
As a point worth noting, we have seen that private brands are experiencing 10 straight weeks of growth. This kind of growth hasn’t happened in a couple of years, and was actually in the negatives as of last year. Many categories are ripe for increased private brand growth, especially in perimeter categories where there is a solid 74 percent quality perception for private label dairy, 70 percent for fresh produce and 68 percent for bakery. Our Daymon teams will have more analyses on this growth and what it means for you.
Vertical integration is still the exception.
While Walmart is vertically integrating its milk supply chain to help save on costs and to widen its advantage over competitors, this is still the exception by retailers. The capital commitment and increased organizational complexity make this a risky strategy for most retailers. Instead, we are seeing more long-term agreements between certain retailers and key suppliers.
US retail newbies are setting trends.
Lidl has elected to push higher-quality private label and fresh early in the US – key differences between its European and American stores. Fresh items are prominently advertised when customers enter stores and reflects Lidl’s efforts to offer a mix of products that resonate with local consumer values. Aldi and Walmart are taking note of this change by lowering their own prices across more grocery categories. As discount grocers compete on price, there certainly will be considerable pressure on traditional food retailers. To combat this, determine and highlight what is most valuable to your own customers, including assortment, merchandising, customer service, the shopping experience, promotions and pricing.
What we discussed at the UBS conference, and what we are all experiencing today is not a pendulum, this is permanent. Channels have blurred, consumers are empowered with everything from product knowledge to peer reviews—and consumption is shifting from products to experiences. What are your biggest challenges and what do you think about the conference insights?
Let’s continue the conversation; email me anytime at JimH@daymon.com.