According to a recent Reuter’s article: “Foodmakers tout innovation to battle imitation,” food manufacturers stated at the Reuters Food and Agriculture Summit in Chicago in mid-March “that they are the ones who develop innovative new products and spend marketing dollars to draw shoppers into retailers’ stores.”
This statement was issued, no doubt, to counter perception of the growing strength of retailer private labels–and of retailers’ brands taking the lead when it comes to innovation.
We’re at a crossroad in the food industry. Food and beverage manufacturers are competing with their retail partners for market share more than ever before. National brands have slowly lost share to store brands, and this economy is speeding the process up.
It is true that manufacturers spend considerably to research and develop products. They also spend considerable marketing dollars to draw shoppers into retail environments. However, it is also true that larger food companies are reluctant to bring any innovative products to market that ensure less than total success, that is, a huge return on their investments. Marginally successful products simply don’t deliver the ROI manufacturers are looking for.
In the meantime, retailers have been increasingly focused on building their private label brands by touting the same or higher quality as the national brands at lower prices. While this phenomenon has been decades in the making, the competition between manufacturer and retailer for shelf space and consumer dollars has really heated up recently.
More valuable shelf space is being given to store brands. That means slower selling national brands are being squeezed out of assortments altogether. More promotional activity on store brands has followed suit. All of this as a direct response to the sour economy. Retailers have a unique opportunity to pick up not only market share, but additional profit dollars, in their struggling operations.
And yes: savvy retailers are increasingly taking the leap from imitator to innovator. That goes for product assortments and product packaging, as well.
Here’s the thing: retailers find that modestly successful innovations in their food and beverage offerings are perfectly acceptable. With the economies of scale they enjoy in working with manufacturers on the production end, and the ability to test new products by ensuring distribution in as many outlets as they like, retailers have numerous advantages.
Even marginally successful products can offer two important advantages. Think about it: with a new product, pricing can be set without reference to competition because it is breaking new ground. That translates to heftier profit margins. Especially until competing products join the fray. Besides that, it teaches consumers that here are store brands that offer them new food or beverage options, while reinforcing the perception of value pricing.
Some food industry executives worry about the eventuality of retailers taking the lead with innovative products in future. . .but that’s already been happening. Trader Joe’s, Whole Foods, Wegman’s and other small to mid-sized food retailers have been making inroads for a while now when it comes to private label innovation. Safeway is, too. And what about Costco? So can the other major food retailers be far behind?
Is this necessarily a bad thing, though? I mean there’s nothing like competition to keep everybody sharp and on their toes, is there? What do you think?
Questions:
* Are there specific innovative store brands that you really like?
* Are they big box store brands or niche food retailers’ brands? Which ones and why?
* Which national brands do you find most innovative? Do you think they still have the edge over store brands?
I’d love to hear from you.
Ted,
Consumers care about value and price, not the brand on the label. And that is because through food purchasing experimentation, we have discovered that no brand owns quality.
I recently switched from Starbucks coffee to a less well-known brand. While the flavors aren’t as robust, the quality of the coffee is fine, especially at half the price of Starbucks. Granted, it required patience on my part, as it took four attempts at tasting other brands before I discovered one that offered the value and price I was seeking. I believe more and more, shoppers are taking the same route to discover savings while not sacrificing value.
I believe you’re right, Lewis. We all like to save money, but at the end of the day, we do not want to sacrifice quality and value, do we?
Personally, I’m keenly interested in seeing where retailers take their store brands in the near future. I think they’re poised to really take off. I expect much more innovation. Since retailers are so close to the consumer, they have the perfect opportunity to experiment with new product ideas and test them easily and inexpensively. That gives them a terrific edge. Bottom line: it ought to keep the national brands on their toes, too. And that’s good for the consumer, no matter what.
Thanks for weighing in, Lewis. I always appreciate your insights.
Ted,
What makes the retailers place in innovation, quality and value is that they own the shelf space, as your smartly pointed out.
Exactly, Lewis. Smart retailers will use their real estate as well as their marketers to tap into what their customers ask for and respond well to. They can turn new ideas into new products quickly. They can also test products in a few, selective locations and then choose how many units to distribute them to initially. For all of these reasons, I believe retailers will lead the way for many new products in future.
Thanks for kind words, BTW. I appreciate it.
Ted,
Good post. I’ve done considerable work in the organic/natural product industry for some time now. Not only have mainstream supermarket chains developed store brands that compete well with national brands. Natural product stores have quietly created private label brands for some time as well. While many are familiar with Trader Joe’s and Whole Foods’ store brands, they may not know that much smaller operations also tout excellent store brands. They are also great innovators, to boot.
Meijer, for example, has recently added to its PL assortments. Take a look at this short article in Progressive Grocer and you’ll see what I mean:
http://www.progressivegrocer.com/progressivegrocer/content_display/features/center-store/e3i5f7703273120b21d3efb4cc99da9e7e2?imw=Y
The ongoing move to bring more nutritional foods and beverages to more consumers is a win-win in my book.
Great point, Claire. We tend to equate store brands with supermarket chains first, but there are many channels of distribution and private labels cut across many consumer product categories, as well. Do any DF readers have other examples of store brands they’d like to share?
Thanks, Claire, for your input.
Ted, I wish I could cite the source, but I read an article on Costco’s Kirkland brand a few years ago.
The main jist of the article was that the Kirkland brand was more than a “me-too” store brand. Costco buyers actively pursue the best products (cost/quality/features etc) to brand as Kirkland. And as you know, Kirkland brands are regularly juxtaposed with national brands to let consumers decide–with their wallets!
You’re quite right, Paul. Costco has actively marketed its Kirkland brand and they’ve consistently managed it. I’ve cited this store brand on more than one occasion in published packaging articles. Costco demonstrates what retailers can accomplish when store brands are launched not as an afterthought, but as a centerpiece of the retailers’ marketing efforts and positioning. Another excellent retailer is Trader Joe’s in this regard. As you pointed out: shoppers have responded with their wallets. P&G CEO Alan Lafley once said that his brands are being voted on every day by consumers. Consumer vote with their wallets.
Thanks for sharing your insights, Paul. I appreciate it very much.
I have to take issue with Lewis’ intital statement “consumers care about value and price, not the brand on the label”. I could right books on how wrong this is, but let me simply suggest that value and price contribute to the reputation of the brand on the label.
I have become a big time bargain shopper. When you have a lot of mouths to feed you want your money to go as far as possible so I buy the cheapest brands which usually means the store’s brand. The only name brand items I do buy are Oreos. There is no other cookie like them! Other brands have tried, but failed. I save money where I can, but when it comes to my family’s favorite treat only the best will do.
Hi Matt,
In this economy especially, consumers care about value and price in a big way. Having said that, to your point: when customers have purchased store brands based on those two criteria, and those brands fail to impress them in a positive manner, they simply won’t buy them again. Brand building takes time. The perception of good value and low pricing cannot carry the day if brands fail to deliver. Period. I do think we are in a situation at present where successful store brands can continue to make inroads and can launch innovative new products with success if they are well researched and brought to market. Thanks, Matt, for reminding us about how crucial delivering on the brand promise really is.
You’ve made an important point, Beth. As consumers we’re willing to do some trade offs. We’ll purchase value-priced brands for a number of commodity items if we think we’re getting decent quality. There are, however, certain nationally branded items we will continue to purchase, no matter how sour the economy is. These are “little treats” we give ourselves and they make us feel better when times are tough. Good for you recognizing that. Thanks for weighing in, Beth.