Major packaged food brands lost $4 billion in market share in 2014-2015 as shoppers shifted to fresh and organic alternatives. But this is not just about foods. Across categories, both fast and slow moving, and across products and even some services, a closer look reveals powerful undercurrents and significant marketplace shifts that beg the question: why are big brands losing today?
There has been much conversation and speculation about the economy and about millennials, the hastening pace of innovation and the inevitable disruption and change that technology heralds on a local and global basis. With so many factors to consider and so much data to work with, we sought to cultivate a clearer understanding of major pressures faced by major brands in this decade. Most of these pressures are not new; in fact they have been slowly developing over the years, but after much research to discern one-off events from truly emergent patterns, we believe we have found a coalescing perspective on the major challenges brands face in the near and not so near future. In particular, three trends we identified stand out as considerations for long-term business strategy for major brands across a wide range of categories and across the full breadth of the economic spectrum:
- The Impending Absolution of Private Label: Private label has taken a big leap forward in the last five years, both in terms of quality and continued relative affordability. As more consumers flock to discount stores, the meaning of discounting has changed and household brands are increasingly challenged to maintain their positions in the eyes of the average consumer. In Europe, for example, stores like Lidl and Aldi are increasingly catering to a more affluent consumer base despite an economic recovery in the region. Over 50% of products are private label, and with new, award-winning wines and whiskies to higher-end foods like lobster, sirloin steak and smoked salmon, the stage is set for future growth as well. Especially in foods, most shoppers believe the values and benefits of well-known brands mean less today than a few years ago, and that brand badges will mean even less in the future. In North America, private label brands like Kirkland have indeed been expanding and improving their portfolios, but the positive perception of quality seems to be greater in Europe, and it is only a matter of time before the same is true for North America.
- The Emergence of Category “Margin-killers”: From daily necessities to material must-haves, the rise of category margin-killers is perhaps the largest threat to major household brands. Companies like Dollar Shave Club and Harry’s (men’s grooming), Warby Parker (eyewear), Frank & Oak (general fashion merchandise), Casper and Helix Sleep (bedroom furnishing), and Thrive (organic and natural foods) are steadily winning over consumers in traditionally high-margin industries. While this could be expected given the strong price differentiation from major household brands, the positive response from consumers has been overwhelming. The results are noteworthy to say the least: Dollar Shave Club sells $1 razors and is now worth $615 million, Warby Parker was valued last year at $1.2 billion, and Thrive reports 150,000 members and approximately 20,000 new paying members a month (they are approaching a $100 million run rate after just launching their foods line in late December 2015). One could also include shared-economy companies like Uber and Lyft (transportation), as well as Airbnb, com and Hotels Tonight (lodging and hospitality) into the classification of category margin-killers as they are driving down prices for all consumers and have justly reaped the benefits of their innovative business models.
- The Rise of Young Boutique Brands: What is more surprising, and concerning from a household brand’s perspective, is the rise of accessible, young and unique boutique brands like Makr, Tanner Goods, and Wilson and Willy’s (leather and canvas merchandise), Apolis and Men In Cities (general fashion merchandise), and even entrants into high-barrier, capital-intensive industries like Bremont and Bell & Ross (watchmaking), and Kleio Audio and Sonic Concept (Hifi Audio). Launched within the last 10-12 years (many are even younger), these brands have carved a niche for themselves in comparison to well-known luxury brands that charge almost as much for their products. The key here is that these young boutique brands remain high-margin businesses that are still able to attract affluent consumers away from their globally known counterparts. Further, mobile applications like Uncrate and websites like The Awesomer have taken it upon themselves to bring these lesser-known brands to the eyes of a wide consumer base. This grants boutique brands much vaunted publicity and accessibility through the lens of a curated shopping experience that brings like-minded boutiques together in one marketplace. This is a striking development from a strategic perspective – it leads to competitive playing field that can be likened to the analogy of many Davids working together, for better or worse, to bring the fight to a few Goliaths.
While disparate and differentiated in their own right, the three trends noted above are working together to create systemic challenges for major brands. Margin-killers and young boutiques have sharply contrasting business models that yield similar results – they are taking away market share from major brands with economically provocative and high quality offerings, respectively. To add to these two challenges, a new and improved private label presence across retailers is winning over a consumer base that increasingly cares less about brand badges and more about experiential, “of the moment” living; this group largely consists of millennials (just ask us about our Cassandra report). The result is a crisis of sorts being faced by major brands across multiple categories, one that needs careful attention and planning, and in some cases, a significant re-evaluation of the brand’s vision for its future, in terms of product manufacturing, marketing and merchandising. Solutions to address these challenges will necessarily be varied for different brands and product categories, but deep thinking and critical foresight will be required to win these fights and maintain leadership positions in this decade.
Sources: ORC International Research & Insights; AdAge (citing Catalina Marketing); The Guardian; The Telegraph; Wall Street Journal; IGD; Fortune; Luxury Daily
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