When Own Label Growth is Rampant, How Do Brands Survive?
As we conclude our series of articles on Category Management, Director of Consulting Peter Chapman offers an insight into the rise of Own Label brands, what ‘national brands’ can do to contest the growth of Own Label brands, and how our services can help your FMCG brand navigate such challenges.
The rise of Own Label brands (OL) and the growth of discounters over the last decade or so has made it harder than ever to succeed with a Branded portfolio in Grocery. Consumer trust for OL is at an all-time high, and in some categories, they are now trusted ahead of ‘national brands’ leading to a long-term squeeze on Branded sales. So how do Brands survive in today’s seemingly price led and OL dominated environment?
A change in mentality is required – there is everything to play for, and nothing should be taken for granted. Yes, most categories have seen growth of OL at the expense of Brands in recent years, but some categories are still OL free (tobacco is an obvious example) while others have reached the point where OL is priced and respected ahead of Brands (such as frozen desserts), and as a leading supplier you have a strong influence on the destiny of your category.
For example, Nurofen can still sell a 16 pack of pain relief pills for £4 when the lowest OL pack for the same number of pills of the same type at the same maximum legal strength is only 20p… and Nurofen is in growth. Also Warburtons have done an excellent job in recent years as one of the few (perhaps only?) suppliers to make a profit in the bread category, which suffers from high fixed costs and over-supply as well as strong OL growth.
So, what are these suppliers doing to survive and thrive? From our experience we see some common indicators of success:
- Pipeline of Brand Innovation
This should be no surprise to anyone, but the one thing that winning Brands do better than OL is innovation – in product, packaging and communications. A strong and consistent pipeline of innovation will keep you ahead of the OL followers in your category and maintain your position as the ‘penetration-driver’ for your category. If the OL brands in your category are launching innovation before your Brands are – then you need to fix this fast or face decline.
- Category Insight & Strategy as a ‘value add’ benefit
It is easy to forget that most buyers don’t have the time that Brands do to spend time in analysis and strategic thinking. Regular category insight and strategic planning is highly valued by buyers, even if they don’t always acknowledge this. Used properly, you can influence the category development to your advantage.
- Objective Category Management expertise
When retailers need to reset their category range and space, they want to partner with a brand they trust to do the legwork. This partner will be objective, insightful, trusted, collaborative and proactive. Is this you? We have seen a recent trend towards downsizing of Category Management teams with ‘peak’ demand periods such as range reviews resourced with temporary support, but the in-house team still need to ‘win’ the work from the buyers.
- Value / Revenue Management
This is hard to do when the growth of OL means the average category price is always slipping, but in some ways, this only makes it even more important. Winning suppliers take a proactive stance in managing value in the category and avoiding a race to the bottom. The Pet category has played an amazing role in this in the last decade or so – Pet food has transformed from an Animal Food category (tins on shelf) to a Pet Care department (food plus a wide range of other sub-categories) through careful value and revenue management by the leading suppliers.
- Retailer Collaboration
It is tempting to think of your buyer as your OL competitor and treat them accordingly by sharing the absolute minimum at the last minute. This approach rarely works – yes, your buyer is also your competitor, but their concern is usually the overall Category performance, and the good buyers will get the best out of both their Branded and their OL suppliers. Make this easy for them by collaborating as much as you can, and by using a robust Category Vision that envisions growth for both the Branded and OL elements of the category.
At Sellex, we have a number of tools and approaches which are catered to helping Branded suppliers secure category growth in a world where OL brands are taking an increasing market share. Find out more by following the link below.