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May 15, 2018

Brands still matter in US – but rules of game have changed

As the US FMCG sector witnesses the biggest change in consumer habits in a generation, some argue brands are becoming less important. However, just-food's US columnist, Victor Martino, begs to differ and sets out how brands can still prosper.

As the US FMCG sector witnesses the biggest change in consumer habits in a generation, some argue brands are becoming less important. However, just-food’s US columnist, Victor Martino, begs to differ and sets out how brands can still prosper.

Surveying the US grocery sector, it is clear the “mass market” is dead – and it is never coming back.

Instead, technology is enabling consumers to short-circuit the mass-market segmentation models packaged foods marketers have relied on for decades to build brands that dominate their respective categories.

Dead too is “old retail”.

Not long ago, big retailers filled their store shelves primarily with products they and their big brand CPG partners thought consumers should buy. The packaged foods companies put (still do in most cases) substantial promotional funds behind the products in order to get consumers to buy them, rather than closely following consumers and trying to figure out what they want.

This push marketing and promotional practice is becoming increasingly irrelevant because consumers have so many brand and product choices today, as well as so many different online and offline retail channels to buy from, including direct from manufacturers and intermediaries via the Internet.

The cost to consumers to switch brands today at the drop of a hat – or after seeing a new Instagram post – is zero.

This technology-enabled sea change in consumer behaviour and therefore in the packaged foods industry has prompted some CPG entrepreneurs, venture capitalists, analysts and writers to suggest we’ve entered into a “brandless” world where brand no longer matters.

They’re wrong. Brand matters even more today than ever in consumer packaged goods. But the rules have changed.

Generation Experiential

Millennials, Generation Z and progressive Baby Boomers are looking for more from food brands today than just taste and price – although both remain paramount.

More consumers want brands that speak to them and resonate with their lifestyles, beliefs and experiences

These cohorts of new consumers, what I call Generation Experiential, want brands that speak to them and resonate with their lifestyles, beliefs and experiences. 

The cult following speciality grocery retailer Trader Joe’s has built for its own-brands – which tend to be unique, quirky and experiential – with Millennials, Gen Z and many boomers is the perfect example of what consumers want today from food brands. 

Trader Joe’s brands are experiential and tend to have a story behind them, as well being speciality-oriented in their origin, ingredient content and positioning.

New rules

I’ve been giving considerable thought and analysis to the current state of brand marketing by large packaged food companies, how it has gotten to where it is today and how it can make a pivot.

I don’t have all the answers but I think central to the problem big brand food companies find themselves in today, in this world of Generational Experiential, is they’ve divorced product and innovation from marketing.

For example, innovation in breakfast cereal – which is a declining category in the US needing a lot of innovation – is not reducing the sugar content by 20% or adding peanut butter chips to create yet another SKU of frosted corn flakes under the same brand and then putting big promotional dollars behind the line extensions to entice consumers to buy a box or two.

Instead, innovation in the category might be something like creating a ready-to-eat cereal kit that includes almond milk, cereal, a bowl and a spoon, which fits into the desires and buying habits of millennials and Gen Z consumers particularly.

Once achieved, you then put the marketing and promotional dollars behind the new product, creating a campaign that taps into the lifestyles of millennials and Gen Z consumers, using the digital and social media channels and platforms they use to tell stories, inviting them to share their experiences as well.

This is an example of marrying product innovation and brand marketing, which is a must today in the packaged food business.

It’s something innovative challenger brands like Halo Top ice cream, Noosa yogurt and Hippeas snacks have figured out and are doing extremely well.

Theory of the case

According to IRI’s 2017 New Product Pacesetters Report, released in April, a whopping 49% of the top-ranking brands launched in the US last year came from smaller food manufacturers with annual sales of less than $1bn.

Just five years ago, nine out of every ten of the ‘pacesetters’ launched were extensions of existing brand lines, according to the report.

Susan Viamari, IRI’s vice president for thought leadership, says consumers are demanding products customised to their needs and this type of targeted innovation tends to put small and niche CPG companies on the New Product Pacesetter Map.

“In 2017, 40% of food and beverage and 25% of non-food ‘pacesetters’ were brands entirely new to the CPG marketplace. This clearly demonstrates consumers’ willingness to try ‘unknown’ brands. Millennials, in particular, are more moved by experiences and solutions to their needs and less likely to purchase based solely on brand,” Viamari concludes in the report.

Based on IRI’s data, we’re witnessing a small brand revolution in packaged foods. And note the one-constant – the word and concept of brand.

Brand still matters

There’s no such thing as “brandless”, as CB Insights’ intrepid CPG analyst Zoe Leavitt reminded me last week in this tweet.

Brand matters. And it will for as long as those of you reading this inhabit the earth. 

But the rules have changed, requiring new directions, particularly by the big packaged foods companies that have been slow to adapt, a reality made clear by the IRI 2017 Pacesetter Report.

New directions

If I was the CMO for a big global packaged food company today, these are five new brand marketing rules I would suggest to the CEO we adopt.

1) Product innovation and marketing must be married. No more brand or line extensions for the sake of gaining sales on the cheap. Our mission needs to be to expand the categories we’re in rather than simply grow our brand SKU count.

2) Follow the consumer like never before. Consumers are shopping alternate channels like online niche retailers and manufacturer-direct because these channels offer products they want that generally are not available in mainstream grocery and mass-merchandise stores. Learn from these channels and compete against them. They might be small today. But in five years that could change dramatically.

Many of the best packaged food brands launched in the last decade have come from entrepreneurs who have not had a lick of experience in the industry

3) Create a challenger brand culture. Invite every employee of the company to create new product mini business plans to be analysed by a product and innovation group comprised of in-house staffers and outside marketing talent, including entrepreneurs. New rules require new and unconventional ways of doing things. Many of the best new packaged food brands launched in the last decade have come from entrepreneurs who have not had a lick of experience in the food industry. The next bone broth might come from a mid-level manager in human resources.

4) Speed-up direct-to-consumer initiatives. Food retailers pose the biggest challenge to packaged foods brands today. CPG companies cannot afford to continue losing share to store brands, which are only going to continue to grow and take share from manufacturer brands. Go on the offensive. Direct-to-consumer is unproven but in my analysis it is here to stay – and will grow. The packaged foods companies that put a major emphasis on it now will be the ones who reap the benefits later. Take a risk.

5) Increase R&D and innovation funding. Most packaged foods companies have been outsourcing R&D and innovation by acquiring emerging brands and investing in challenger and start-up packaged foods brands through recently created corporate venture capital funding entities. This has its place – but it is no substitute for in-house innovation.

Ryan Caldbeck, the CEO of CircleUp, recently outlined the argument for increased R&D and innovation spending by big CPG companies eloquently.

Caldbeck makes a point I often use when talking to CPG company executives and marketers. In today’s disruptive environment where Elon Musk and Jeff Bezos have not only created companies that have disrupted the conventional auto and retail industries respectively, they have also created space exploration start-ups that have disrupted NASA. Therefore, the example follows, who is to say the next disrupter in packaged foods will not be Google? Or Uber? Or Patagonia?

After all, if someone told you ten years ago Amazon would be on the road to becoming a major packaged food industry player in 2018, creating new brands regularly across numerous categories, along with owning Whole Foods Market and its $1.5bn in annual sales (and growing) 365 brand would you have believed them?

Future optimistic

My analysis and suggestions are intended to be optimistic and forward-looking. 

The future is bright for the packaged foods business. It is the most exciting time for the industry ever.

But the new consumer requires new rules for brand marketing. And new rules require new concepts and ideas. Change is the only constant.

Brand matters more than ever today. Even “brandless” requires branding. The packaged foods industry is being disrupted. In turn, we need to do a little disrupting of our own within the industry when it comes to brand.

just-food columnist Victor Martino is a California-based strategic marketing and business development consultant, analyst, entrepreneur and writer, specialising in the food and grocery industry. He is available for consultation at: victormartino415@gmail.com and www.twitter.com/nsfoodsmemo.

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