Many of Big Food’s legacy brands are having their day in the sun in the US, boosted by pantry-loading. just-food’s US columnist Victor Martino believes challenger brands can still – and will – compete.

Legacy CPG brands, particularly those brands with products that lend themselves well to home-pantry stockpiling and frozen foods, have been enjoying renewed sales growth in this time of Covid-19.

In the first couple months of the coronavirus pandemic, consumers pantry-loaded food, toilet paper, household cleaning items, personal care products and other essentials for prolonged stays at home. They also began filling up bigger shopping baskets at stores and ordering larger than normal quantities of consumer packaged goods from Amazon, Walmart and other online retailers. This behaviour, as I described in my column last month, is the first two of the four stages of change the industry will experience in the wake of Covid-19.

What’s driving renewed interest in legacy brands?

The shelter-in-place rules enacted by most state governments in the US, along with the near-decimation of the foodservice sector, have provided many legacy brands with double-digit sales increases, including for some brands unheard-of growth of 50%-plus in March and April.

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Big national brands have seen sales go up by 12% year-over-year in the four-week period ended 3 May, according to IRI. To put that in perspective, these same legacy brands have had miniscule annual sales growth of about 2% for many years now.

There are a number of reasons for the outsized sales growth for legacy brands. The most basic is, unlike emerging small brands, which have been stealing share from big national brands for well over a decade, legacy brands have 100% national retail distribution. In contrast, emerging brands tend in most cases to have less than national retail distribution. In other words, availability and ubiquity matter.

But there’s more to the surge in legacy brand sales than mere logistics. Consumer psychology also has come into play. In times of uncertainty and stress – and there’s plenty of both right now – people tend to return to the familiar; comfort foods, for example, and the brands they grew up with in calmer and happier times. Legacy brands fill this emotional need and have been playing a role in helping us to create a sense of normalcy in these far from normal times.

The practical also plays a role. Many Americans are cooking at home daily, some even doing so for the first time in their adult lives. Legacy brands control most all of the ingredient categories out there, and cookbooks are filled with recipes that utilise big brand products. Cooking two or three meals a day at home has been a new experience for a great many people and the comfort of falling back on national brands adds an element of overall ease and convenience for them in this new role.

The big question – and everybody in the industry is speculating about it – is whether the outsized sales gains legacy brands have been experiencing over the last few months are merely a by-product of consumer stockpiling or if the sales surge is signalling a renewed era for big CPG brands. Are big CPG brands back?

Linked to that is another question: does the current resurgence of legacy brands mean the emerging brands’ insurgency against legacy brands over the last 20 years is coming to an end or, at least, is in the process of becoming greatly diminished?

We have no idea how long the age of Covid-19 is going to be. For example, some scientists and epidemiologists are suggesting we’ll be living in the coronavirus pandemic era for many years to come. Some states like Texas and Florida have opened up this month but, having done so, are now seeing an immediate spike in new cases of Covid-19. Shutting down again because of this is a distinct possibility. Right now, we’re all doing our strategic planning in real time.

Are big brands back? Not quite

A conventional wisdom gaining steam among some legacy brand CPG company boardrooms and analysts is what we’ve been seeing over the last couple months portends a longer-term future of more sales gains to come. Perhaps? But don’t count on it. Instead, I see a rebalancing already starting to happen on two fronts.

First – and this is where the tumbling US economy comes into play – I see retailers’ own label (or store brands) emerging as the leading threat to the sales gains legacy brands have been seeing in recent months. Sales of store brands were up 19%, vs. the 12% for national brands, over the same four-week period ended 3 May, according to IRI. That’s a healthy seven percentage point year-over-year advantage for private label.

Laura McCullough, Nielsen’s executive vice president of US manufacturer client success, said in a recent research note the store-brand trend has accelerated while consumer spending has been impacted by Covid-19 and as the economic downturn continues – unemployment is currently near 15% and many economists are predicting it could reach as high as 25% by summer – store brands have significant opportunity, particularly within the lower price tiers.

A significant percentage of the sales gains legacy brands have been getting will go to store brands in recessionary America. Store brands have already been gaining on national brands for a number of years now. In recessions – and this one is going to be severe – private label often becomes the brand of choice for many consumers because it’s less expensive. Legacy brands are historically the victim of this forced decision.

At the other end of the spectrum are the emerging brands, most of which offer a brand attribute like natural, organic, better-for-you, free-from or premium. The recession will also take a toll on these small brands, most of which command a slightly higher retail price premium over legacy brands and an even higher price point compared to store brands.

But these brands also offer consumers attributes neither legacy brands nor price-focused store brands have. They also have very nimble entrepreneurs and seasoned industry executives behind the brands, which is why these smaller CPG companies have been able to outflank the big national brands in recent years.

There are still opportunities for challenger brands

As such, don’t count emerging brands out. In recessionary times, one of the few indulgences consumers partake in is food and drink. They may be unable to afford new clothes or furniture but simple indulgences like super-premium ice cream or organic baby food for the kids are often within reach.

There has already been some excellent pivoting by emerging brand companies, including to online channels, as well as finding unique ways to fill retail product voids in stores. Amid the huge shift by consumers to buying food at grocery stores since March, a number of big brands have seen resulting out-of-stock conditions. Grocery spending is up by nearly 27% year-over-year in the week 3 May, according to IRI. That’s unprecedented in modern times.

However, it is without a doubt a brave new world for emerging brands. Retailers have to a large extent put new item placement on hold and since March have been putting a greater emphasis on essentials, which primarily means a greater emphasis on big national brands.

Nevertheless, at the same time, specialty grocery chains like Whole Foods Market, Sprouts Farmers Market and others, along with online specialty retailers like Thrive Market, all of which sell mostly smaller natural, organic and specialty emerging brands, are thriving. This demonstrates consumer demand for these brands remains strong. Direct-to-consumer sales for many emerging brands are off the charts as well.

Much of the rebalancing I expect to see depends on how severe the economic recession (or depression) gets as we move through 2020, as well as the status of the pandemic, which right now requires day-to-day assessment. Two big unknowns.

Legacy brand sales growth will continue to diminish overall from its lofty three-month highs. Big national brands will retain some sales growth throughout the year – perhaps the 12% IRI is reporting for the most recent period but probably about half that by the end of the year.

Store-brand sales will continue to rise throughout the year as unemployment worsens and consumers are required to cut back on spending across the board. Private-label sales gains will be at the expense of legacy-brand gains in most but not all categories.

Emerging brands will struggle but they will remain firmly in the game. Key to this is how fast grocery shopping returns to its more normal status. We’ve gone from discovery shopping to stock-up shopping in three months. Emerging brands need discovery shopping – frequent trips by consumers to the store, as opposed to the less-frequent, stock-up trips consumers are making now – in order to thrive. This will come back but it could be a while. Alternative channels like direct-to-consumer and online marketplaces (Amazon, Albertsons, Thrive Market, etc.) are replacing some of this, as consumers are doing their discovery shopping online for home delivery.

The landscape for both legacy brands and emerging brands in the US has changed dramatically between January and now. Legacy brands have gone from declining to surging. Emerging brands have gone from disrupting to uncertain. However, the long-term consumer trend towards desiring small, emerging, brands with unique attributes has more been interrupted than curtailed.

Change is the only constant in the time of Covid-19. None of us know what the “new normal” will be or when it will come. Our best roadmap in CPG right now, emerging and legacy brands alike, is to watch consumers closely. Usually, if we pay enough attention to their behaviour, they’ll eventually lead us to the answers.

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 https://twitter.com/VictorMartino01.