In the US, the big CPG story for pandemic year 2020 – and perhaps even the conventional wisdom today – is big brands regained their momentum and might have even beaten back the multi-year share-stealing from small brands and retailer-owned brands. Some individual brands did just that. But, in the aggregate, big legacy brands once again lost share to smaller rivals and private brands in 2020, according to new research from IRI, which shows challenger brands and private label continue to steal share from their big CPG competitors.
According to IRI, Covid-19 accelerated the consumer shift toward smaller manufacturers, as big companies struggled to meet demand and shoppers tried smaller or niche brands. This allowed small brands and private-label brands to gain 1.3 points in share, or US$12.1bn in sales, marking the fifth consecutive year large manufacturers have lost market share.
Smaller brands accounted for about one-third of the 10.3% in growth the CPG industry saw last year. Private-label products represented about 18% of growth. Combined, they captured more than 34% of total CPG growth in 2020.
It was in the alcohol, frozen food and centre-store categories that smaller manufacturers did especially well, according to IRI. With consumers spending more time at home, small companies with offerings in breakfast, frozen fruit, snacks and shelf-stable products also saw growth.
Big-brand CPG companies should be concerned about not only the five-year trend of losing share to small and retailer-owned brands but also the fact that, overall, legacy brands failed to close the gap in 2020, a year in which consumers turned to many big brands they’ve been ignoring for years, for reasons like familiarity, comfort and ubiquity.
Based on the five-year trend, the fact 2020 was a seminal year for legacy brands to possibly close the gap significantly, and my own research and day-to-day experience in the industry, I feel comfortable sounding the alarm that big brands are in big trouble.
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The numerous advantages of smaller brands
Nearly all the innovation in CPG is coming from small brands, and even what I call micro-brands, many of which are using the direct-to-consumer channel either as a launchpad or exclusively.
Big-brand CPG companies on the other hand have still not upped their innovation game and budget, instead continuing to use acquisitions as their primary source of innovation. In other words, rather than out-innovating small brands, they continue to wait until an emerging brand looks to be a threat in a given category and then look to acquire it. This is no substitute for in-house innovation.
Consumers, too, continue to be less loyal to big brands. Experimentation with unique and more differentiated small brands is becoming normalised. And, as consumers continue to find equal or superior product attributes in smaller-brand CPG products, this trend will only accelerate.
Retailers, meanwhile, are much more open to giving shelf space to smaller brands than ever before. And, as things continue to normalise post-pandemic, they will devote even more effort and shelf-space to these more innovative brands. Much of the SKU rationalisation retailers performed in 2020, which tended to favour big manufacturer brands, will be reversed this year, as consumers once again resume discovery shopping rather than the stock-up shopping forced on them by the pandemic.
The continued growth of the online channel, both retail marketplaces and direct-to-consumer, also favours the continued growth of small brands over big brands. Online grocery aisles are endless and consumers love the variety offered online. And the big growth in online marketplaces favours special stores that feature small brands.
Challenger brands also do a far better job selling directly to consumers than their larger competitors. As more consumers move online to do more of their shopping, they will discover smaller, interesting brands and buy them, which is bad news for legacy brands.
I see small brands continuing to erode big-brand share. The best offensive measure for legacy brands to try to stem this challenge is innovation in the form of enhanced research and development. In order to do this, most big CPG companies not only need to spend much more on brand and product innovation, they also need to change their corporate cultures to better foster an innovation mindset.
The growing threat from private label
The gain in share by private label in the US should really scare big-brand CPG companies. Retailers are getting better and better at creating and marketing their brands. In fact, it might even be time to stop using the terms private-label brands, store brands and the like because retailer brands are getting so good consumers are increasingly simply viewing them as brands.
Trader Joe’s, Whole Foods Market, Target, Costco and others are developing brands every bit as good as those coming from both big and small CPG companies. In some cases, particularly Trader Joe’s and Target, some of the best CPG new product innovation is coming from grocers.
Retailers also own the in-store real estate, which allows them to position their own brands in the most favourable way, on the shelf, in refrigerated and frozen food cases, and display-wise.
This has always been a big advantage for retailer brands but in the past it hasn’t been as dangerous because private label was, for the most part, merely clones of manufacturer brands. However, with all the innovation coming from retailers today – and it’s only going to get better – the combination of creating products consumers want and like, along with being able to give the products the most favourable positions in stores, is a potent combination that should worry CPG companies, particularly the big brand makers and marketeers.
Retailer-originated CPG brands are the biggest threat to big brands. Retailers are devoting more money and more human resources to creating their own brands than ever before. The big pivot is from the cloning of manufacturer brands to brand and product innovation. Some 90% of all the products in Trader Joe’s stores, for example, are its own brands. People love them and shop the stores because of those brands, since they’re what dominate the shelves. Costco has similar own-brand loyalty and Target and Whole Foods, which both have kicked up their respective brand and product innovation over the last few years, are on the way to achieving similar status.
Consumers, too, are increasingly seeing a CPG brand as simply a brand among others – and the fact many next-wave retailer brands don’t even identify the name of the chain on the product labels is helping to speed-up this change in consumer behaviour. The notion of “private label” is something those in the industry use rather than a differentiation most consumers make. Increasingly a brand, regardless of its source of creation – retailer, manufacturer – is simply a brand in the mind of consumers.
Contrary to what was the big story for 2020, that big brands were back, the new research from IRI shows that’s not the case, collectively. Instead, small brands and retailer-brands continue a five-year march of taking share. This trend will continue, driven both by consumer and industry trends. The innovation right now is with retailers and small CPG companies.
Big-brand CPG companies may still hold the dominant share but having it eroded year-after-year by retailers and small brands is cause for serious concern. Those big-brand CPG companies that figure it out will be the ones that survive and thrive. Those that don’t are in real trouble.
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: firstname.lastname@example.org and https://twitter.com/VictorMartino01.