Advice For Second Tier Grocery Brands
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
Conventional wisdom holds that second-tier manufacturers won’t survive the ongoing tsunami of industry consolidation. Of course, that’s been the conventional wisdom for 10, 20 and — in some cases — 30 years. And yet many of the firms perennially found on capitalism’s endangered species list have managed to, at least so far, defy the laws of commercial Darwinism.
So, what should second-tier firms do?
The Four Choices
There really are only four choices: get larger; get smaller; stay the current course and hope for the best; or fold.
Let’s look at them in order.
- The easiest way to get larger is to merge with or acquire another company. Of course, even if they stand on each other’s heads, a marriage of midgets does not create a giant. Putting together two underperforming firms more often than not creates a brand spanking new underperforming company. The problems that plagued the individual companies remain — or are magnified in the new enterprise.
- Getting smaller may be a successful strategy for some second-tiers provided they are shedding fat rather than muscle. Underperforming brands, line extensions, sometimes even rationalizing size assortment can reduce a company’s overall sales but increase their margins.
- Staying the course has worked for some companies but complacency isn’t really a good strategy for anyone. And, while dumb luck can, no doubt, get some companies a lot further along than they deserve, it too isn’t a recipe for long-term success.
- Finally, selling out is always a strategy worth thinking about while a failing company still has some market value. Likely buyers? Other second-tier companies pursuing the "Get Larger" option. If selling out isn’t possible, selling off the assets and folding the company may be the only viable path.
Are there things second-tier companies can do short of a commercial "Hail Mary," such as developing a wonder product or securing the rights to the next big thing? The answer is a guarded, "Yes."
All second-tier firms should do as much internal housekeeping as possible before they do anything else. Underperforming SKUs should be pruned, as should underperforming human assets.
Once that’s done second-tier manufacturers would be well advised to see what unserved, or underserved, niches exist inside their current and emerging markets. These niches could be based around price, size, variety or other characteristics. By focusing on areas larger manufacturers haven’t pursued, some second-tiers might discover a second — or even third — wind. Of course, then again, there may be a reason why nobody is trying to fill that niche that looks so inviting.
Discussion Questions
What advice would you give to second tier grocery brands looking to best position themselves in a consolidating marketplace? What advantages may smaller brands have in approaching the market?
Ryan’s idea about finding the niche resonates most with me. Short of selling out, making yourself unique and perhaps indispensable is a way to stay on the store shelves. No reason why second tier companies can’t bring new category management and shopper marketing ideas to the retailers.
Make sure you have QUALITY, QUALITY, and more QUALITY built into the culture of your product. You cannot be “me-to” against the giants.
Establish that quality message with the consumer, and the national, regional, and local chains will open up space for you, as they all know that the consumer is the center of the equation.
Once quality is established, don’t be afraid of line extensions, building different day parts for use, seeking added channels of outlets, expanding the line to bring in the considerations of other family members. Just as Kellogg, for example, can show a dad and daughter on the golf course, and bringing in Tony the Tiger (they are not afraid to say that Sugar Frosted Flakes are for more than 8 year olds), so can the second tier products.
Chobani Yogurt became a $1.4 billion product in just 5 years. They never stop working on QUALITY. If they hiccup, they address their mistakes, make good on there product, and move on. In the process, this Greek Yogurt titan is tops in its class. And, they are positioned for added growth in 2014.
You gotta make somebody love you.
In other words, there is a reason most of these “second tier” companies are still around. Whether it is a unique product or flavor profile – or simply being a long-time regional favorite, there is probably some core reason most of these companies are still around. They need to clearly identify that and make the personification of that core value the primary strategic focus of everything they do. Everything.
For those “tier two’s” who I suspect Ryan is more broadly referring to – those who exist simply as a slightly cheaper version of the national favorite – Ryan’s suggestions are as good as any. As grandpa would say, “That’s going to be a tough row to hoe.”
A consolidating marketplace will further highlight the importance of the first-tier manufacturer’s money. That will further challenge second-tier grocery brands to create their future security, which will be creating more uniqueness in their brands. To wit:
In the clutch of challenging circumstance,
Be not winched, daunted or ever cry aloud;
Under the bludgeoning of such a condition,
Endure, do not let innovative head be bowed.
Differentiate or die. Don’t skip on marketing talent. There is always room for a product that’s well positioned.
Smaller brands have the advantage of being more nimble and they should aggressively use this to their advantage.
1) Smaller brands can react faster to social media and trends in the market (flavor profiles,hot micro market trends, consumer demand etc.).
2) Smaller brands can service verticals that larger brands struggle with by partnering with boutique brokers and distributors.
3) Smaller brands can test new ideas faster than larger brands.
Rather than smaller brands merging (creating a larger under-performing brand) I would encourage smaller brands to partner with non competitive complimentary brands to create strategies for competing against the big guys. This can be done through share groups or a more formal relationship through industry groups like Topco who services regional Grocery stores to compete against National Grocery stores.
Once you admit you are a small brand, then use it to your advantage and disrupt the market. Small brands fuel innovation.
It is no longer enough for established manufactures to find a way into a retail organization’s store(s). Today’s retailers expect and get working relationships that that not only set up a presence on the shelves, but also find the right shelves for optimum consumer visibility and inventory turn.
Knowing your product and where it belongs is usually put together in the form of a site visit. The manufacture’s rep scouts out the competition and recommends that he or she be allowed a small but easy-to-see product location near the center of the optimum location. This goes on every day with the same miserable sales result.
You will find when observing this sales plan that the small and medium manufactures have turned over their fate to the retail establishment instead of the consumer. In short they put their selling dollars into placing a similar product in another store. Very little direct to consumer sales and marketing is ever attempted or maintained.
Most established retailers have a comprehensive list of products and services that they know consumers expect and want. You must have consumer demand to get on and stay on this list. This is a seemingly overwhelming task until you discover the dos and don’ts simply by learning form the companies that recently did. The best sales and growth in retail always come from consumer awareness and demand.
Store brands, I believe, pose the biggest threat to second-tier national brands… in terms of both shelf space and shopper consideration.
Provide an outstanding customer experience and get to know your customers as individuals.
I just did research of a “second-tier” grocery brand that had an NPS higher than Trader Joe’s, the industry leader and 40% of their customers are “raving fans.”
This brand has an outstanding opportunity to leverage its raving fans due to word-of-mouth marketing for them.
I agree with Ben. Without that someone(s) to love you, that tough road gets tougher.
Interesting though this discussion is, it offers a lot of theory, but few examples – actually no examples at all; I’m wondering if many second-tier “national” brands that have survived aren’t really national at all, but rather dominant local/regional brands.
The best idea is to go smaller and go niche. Gain deep understanding of a particular segment or type of consumer and focus on really serving them well. With America becoming ever more diverse and less homogenous, there are many niches to be found.
Smaller brands are small for a reason. A second-tier grocery brand needs to examine their key products, their prices, how each is positioned on the shelf, and the brand placement in the mind of the consumer. By critically examining each of these components, a second tier grocery brand may develop a winning solution to grow larger. Otherwise they will be faced with the 4 options from the article.
Build brand value. Period. Determine the assets that your brand has or could have, and promote those. CPG firms large and small are exhibiting profitable growth by driving true brand loyalty. Also, investigate direct-to-consumer avenues.