Source: Hubba.com
Is the craft brand trend healthy for big retailers and manufacturers?
Ben Zifkin, founder of Hubba.com, a portal for retail and brand execs to connect and exchange product information, said in an interview with RetailWire that as technology has gotten cheaper, better, and easier, the future for craft brands has never been better. (Mr. Zifkin is also author of “The Rise of the Craft Brand.”) And, he said, with the rise of craft brands, retailers are better able to differentiate their experience and value instead of just selling the same SKU’s as everyone else.
Mr. Zifkin says that many large retailers are trying out more experimental brands and categories in order to distinguish themselves, which is contributing to the exponential growth of craft brands. Mass marketers no longer worry just about price and value, but also product attributes, experience, ingredients, uniqueness, an authentic product story, etc. Millennials, in particular, care more about these things, and those even younger do too, so the consumer base for products with unique stories and/or unusual features is growing rapidly.
It is easier for craft brands to develop in some categories than others, says Mr. Zifkin, such as categories that require lots of capital to enter and those that are heavily regulated. He points to Airbnb, Uber, Hampton Creek (makers of Just Mayo), GoPro, and craft soda companies as examples of one-time startups that have grown rapidly and even become leaders in their categories.
For retailers, he says the power has shifted to brands, but that many brand manufacturers have not been able to keep pace as they are not nimble enough. So, while they are still innovating and creating innovation centers, a major path to growth is the acquisition of craft brands so that they in essence become holding companies.
Hubba.com serves as kind of a LinkedIn for retailers and brands, where retailers can search for recommendations on nearly a million products based on their profiles and interests, while brands can connect with retailers and pay to have their brands get more exposure. This enables retailers to carry unique brands and items that they might otherwise have never heard of.
Finally, Mr. Zifkin notes that many large retailers are shifting from craft brands occupying about 10 percent of their physical space to as much as 30 percent going forward. And of course with Amazon and Walmart’s marketplaces and others, there truly is an “endless aisle” of availability for consumers.
Discussion Questions
DISCUSSION QUESTIONS: Do you see the rise of craft brands as a positive for mainstream retailers? How do you see the craft brand trend affecting the future of large consumer products companies?
Poll
BrainTrust
Dr. Stephen Needel
Managing Partner, Advanced Simulations
Tony Orlando
Owner, Tony O's Supermarket and Catering
Craft brands change the shopping experience by introducing newness and freshness to stodgy, similar retail environments. They also allow retailers to differentiate themselves from competitors by offering unique products. Perhaps retail will embrace craft brands as an alternative to the seemingly endless line extensions that currently clog retail shelves. Large CPG companies are usually slow to innovate, so it’s easier and more cost effective for them to buy potentially successful craft brands — just look at the beer industry. I wonder what will happen when consumers are confronted with so many craft brand choices that they opt for tried and true traditional brands.
This is a great way for retailers to differentiate themselves. In essence, craft brands can become their (higher end) private-label products when distribution in a market is exclusive.
Many craft brands start out with the intent of staying unique and local until they find a big chunk of change being offered for a buyout. Who can blame a start up for wanting to be able to retire on a sale to a major manufacturer? We will see more of this because innovators love to grow big, but don’t have the capital. By selling their brand to a major CPG, they still have their cash and the name on the product, which is a win-win for them and for the CPG company that pays for the product name without a large investment in R&D.
Points of differentiation in retail continue to be price, assortment and customer service. Craft brands create an assortment point of differentiation. It has been very effective in the beer category and is gaining momentum in many other areas. I even saw several exhibitors at the produce show last weekend in Orlando that were harping their “craft-grown” fresh fruits and vegetables. The trend has legs and retailers need to consider adding lines that bolster their marketing themes, especially for those brands originating nearby.
Like everything, craft brands follow a progression (a la Gartner’s Hype Cycle). There is no doubt that fresh brands are a great growth strategy for retail and CPG companies, the key will be to constantly monitor real-time performance as well as emerging trends so you can course correct and stay ahead of demand. We are seeing this in real time in San Diego where (formerly booming) craft beers are experiencing growing pains.
Major CPG brands, as well as major retailers have already established several “craft” brands to capture their share of this growing market. Additionally, M&A activity will continue to drive this trend. The small, often startup companies that began this movement will ultimately be challenged by the major brands unless they were the original “Uber”-type brand in their category.
Tellingly, the question didn’t ask about the “positiveness” of craft brands being acquired by large CPGs, or the value to consumers of their existing in the first place; no this question is from the perspective of the retailer. Superficially, it would seem to be a good thing that more products + more of a chance of meeting consumers tastes = more sales (not to mention smaller suppliers less likely to get or even ask for preferential treatment.) Sounds great. But in practice, and as can readily be seen to anyone who has ever walked down the pasta sauce aisle, having even more brands adds to the glut (of existing ones) … the “awfulness of abundance” as it were. A mixed picture, indeed.