Photo: RetailWire
Are small brands eating big food’s lunch?
New measured channel data shows that small and extra small manufacturers and private label suppliers gained market share in 2020 as a variety of factors helped accelerate trends that began well before the novel coronavirus pandemic hit the U.S.
The consumer packaged goods industry grew 10.3 percent last year and small suppliers and private label manufacturers accounted for 51 percent of total growth, based on retailer scan data collected and analyzed by IRI. Small manufacturers gained an additional 1.1 percent of the CPG market and private labels were up 0.2 percent. Large manufacturers, which now represent 46.7 percent of the market, saw their share reduced for the fifth consecutive year.
Dr. Krishnakumar Davey, president of strategic analytics for IRI, pointed to a number of factors that developed during the pandemic and played out in favor of the smaller firms and store brands.
“Many large manufacturers were not able to meet the surge in demand caused by the COVID-19 pandemic in the second quarter when they lost most share to smaller players who seized on this opportunity. Several brands attracted a number of new buyers as in-home consumption surged,” said Dr. Davey.
Large manufacturers saw their business pick up somewhat in the third quarter of last year, but still lost share (-1.3 percent on top of a -1.9 percent drop in 2019). Their share dropped 0.8 percent in the fourth quarter versus the previous year.
Small brands even made gains in the convenience store channel, a business that has long been a big brand stronghold. The smaller companies made gains in nine out of 10 categories, with home care being the exception.
IRI found that smaller companies were able to take advantage of large companies, for example, not being able to meet increases in demand for paper products and hygiene-related items. Similar stories were repeated in edible categories, as well.
“While some of the 2020 consumption trends will continue with consumers working from home at least part-time, away-from-home consumption will continue to gain back lost share,” said Dr. Davy. “We expect smaller and mid-sized players to continue to gain share from large manufacturers.”
Discussion Questions
DISCUSSION QUESTIONS: Why do you think Americans have been turning to small CPG brands in greater numbers in recent years? Do you expect this to continue and how will it affect how mass merchandisers, supermarkets, warehouse clubs, convenience and dollar stores make merchandise, space and other business related decisions about the vendors they work with?
Poll
BrainTrust
Michael Terpkosh
President, City Square Partners LLC
Brent Biddulph
Industry Marketing Lead, Retail & CPG
Analyzing 2020 numbers is difficult because there was so much churn and change in buying habits. For example, in some CPG categories there were a lot of out of stocks which pushed consumers to buying brands they would not usually consider. That’s not necessarily a natural choice and it will be interesting to see how brand preferences shift as we get back to normality.
All that said, there is an underlying dynamic which favors own-labels and smaller brands. This is mainly driven by the fact that both segments have been innovating and investing in new products and enhancing their presentation. Comparatively a lot of the big CPG companies are lagging behind.
Small brands are about listening to what consumers want in terms of “better for you” ingredients. They understand that bigger is not necessarily better. They know that the smaller brands are able to include attributes that make the consumer feel better about themselves and the food they give their family as well as the products used, from laundry detergent to shampoo. Small brands started with this in mind. Large brands, in most cases, are playing catch up.
Consumers have been looking for new and different brands for years. They are tired of the over-marketed, bland, mega brands they grew up with. Today’s consumer wants more natural/organic items, more ethnic foods, and more diversity in what they buy. Smaller brands and private labels have answered these needs and wants through innovation, better understanding of the consumer and being more nimble. The mega CPGs can’t continue to call a new flavor or scent an “innovation” in their product lines. Consumers want new, fresh, different and in many cases, better products. It has created the dynamic for many mega CPGs that the path to being innovative is to buy smaller brands vs. trying to change their organization culture.
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Small brands might be snacking on big brands’ lunch — but not eating it. 2020 was all about supply. The good news is, some small brands got a chance to generate trial without having to spend against that — a factor which may help them stay around if their products are any good.
Customers didn’t care about brand in several categories — primarily driven by supply constraints. It would be interesting to see the market share gained in discretionary categories. Secondly, percentages are deceptive because the big brands are operating from a much larger base. Finally, the shelf space and merchandising is a long-term game, and smaller brands are less likely to have capital available to influence the shelf space.
Overall, I think the gain of smaller CPG brands may be short lived, and reverting to mean is more likely. But I do expect a few standout smaller CPG brands that will go on to be a sustainable success.
Small is big. Comparatively lean CPG brands are closer to consumers, attuned to evolving trends and ready to pounce before “the bigs” do. They aren’t weighed down by sprawling legacy systems and outdated mindsets that slow their speed to market.
Beyond their agility, small brands align with demand for local and artisan products that reflect authenticity and craftsmanship. Their products also reflect richer diversity than bigger brands whose goods are designed for the mass market.
This trend isn’t a fleeting fad. That’s why Amazon, Walmart, Shopify, Etsy and Facebook have made efforts to attract smaller brands to energize their assortments with a wide variety of in-demand products.
Shorter term, much of this has been driven by product availability. You bought what was there when the Charmin was out of stock. Longer term, the smaller brands tend to be the true innovators and that’s what drives them.
I’s like to see the definition of small versus big brands. Is Seventh Generation large or small, as it covers the shelves in several categories in several types of retailers?
That aside, I would like to see the demographics on those who are buying small brands versus big ones . I am guessing that the demographic trend hugely favors small brands as the oldest demographic is still strong with well known brand names and the youngest are rejecting anything that looks like your father’s Oldsmobile.
For grocery, another factor is the desire for healthier food (probably the same demographic trend). Reading the ingredients of large brand products has to be concerning. Environmental concerns also fits this category.
Another factor on the grocery side is the growth of alternative grocers, WF and Trader Joe’s. One would be hard pressed to find big brands in either.
There’s another explanation here. Customers who are stuck at home and can’t enjoy restaurants are seeking out new flavors and SKUs to keep things interesting. For the past year or so, people have discovered they can make their own Tikka Masala and pho at home. This is a boost for smaller brands and foreign ones.
We are witnessing a generational shift with “active” voting via consumer dollars across all industries as Gen X, Y, Z is now making up the largest generational consumer segment worldwide. Witness the “Boomer Backlash” just this week in the Financial sector with GameStop trading. This of course, has been building for much longer in Food & Beverage with “active” trends embracing small, socially conscious brands expected to accelerate, not slow down.
The data definitely shows that 2020 was a year where consumers tried new things. New products, new brands, new retailers and new hobbies. The brands that met or exceeded expectations will likely continue to win share vs. larger brands. Those that didn’t may fade away. The growth of craft beer, gourmet coffee and varietal apples has shown that consumers will turn away from major brands if there is a better alternative. Retailers will continue to do what they do and monitor these trends and ensure that they are investing in the right growing segments.
Small brands’ primary weapon is their decision-making speed and agility. Their strategy is to out-innovate the bigger brands while engendering trust and healthy quality products. Newness combines with healthful and nutritional ingredients to create excitement in the mundane while rewarding the consumer with the aura of more nutritious cuisine. Small brands deliver on multiple elements essential to consumers; this was exaggerated during the pandemic yet will remain intact post-pandemic.
New smaller brands are often more nimble and responsive to what consumers want. Private labels, too, but they have always had a price advantage. Taken together, that is not good news for big brands.
I think this is simply a (natural) result of mature markets: there’s always a small number that don’t want Heinz Ketchup or Oscar Myer (or whatever) so there really aren’t growth opportunities for larger brands.
The real question is, “now what?” In the past, the history has been clear: the most successful small brands are bought out by larger ones … it’s a business version of why third parties never go anywhere in politics.
This rise in small brands mirrors the surge in private label sales a decade ago. At that time, complacency on the part of the big CPG companies, which raised prices without additional benefits, contributed to a perceived negative value proposition vis a vis private label offerings.
I don’t see that happening here. In addition to the reasons noted in the article, I see the pandemic as creating a desire to relieve the stress & restrictions that consumers are experiencing. This products allow us to escape the pandemic’s hold, if only for a moment, as well as give consumers permission to experience non name brand products.
The 3 worst words in retail are “out of stock.” This has enabled smaller brands to better develop their presence at the expense of larger brands because of their ability to be nimble while responding in an omnichannel retail presence.
2021 should accelerate what has already started in 2020:
1) Nimble SMB brands continuing to deliver when traditional brands cannot.
2) Smaller CPG with shorter product cycles delivering more relevant localized offerings.
3) Increased public support for regional brands that offer visible contributions to their communities.
Millennials are driving the demand for small brands. Many of which are actually big brands creating small stealth brands such as: