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.
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?