Photo: RetailWire
How can grocers capitalize on small brand allure?
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Refrigerated Buyer magazine.
Why are small food brands suddenly such big sellers? It all starts with consumers.
Not surprisingly, Millennials are leading the charge.
Thanks to technology-driven companies like Netflix, Amazon and Google, the “iTunes Generation” is accustomed to having lots of choices and being able to purchase niche products and services that meet their very specific needs, explains Bob Shaw, president of Concentric Marketing. “The days when the majority of categories in a store had, at most, three brands and a private label, are long gone,” says Mr. Shaw.
Other reasons, according to market observers, small food start-ups are gaining share:
- The growing diversity of the U.S. population,
- A basic mistrust of big brands and institutions,
- The ease of bringing small brands to market, thanks in part to being able to raise awareness online,
- The ability of small entrepreneurial companies to often move faster on trends and be more flexible than larger, established brands.
For retailers, selling small brands can play an important role in setting a store apart. If you offer the same products as everyone else, you compete only on price and convenience.
Because they aren’t in every store in your market, “You’re going to have less competition and less price sensitivity in the market,” says Luke Abbott, SVP KeHE Distributors. “It’s not that price doesn’t matter; it just doesn’t matter as much.”
Retailers should consider shelf tags or signage that call out family-owned, locally produced or just new brands. Start-ups, often headed by tech-savvy younger people, can also drive traffic to retailers through both social media and grassroots marketing at farmer’s markets, community events and health fairs.
On the other hand, small vendors are at a disadvantage when up against big-brand tools and metrics. Slotting and heavy promotional spending make it difficult for emerging brands to prosper. Stores may have to work closer with smaller players to catch up with demand. Mr. Abbot says, “If working with small brands is part of your strategy and you believe it will help you reach your sales and margin objectives … then you need to have people in your organization that can help them be successful.”
Discussion Questions
DISCUSSION QUESTIONS: What do you think is driving the success of smaller brands in the grocery channel? What tips would you have for grocers working with smaller brands versus more established ones?
Poll
BrainTrust
Dr. Stephen Needel
Managing Partner, Advanced Simulations
Mohamed Amer, PhD
Independent Board Member, Investor and Startup Advisor
We’ve grown out of the “Kraft is King” mindset of food. If shoppers want something new and different (and not just Millennials) and mainstream producers aren’t delivering, the door is wide open for new companies. With all the griping we see in this forum, you would think more retailers would embrace something that is truly new and different. Retailers should treat the small brands as proprietary — cut a deal for exclusivity for a period of time and then promote them.
Some retail and manufacturing models are demand-driven; some are supply-driven.
Emerging brands are, almost by definition, demand-driven. They’ve discovered under-served consumers or needs and built products and brands that resonate. They often don’t have a large legacy catalog or widespread distribution to which they’re beholden. They follow demand and growth and move decisively to capture it.
These products are widely available and easy to find online, where some of them first appear and begin to grow exponentially. The products are on-trend, and shoppers searching for specific attributes know they can find those products online.
A growing number of these brands are launching online (on Amazon or direct-to-consumer) and then bringing a success story to store-based grocers who are hungry for growth.
Smaller brands in the grocery channel are successful because of exactly that: being small. Small is beautiful and conveys uniqueness and represents the anti mass-market. So combine consumer demand for fresh packaging from obscure brands and what you get is a complete reversal in the traditional relationship between retailer and CPG company. Instead of mega-brands luring customers into the stores through mass appeal, the stores become a place to discover new brands and it’s even better if these brands have local roots.
Working with smaller brands means you have to view them less as a source of cash flow and more as a partner in the branding of your own stores. The dilemma is that you want these smaller brands to be successful but not be wildly so; otherwise they risk losing their attractiveness to your customers. This suggests that you should actively encourage these small emerging brands, cultivate and invest in multiple sets of new relationships and be more aggressive in creating unique assortments that are in sync with local tastes.
I love this movement! But here’s the trap. Smaller brands need to do their own fresh thinking about how to present themselves to their believers. Refuse to even utter the words “best practice.” Simply applying strategies someone learned while working at Heinz isn’t going to do it. New wine goes in new skins!
The key part of this, it seems to me, is the story. The quality, value and uniqueness has to be there … but it’s always about the story. People are paying for the story.
It is about the story, Ian, but often, unfortunately, these new “authentic” brands get bought by the old guard. So, the story becomes less authentic as the new ownership is not usually mentioned on the label.
Exactly right! That is a sad and often repeated occurrence. If the check has enough zeros on it, it’s very hard to resist selling one’s soul.
I think what makes the small brands successful is their appeal and that they have something to offer that’s different than the big brands. It could be the quality, ingredients, preparation and possibly price. Food is an important part of our lives and most consumers are always looking for something new. In addition, there are many small food chains. I think the small brands can find a niche in today’s competitive food industry if they focus on smaller local food chains first. The small chains would need to promote the items, offer sampling and promotional opportunities to entice customers to try them. Together the small brands and small chains can find a market for great success.
The niche appeal of smaller brands continues to grow for consumers who like to buck the traditional brand tsunami. The funny thing is that many of these (at one time) smaller brands are now becoming fairly large companies that are able to leverage economies of scale with logistics and distribution costs. Also, I’ve see smaller brands collaborate to reduce LTL costs. This can be done effectively today.
What gets me about this topic is that Whole Foods has been doing this (and many other spot on Millennial traffic drivers) since Day 1. Yet, somehow Wall St. is upset with their brand, probably for not being big enough. But if you look at the details, there’s still no large grocer doing what Whole Foods has done from the get go.
The “thing” about smaller, local brands is the perception (or reality) of quality. The intense effort of some individuals, vs machines, personally driving the notion of better product is very attractive. Easy to buy into, and I’m not a Millennial.
Driving success is discovery and surprise, in my opinion. For example, White Mustache is a small, Brooklyn based yogurt maker that sells in Whole Foods. They sell very small batches and from my observation, tend to sell out quickly. The Gowanus Whole Foods is the perfect location for this type of product as it caters to young families who are interested in organic, natural ingredients they understand.
What Whole Foods and other grocers can do to encourage these partnerships is invest in those businesses in addition to selling their products. Often the requirements to sell in Whole Foods require enormous capital investments on the part of these small brands to meet WF safety requirements. Give those small producers more of a hand in supplying to your stores on the backend would be my advice.
Small brands are a great way for grocers to give customers unique new products (and differentiate themselves from competitors).
We support all of the local wineries that want to wholesale to the stores, and always try to find unique foods that we can sell. Price is still a major factor in our area, and the margins you can make in Cleveland are much greater than my area, but I will try to search out for items that have a decent price point, as $6.99 jars of salsa will not sell here. Local marinara sauces do well, and we have a new organic egg guy, who is asking to sell to us. Basket cheese is another local Ohio item well sell a lot of at Easter time, and the big stores do not carry it, which is great. I’ve talked to some food manufacturers, who are looking to create private label items for me, but so far the costs are too high, but with some partnering it can come down.
Keep looking and you can find some great products that the big stores won’t have, and it can boost your basket count, which is always good.
Competing on price, along with over-inventorying, includes pitfalls every brick-and-mortar retailer must address. Conversely, stocking select curated items represents not only an opportunity to inspire in-store shoppers, but it stands to differentiate forward-leaning physical stores from competitors — especially competitors in the same class, size or category of operation. Taking the concept of highly-curated inventory even further, when we consider evidence that smartphone-savvy consumers — especially Millennials and Gen Z shoppers — are quick to seek advice and share new in-store discoveries with their online friends and family, then the case for small-brand allure takes on the additional ballast of uniqueness, exclusivity and share-worthiness. These are conversion-driving opportunities for retail. Leadership should embrace them.
Small brands keep grocery stores fresh. Shoppers want to know about what’s new and trendy. Why not offer a “new product of the month” that’s promoted in store, in a newsletter, and maybe even on their website? This gives more exposure to these new products that shoppers might want to try. And highlighting these exclusive products keeps shoppers from going to a different store that always carries the same items.