Is this the death-knell of brands?

    How does a branded product withstand the power of a retailer duopoly that controls 65% of Australia’s supermarkets?

    That question has exercised the minds of proprietary FMCG brand owners for over  30 years, since the first house-branded  “No Frills”   products appeared on the now almost defunct Franklins shelves. It has  become a really serious question over the last couple of years as the big two retailers more actively set about building a brand of themselves as more than a place to shop, but also a range of products to buy, following the patterns set in the UK by Tesco and Sainsbury, and it hotted up a month ago with the beginning of the “milk war”.

    The Nielsen Global Private Label report puts Australia’s private label penetration at 14%, not really accurate if you happen to own a milk brand. Milk had a sales channel split between supermarket and route sales  about 60/40, with Housebrands holding  a share around 50% in supermarkets, but nothing in route, until a month ago. Overnight, the “milk war” has dragged sales from route into supermarkets, (I do not have the numbers) and the house-brand sales must be now 85-90% plus, again, I do not have the numbers, just a set of eyes. “Dairy Farmers”, “Farmers Union” “Paul’s” all venerable brands in the milk market have had their value decimated almost overnight.

    Now it seems we have Fosters pulling their beer brands from the shelves of Coles and Woolworths owned liquor outlets  as a defense against the risk of having their brand equity, built over long periods, with huge investments, being trashed by under cost sales by retailers. It may lose them  lots of sales in these outlets, but the 50% of the market still controlled by independent retailers will be cheering, it offers them a competitive advantage over the chains to have brands like “VB” on shelf when Woolies and Coles owned Dan Murphy and First Choice do not.

    Suppliers of produce to supermarkets have faced the dilemma for many years. The retailers simply will not allow proprietary branded products on their shelves, if you want distribution of your oranges, potatoes, or lychees, it is as unbranded produce, or increasingly branded with the supermarket brand. In these categories, housebrand share is 100%, so I wonder where the innovation  will come from in this drive to the bottom of the price equation, and will consumers in the long run be better off?.

    Back to the core question,  to which I wish I had a simple, glib answer, but I don’t. However, I think the answer is tangled up in the way we manage the changes emerging from the digital revolution we are undergoing.

  1. Mass media is dead, the cost cannot in the long term be recovered if hard won brand equity can be destroyed overnight by a retailer who wakes up with a good idea. In the future, mass media will not be used to build brands, with the exception of a few huge multinational brands. Apart from the cost/risk equation, the “mass audience” has fragmented anyway, and is increasingly hard to find. Time to sell your shares in TV networks.
  2. Social media now has a framework for communication, like it or not, that framework has two major  dimensions, called “Facebook” and “Twitter”. As we figure out how to use them, these two related frameworks, and the others offering similar but more specifically targetted access to individuals, will drive the way brands engage  with their adherents, attract new ones, reward their loyalty,  and build equity that is remote from the ravages of duopoly bricks and mortar retailers.
  3. Marketers have to get to grips with this stuff, mostly it is beyond the young brand manager who does not understand, and should not have the power anyway to make brand related decisions. The case for the CEO to be the “Chief Brand Officer” in any business is getting stronger daily.
  4. Building a brand just got a whole lot harder. Dollars to spend now bears no relationship to success, nor does longevity, (facebook had its 5th birthday day before yesterday), so just hanging around is not an option. Instead, markets have to do the hard yards to really deliver value, huge value, to customers, and keep “value-innovating” as if their lives depend on it, as it surely does.

     

     

     

About strategyaudit

StrategyAudit is a boutique strategy and marketing consultancy concentrating on the challenges of the medium sized manufacturing businesses that make up the backbone of our economy. The particular focus is on their strategic and marketing development. as well as the business and operational efficiency improvements necessary for day to day commercial survival. We not only give advice, we go down "into the weeds" to ensure and enable implementation.
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