Brands should bypass retailers and avoid race to the bottom

Rob Sellers, director at shopper marketing agency Dialogue
Rob Sellers, director at shopper marketing agency Dialogue

The past few weeks have been carnage in the world of grocery retail, writes Rob Sellers, director at shopper marketing agency Dialogue.

The ‘Big Four’ supermarkets have announced results to the City that have been met at best with disappointment, and at worst with dismay. Morrisons have just announced a 7% fall in like-for-like sales, the brokers stuck their knives into Tesco in April, and, despite posting admirable results, the spectre of Justin King’s departure hangs over Sainsbury's future performance.

This is not a sustainable future for anyone. Given the lack of constructive strategy from the retailers, the onus will be on brand-owners to react to protect their businesses.

Outside the top four, the trials of the Co-op threaten the existence of a British institution.

So why have the wheels come off these retail juggernauts?

Well, it’s a complex world of multi-channel, shopper behaviour, globalised factors of course (I don’t want to do any retail analysts out of a job). But simply put, the rise of discount retailers such as Aldi, Lidl and Poundland is the biggest trend in grocery retail.

As more of these stores open, shoppers have gone to them in hunt of bargains and realised that it is not that bad an experience, and the products are pretty good.

Tesco, Morrisons and Asda have seen their ‘value’ competitive advantage swept away, and market share erode as a result.

Not only that, but recent studies have suggested because we have now lived through the longest recession in generations, shopper behaviour has changed intrinsically. We’ve become a nation of bargain hunters.

So how have the 'Big Four' reacted?

Morrisons has launched its "I’m Cheaper" campaign, highlighting price reductions across the store.

Tesco is creating £1 price point areas, collating discounted products to suck bargain hunters into a pre-defined zone.

Meanwhile, Asda retains an aggressive price-comparison stance in all its communications. So ultimately, we’re stuck in a declining value circle – a race to the bottom of the pile, where everything is as cheap as possible, until all the profitability is sucked out of the industry.

Who will bear the brunt?

Well, you can guarantee that the retailers will protect their margin for as long as possible.  The squeeze will be put on the brand-owners and suppliers of products that go on the shelves. Discount or be delisted will be the threat.

This is not a sustainable future for anyone. Given the lack of constructive strategy from the retailers, the onus will be on brand-owners to react to protect their businesses.


What are some of the options available to stop retailers from dragging down scores of household brand names with them?

1. Brand values are clear

Make sure your shopper communications clearly conveys your brand value. Morrisons is using the word "cheap", one that we all know you should avoid like the plague if you want shoppers to understand the equity you have built around a brand. But communications can only do so much, and they can only work harder in some product categories versus others.

2. The importance of product strategy

If there is a rise of the importance of the £1 price point, make sure you create SKUs that can be sold at this level and still deliver you a profit. Examples could be making your packs smaller, or creating entry-level ranges that still outperform own brand. Take categories like batteries or nappies, where product performance is incredibly important, but the price differential between a leading brand and an own-brand can easily be 100%.

3. Why do people buy your products?

Similarly, think about the reasons why people buy your products. Shopping missions are complex and varied; the concept of the mindless trolley-dash around a big supermarket doing a ‘big shop’ is becoming less and less relevant. The rise in convenience missions means you can be relevant to different shopping needs, and tailor both product (and communication) strategy accordingly. Out-think and out-manoeuvre the sluggish retailers who are tied to their retail footprints.

4. Bypass the retailers

Finally, and perhaps most dramatically, brand owners will need to understand how to get their products to shoppers without relying on the retailers at all. This is seismic, and changes the paradigm completely. What if big brand owners didn’t court the retailers, and bypassed them altogether?

It’s no secret that some of the biggest brand owners in the world are investing heavily in strategies that allow shoppers to buy directly from them. And in the world of multi-channel marketing, this clearly does not require opening a chain of shops. See something tweeted about? Add it to your basket. A product used on your favourite TV show? Click on it and get it delivered. Like a particular product you use regularly? Subscribe.

It may sound like a logistical undertaking of biblical proportions, but if online shopping is going to get anywhere near the levels of popularity it is projected to, then the supply chain in the UK will have to become significantly more sophisticated, and ultimately cost efficient. What is currently seen as prohibitive to most FMCG brands will become a profitable route to market.

It promises to be an exciting, and probably turbulent time for a number of household brands over the next few years. But it’s likely that a clear strategy, and brave decisions will be rewarded.

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