A time for a new retail format for big consumer brands

Chances are that the following happens to you when it comes to grocery shopping. You were the happy purchaser of product ‘x’ until your store decided not to carry it anymore. Your choice was either to substitute (either with a different brand or different product) or to search for that product in another store (but success is not guaranteed).

These are not optimal outcomes for name brands but the reality is that grocery stores cannot carry all of the products available. In fact, grocery stores make product decisions based on a number of factors where consumer demand is a relatively small consideration. These decisions include payments made by food companies to carry products or to place them in particular locations.

The grocery store – the one place where you get all of your food (and now drug, home furnishings, electronics and plants) – is somewhat anachronistic in a world that is both global and local. More importantly, grocery stores and other large retailers are not friends with major grocery brands. They may want to carry some brands but this should not be confused with true friendship.

The relationship between retailers and brand suppliers is changing. In the age of mass media, major brand manufacturers dominated retailing. The brands “had their way” with the market. Now, the power has shifted more to retailers, thanks in part to Sam Walton, who made Wal-Mart the largest corporation in the world (Herb Sorensen, Inside the Mind of the Shopper: The Science of Retailing, Wharton School Publishing, 2009, p 19).

Retailers are looking for profit maximization where shelf space is limited. Consider the greater focus being put on private labels by Loblaw.

Private labels can provide retailers with gross margins of up to 40 per cent, or 10 percentage points more than national brands such as Kraft, because of lower distribution and marketing expenses. Shoppers are drawn to private labels because they are 20 to 40 per cent less expensive than national brands. (Loblaw takes aim at rivals, Globe and Mail, February 10, 2010).

What large grocery brands need to do is start selling more directly to consumers because this allows them to fully leverage their brand identity. As we will see, this is particularly true for brands that develop an actual bricks and mortar store.

Despite the power of the Internet, many food brands are only using it to advertise and otherwise communicate with consumers. Consider http://www.kraftcanada.com/en/Pages/home.aspx as a telling example. Here one can find recipes, product information, and even join a community but you can’t buy Kraft food. On some of the specific product sites (http://www.tassimo.ca) you can order products but there is no single Canadian portal. Other companies sell their products both at retail and online (as do many niche food companies), so why do the major food companies ignore this channel?

A, perhaps, more radical idea is to develop retail stores that are based on food brands. Few food/ grocery companies (often more specialized ones like  Hickory Farms) take this approach now despite the potential benefits. Consider these advantages:

  • Bypass distribution and shelf control/ negotiation. At least in a branded store, it is the brand that determines which products to offer and how to present them rather than the store.
  • Take command of the full-benefits of brand ownership and identity. Apple stores are more than just places to buy Apple products – they represent what Apple is about.
  • Engage with your consumers. Instead of relying on in-store product demonstrations and mediated communications (tv; Internet) to engage, do so in your own store. The store becomes the “goto” place to find a product but also to try what is new.

Don’t expect brand stores to pop up everywhere and no doubt brands will need to learn a whole new business – retailing – but the benefits of making this entry are significant if brands want to maintain their value.

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About Richard Jenkins

Market research professional and small business owner

View all posts by Richard Jenkins

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