Analysis: six reasons major brands are under pressure | RetailDetail

Analysis: six reasons major brands are under pressure

Analysis: six reasons major brands are under pressure
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Global brands are increasingly struggling to ward off smaller, local companies. Some even believe the brands’ golden age has passed. That may be presumptuous, but there are some noticeable trends.

 

Slower growth in past five years

Research firm Kantar Worldpanel’s recently published Brand Footprint report states it clearly: despite its enormous scale advantages, global FMCG brands have slightly lost ground to local brands again. This confirms a trend visible in 2016: local brands grow faster than multinational brands.

 

The Dutch newspaper FD was also quite obvious with its headline: “Major brands’ golden age has passed”, stating major brands have struggled to achieve growth on their own in the past five years. Billions of turnover have shifted from companies like Unilever, Nestlé and Procter & Gamble to smaller brands. What does the consumer see in those local brands? What is putting pressure on the major brands?

 

1. Private labels’ unstoppable march

Private labels’ strong growth in saturated markets has definitely impact name brands’ turnover. Discounters’ strong surge has unquestionably played a part. Not only are Aldi and Lidl’s private labels stealing away market share, they are also keeping prices low. This prevents multinationals of recuperating their lost volumes with price increases.

 

2. You cannot satisfy everyone

A brand’s strength is in its ability to attract more shoppers and to charge them more. In order to lure in more customers, brands automatically become more “mainstream” and because they want to keep everyone happy, they often lose their distinguishable features, the foundation of their success. Kantar Worldpanel labels it as the “paradox of growth”.

 

3. Faster is better

Alongside the previous reason: smaller, local brands are faster and more adaptable than risk-wary multinationals. They are closer to consumers and can adapt to changing needs and wants more quickly. Their “route to market” is much shorter, which is very valuable in a world where you need to be fast instead of large.

 

4. The hipster factor

Globalization has a negative connotation for a growing number of consumers. They would prefer to be seen with a Bionade or a Fritz-kola instead of a Coke Light. They will go to a local coffee bar instead of a Starbucks, a company that is also facing pressure because of tax avoidance. Tony’s Chocolonely targets a conscious consumer’s goodwill with a sustainable story, a seductive packaging and a funny communication that would not get past many multinationals’ legal department.

 

5. Retailers want to distinguish themselves

Not only consumers, but retailers want to get away from the idea that everyone has the same items. They cannot distinguish themselves from competitors with Coca-Cola and Colgate. Those major brands even unwillingly spark a price war that does not benefit anyone. That is why retailers are looking for exclusives, authentic local products or small-scale innovators, which contribute to a friendly image and generate better margins.

 

6. Digitization lowers thresholds

Innovators do not need rigid structures and a lot of capital to market their brand. You can outsource production, social media communication does not cost that much and distribution does not have to go through the supermarkets: eCommerce platforms, subscription services, specialty stores, the multi-coloured “grey channel”… from your garage to the worldwide stage

 

How brands are fighting back

It would be a gross exaggeration to think that multinational brands are nearing the exit. They are much more in tune with the trends that drive those smaller brands nowadays. Major brands acquire stakes in smaller start-ups for instance. Few consumers realize that the small, jolly Innocent Drinks is owned by Coca-Cola or that Unilever paid a lot of money for Dollar Shave Club. Nestlé, Unilever and Reckitt Benckiser invest a lot in blockchain technology to optimize their supply chain and to enable direct-to-consumer sales. The battle is far from over.

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