First published in The Grocer
There’s a new wave of own-brand innovation on the way and FMCG brands had better be paying careful attention
The rise of private label is not new news; the cost-of-living crisis has driven people to trade down to cheaper versions of the FMCG brands they love, resulting in a huge surge in sales of own-label supermarket products, which now make up more than half of FMCG sales.
But I believe that things are about to get even tougher, because supermarket brands aren’t just cheaper, they are becoming more innovative and exciting for consumers too. In fact they are actively redefining value across a whole range of categories. For example, M&S’s Viva summer range has introduced category-bending innovations such as the controversial (and frequently sold out) cheeseburger pasta salad; Aldi has launched a radical new packaging initiative in the form of own-label wine in paper bottles.
There are several reasons why retailers are set to dominate NPD in the near future:
- Retailers aren’t manufacturers. They aren’t constrained by the need to build production capacity to make new products, which means they can jump onto new trends quickly.
- Their category teams have invested in consumer data capacity, analysis and AI, helping them spot trends across categories and providing a detailed picture of where, how and when innovations can succeed.
- The supplier infrastructure generates a steady stream of inspiring new concepts and products, ready to commission, launch and scale.
- They aren’t restricted by shelf space as they can list new products online and/or soft launch in specific stores, giving them the confidence to experiment, monitor sales and see what works.
- Own label is less constrained by brand heritage. Supermarket master brands can simultaneously deliver quality and value, with flexibility for sub-brands to differentiate within. This gives them the freedom to do new things at lower risk.
- The launch of retail media networks will increase the promotional firepower they have to support own label innovations.
So, what can FMCG brands do about it?
I think that FMCG brands have been falling behind on innovation for some time. In my work with some of the biggest brands, I’ve observed three key issues that are holding them back.
- A failure to anchor NPD efforts against what consumers really value. Brands need to shift their focus to predictive innovation geared to consumer needs driven growth. This requires a much deeper understanding of consumers, what they truly value and how this is changing. For too long, brands have been focused on creating value for their businesses (raising prices, shrinkflation) and not for their consumers – and it’s starting to show.
- Short-term focus. Brands are too focused on immediate sales performance at the expense of long-term brand building. Brands will always lose to retailers in a short-term battle. They need to invest time and energy into developing long-term, brand-focused innovation strategies that build brand equity and category narratives over a longer time horizon.
- Overreliance on promotion. When sales are dropping, brands can fall into a negative spiral of discounting. Discounts mean lower margins, but lower volumes mean higher manufacturing costs per unit, so brands discount again to try and drive volume. Instead of the manufacturing tail wagging the innovation dog, brands need to make manufacturing capacity subordinate to changing consumer values and interests.
The central question facing brands is how to shift their innovation mindset to long-term value creation for consumers. Brands aren’t retailers and shouldn’t try and compete in the same way. Instead, brands need to focus on innovating for the future. Only then can they reinvent the categories that they aim to lead.
Image credits: M&S Facebook page, Co-op website
