The news that Wal-Mart is dumping some well-known brand names in favor of its own will no doubt send another round of shivers through the U.S. consumer packaged goods world. (Click here for story.) Where will it all end? Is no brand safe? I believe the answer is the same as it’s always been: Strong brands, the ones shoppers really desire, have little to fear. And fewer brands on the shelf may go some way to re-establishing consumer’s satisfaction with the brands they do buy.
Wal-Mart is not alone in expanding its own brand lines at the expense of branded goods. Supervalu, the third-largest food retailing company in the United States and the owner of Albertson’s, Jewel, and Shaw’s, is also focusing on limiting the product clutter on its shelves. Supervalu CEO Craig Herkert is quoted in the St. Paul Pioneer Press as saying, “Why have 22 different sizes of toilet paper on the shelf?”
Why indeed? There is only one answer, even if it does come in three parts: if manufacturers pay for the space, if consumers buy them, and if the retailer makes a profit. And retailers are beginning to realize that less may be more when it comes to driving sales and making a profit.
In his book The Paradox of Choice, Barry Schwartz explains that the amount of choice available to consumers today causes them considerable anxiety and can bring about a virtual paralysis in decision making. Just as TV networks have undermined the effectiveness of TV advertising by allowing more ads to be shown per hour, so too retailers and marketers have unwittingly frustrated and discouraged shoppers by cluttering the aisles with excessive product variants and line extensions. The result is a greater propensity for people to overanalyze decisions at the shelf and then worry about whether they made the best choice, leading to an overall decline in satisfaction with any brand.
What is more, experimental evidence reported by Schwartz suggests that more choice actually leads to fewer sales. Therefore retailers who reduce the number of items on their shelves should expect to see category sales rise as a result.
But are brand manufacturers willing to admit that less may be more? At the Consumer Analyst Group of New York conference last week, Heinz CEO William R. Johnson noted “the industry’s renewed focus on innovation and marketing in response to the challenge of store brands.” (Click here for story.)
Let’s hope that renewed focus leads to innovation aimed at differentiating already strong brands rather than blindly extending them into new lines and categories. In these recessionary times, consumers are revisiting even long-standing and habitual purchase decisions. Brands must find new ways to convince shoppers that there is a good reason to pay a premium for branded goods.
Packaged goods manufacturers who believe in their brands may not like retailer attempts to reduce redundancy, but the final outcome could be beneficial. Those whose brands are delisted will have a bitter pill to swallow, but for the brands that remain, the reduction in clutter on the shelves may actually lead to a resurgence in brand loyalty and sales. That should satisfy everyone: manufacturers, consumers, and retailers.
So what do you think? Is my analysis of the situation too simplistic? What am I missing? Please share your thoughts.
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February 25th, 2010 at 12:01 am
Differentiation is the key, and for many commodity products, differentiation is a huge challenge. Toilet paper is good example. When price become the primary difference between you and your competitors, your margins and market share are going to suffer.
I’m still waiting for the Trac 6 razor.
February 25th, 2010 at 3:20 am
“Good enough” is just fine for most people these days
February 25th, 2010 at 7:39 am
As you noted Nigel, there are several things at play here.
1. Flat world…”true” product innovation is hard to achieve, harder still to sustain. Everyone strives to unlock the code to the next game-changer and loses sight that innovation needs to be continuous and along all elements of the brand value chain. The harsher truth is regardless of one’s success, many brands (and retailers) can be readily substituted with hardly a bump in the road…even P&G! Consequently relevancy however defined be it “innovation”, economic, promotional, “relationship”, “community” are the true currencies of brands. How a brand wishes to redistribute those currencies between premium and volume is likely to change since consumer purchasing power has been “transformed” (for a medium period of time) in the developed countries while the middle class in developing countries don’t have the buying power to take up the slack. Wait till we start pricing carbon into our goods and services…pack sizes and the premium gap will contract even more. Maybe one day we’ll start classifying and judging brands on the value-add of their customer(community) relevancy and engagement as a more meaningful scorecard of market success than the premium-ness of their offering.
2. Line proliferation without lifting category consumption/profitability is a win-lose outcome ultimately stacked in favor of the house.
3. Retailers are like habitual yo-yo dieters. They rationalized shelf space and over time it all comes back and so this talk of simplifying things for the consumer leaves me sceptical if the extent of their efforts are limited to what has been covered in the media reports.
Moreover the grocery aisles are the most boring sections of the store - the periphery the most interesting. Grocers and CPG’s need to innovate, consider putting in information/sampling stations (paid for by instore marketing) mid-aisle and who says end-aisles can’t be cloned into mid-aisle displays to drive traffic and impulse purchases inside the bowling alleys?
5. Talk of building loyalty is premature. Purchases without emotion or involvement is simply continuity, an important albeit first step on the journey toward what I call Share of Life. Pepsi’s recent decision to redistribute SuperBowl funds into local social initiatives will be important to watch.
And for those who say their category can’t engender that kind of consumer involvement…tell me what is inherently engaging about carbonated sugar water? Others like Unilever have claimed important community challenges across all of its brands/categories as key corporate social responsibilities giving consumers a reason to support their brands. I leave you with this haunting quote from Dave Williams (then President of Loblaws)
”Loyalty is the absence of something better”
cheers
Miro
February 25th, 2010 at 8:00 am
Hi Nigel, nice post. Several things here that describe the awkward dance between retailers and manufacturers. First and foremost, unless a retailer has a long established reputation for private label, (Aldi, Marks & Spencer, Trader Joe), strong national brands are critical to drive traffic. So there will be a continued necessity for them in the vast majority of stores.
That being said, as you point out there is little need for 33 types/sizes of toilet paper. But it might be worth stopping to think how we got there. After all, if the retailer is acting as an agent on behalf of the shopper, we would find just the most valuable SKUs on the shelf. The retailer would asses what is innovation and what is duplication wouldn’t they? Not when shelf space becomes a fungible commodity. So by accepting new line extensions the retailer delivers to the bottom line by charging slotting allowances and other fees in order to place the product on the shelf. And of course if it fails to generate sufficient turns within a specified period (say three months) – off the shelf it comes. And then it gets worse: because the retailer actually has an interest in accelerating shelf turn-over to encourage more and different products (all with additional fees), there is little incentive to ensure the success of a new product: it all falls to the manufacturer to generate sufficient volume to maintain presence and not lose that valuable real estate to the competitor waiting in line with yet another “me-too” variant.
One last bit in this complex relationship: typically the retailer makes a far better margin on private label than on national brands, so there is a dual reason to cull national brands and replace them with their own offers – keeping the advertised price lower and making better margins at the same time. For a while. Then the retailer begins to miss the ongoing deals and allowances that traditionally constitute most of their profits and slowly more brands will find their way back into the store. So the process is much like the tide – just slower.
One final thought: Walmart traditionally hasn’t played this game. Their policy has been deliver the lowest price – period! But now we hear that the game is changing and in order to retain shelf presence at Walmart, manufacturers can “strike a deal.” Let’s keep an eye on this one.
February 25th, 2010 at 11:59 am
Great post. I enjoyed The Paradox of Choice as well. I think there’s room for some good analysis here. Does the 58th variety of Heinz really add reach/sales for the brand/retailer or does it cannibalize and/or does it really meet an unmet consumer need? Given the thinking of “more is more” in our capitalistic world, I’m not sure we’re ready to plateau the “we need to buy more” curve we’ve been heading up since the 1950’s. In addition, despite some retailers/Walmart cutting back a bit, unless they get the prrof that less is more, perhaps they’ll do what they started doing years ago and just expand further? Perhaps the future holds Super-Duper Mega Wallmart Super Centers that have hundreds of rolls of TP, unless they get the less=more memo first.
March 2nd, 2010 at 3:26 pm
Thanks for the comments.
@Miro, nice quote from Dave Williams but perhaps it should read “loyalty is the lack of recognition of something better”? After all, strong attitudinal loyalty is founded on the belief that there is no better alternative. That belief could be founded in reality or ignorance.
@Phil, Marks & Spencer in the UK is an interesting example of a retailer which decided to add leading branded goods to its inventory in order to retain shopper loyalty. The brands chosen, however, were all unique or strongly differentiated from the competition. And do retailers always make a better margin on their own brands? I have heard otherwise.