May 3, 2013
Should Independents Give Up on Big Brands?
Big box stores and large supermarket chains have historically been able to offer better prices on consumer packaged goods, in part because they get better deals due to volume and partly because they are more efficient.
Independents and smaller chains can’t move new items to the shelf as quickly as the big guys because they have more steps in the process. Wholesalers are often involved and smaller grocers rarely get direct attention from branded manufacturers. Center store, while problematic for all supermarkets, has particularly been an issue for the small players that struggle to compete on price.
Although a recent study from the National Grocers Association reported that independent grocers represent $130 billion in sales from 21,000 stores, consumer product manufacturers really don’t look at it that way. For one, there is no systematic way to reach independents like there is with a big self-distributing chain. So independents have suffered, typically offering a smaller selection of branded items, often at a higher price. Consumers often do not find new items in independents until well after they are on store shelves in large chain competitors.
Meanwhile, a recent IRI study says big CPG companies are failing to grow as fast as smaller companies. Real innovation often comes from smaller CPG rivals, as well.
With all this going on, I can’t help but wonder what would happen if independents quit playing the game, trying to push water uphill, and paid more attention to the perimeter and niche CPG brands that might draw in more profitable shoppers.
Indies wouldn’t entirely abandon the center store, but make it more of a differentiated, convenience section for shoppers needing to fill-in one or two branded items. This way, independents could focus on meat, seafood, deli, dairy, produce, prepared, regional, and gourmet foods. They could present themselves as the true fresh alternatives to chains, developing better relationships with regional brands and local produce suppliers, while reconnecting with their communities.
Sure, stores taking this approach would lose volume, but they could make it up with more profitable customers and higher margin items. It won’t work for all stores in all areas, but it seems to me that independents should take another look at the game they have been losing and play a different one.
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Discussion Questions
Should independent grocers and small supermarket chains re-position and shrink center store to focus on store brands and fresh/prepared items rather than depend on large CPG firms? What other suggestions do you have for independents and small grocery chains?
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The key words here are “fewer profitable shoppers.” The concern I see is fewer never means good business. Another approach is for the independents to stay with one wholesaler and not try to buy from several to get better deals. That would give the wholesaler more buying power and help the independent with better pricing.
First, I think you have to separate those that are geographically in direct competition with big chains from those who aren’t. If you’re the only store for miles around, behave like a big chain. When you’re in direct competition, I like Al’s ideas about becoming something different.
Can’t wait to see what Tony Orlando, our resident grocer expert, thinks.
Unfortunately, any strategy which includes becoming “less competitive” in center store is doomed to disappoint, as it will drive more of the independent’s business to the bigger stores, in the process losing entire shopping trips and eventually losing entire shoppers. Further, bigger stores, even Walmart, are getting better at perishables and are gaining share in those critical perimeter departments.
Certainly, independents should promote and emphasize perishables and service, as they must over-achieve in those departments as they continue to lose category share in paper, pet food, detergent, and other commodity categories. But without an attempt to stay competitive, either through promotions and/or continuities in center store, independents will not be able to attract new shoppers and grow basket size necessary to sustain their business.
It should also be considered that despite all the competitive and brand support issues in center store, commodity grocery categories represent as much as 50% of the independent’s business and in some cases about 70% of the real estate in the store. It’s very difficult to make the numbers work when that much of your business is in decline.
Attracting brand support can only come from the independent’s co-op or wholesaler. While that approach is viable it has not been overwhelming successful as independents tend to be “independent” when it comes to complying and participating in brand funded programs en mass when wholesalers or co-ops present these programs.
Ultimately, independents will have to make compromises and act in unison with those agencies that can aggregate their stores to qualify for brand programs. Center store is just too much of the business to ignore.
My first impulse was to state that you are eliminating huge audience slices from your business by the absence of national brands. However, I then thought of a fantastic, almost 99% private label, smaller footprint grocer that has some of the highest profit and sales per square meter in the US.
Can you guess which grocer has made this work? And, yes, they are still an “Indie.” A very big one, but they certainly didn’t start that big.
Independent grocers will always have the size issue, however, I agree with Frank Riso, they should definitely corner a piece of the market that people will pay for. Due to buying power and supply chain, they will never have the lowest cost on some brands, so perhaps independent grocers should focus on products within categories to try and add value. Or a niche item people wouldn’t mind spending extra money on that’s independent of a brand, like mini fry pans. These products could be tested out on a small scale to determine if they’re attractive and scalable.
Of course, a focus on quality should always be in the forefront. The locality and uniqueness of products should be stressed, along with adapting to regional characteristics that ingrain stores in communities.
I think this article might be onto something but more from the perspective of the wholesaler role in the supply chain. Wholesalers could offer their independents a whole new supply chain model.
With today’s printing and labeling technology, what if each independent no matter their size, could offer their own private label brand? Wholesalers, instead of carrying branded merchandise would carry high quality “bright stock”. They would work with their independent retailers to help them develop their own brand image that could be easily transferred across various templates for canned goods, dry grocery, frozen, etc. The completed templates would be used to produce and apply “just in time” labeling to the bright stock. From the wholesaler’s perspective they would not be carrying a variety of brands, simply carrying the unlabeled stock and applying labels when the merchandise is ordered. From the independent’s perspective, they can offer a unique branding experience to their customers that cannot be achieved anywhere else.
It is difficult to describe how a long existing supply chain model can be “disrupted” in three paragraphs, but I really think this deserves some thought. It is obviously more challenging in the departments that have special cold-chain requirements but, in shelf stable departments, it seems totally feasible to me. Maybe someone will pursue it.
I think Ralph was alluding to Whole Foods, and I have seen many grocers make this work in upper income and/or resort areas. I think with the increased public attention on what we eat and the backlash against packaged foods, we may be at a tipping point where the concept that Al describes and upscale grocers have pioneered could start to catch on in more mainstream locations.
It depends on the market the store is serving. If you are in an underserved area by big box, then you need the large CPG items to improve your walk in and merchandising. If you are head to head with a big box, then you need to slant towards store brands/product differentiation with an eye on key basket items that your customer wants from the national brands to fill the order
An interesting concept, and one that many independents probably use already (limited shelf space tends to make limiting brand selection an automatic process). But, as Dr. Needel hints, “independent and small chain” is a broad category, covering everything from corner stores that are — literally — little bigger than a (household) pantry, up to chains that would be considered “big”. So I’m reluctant to give generic advice to people whose individual situation I know nothing about. (I usually let the government do that.)
If the assumptions are true about the number of stores in aggregate (20,000+) this represents, this is equivalent to several of the major chain players put together. It would seem that instead of acting like disparate entities, they should begin to harness the power of the collective and act in aggregate through their common cause. Otherwise, hoping to compete without the benefit of volume is folly. The industry needs the independent grocers but they face an uphill battle without harnessing technology and aggregation to help their common cause.
Each situation is unique depending on the competitive set. As someone else said, if you are the only game in town, you have one set of competitive dynamics and you would need to carry a more full spectrum of products to meet community needs. On the other hand, if there are many large grocery stores in an area and you are a “me too”, then there is a need to absolutely find a way to differentiate which may be through more perimeter department focus, unique items, local foods, and specialty items.
Tony, where are you? This article is primed for your opinion.
You pays your money and you takes your chances. Independents know their customers best, and should have made this kind of decision for their stores a long time ago.
In the “The more things change, the more they stay the same” dept.: Thanks, Bill Bittner, for putting me in the way-back machine. In the late 60s while paying my way through college, I threw cases at night in Stokely-Van Camp’s pork & beans plant in Lawrence, KS. Besides producing this iconic product, they also maintained a warehouse containing all SVC products — in “brights.” It was my job to build pallets of brights to ship to labelers.
Years later, while with Fleming Foods, I was part of a task force to consolidate the dozens of private labels we’d collected while acquiring many smaller wholesalers. Bill’s idea of wholesalers purchasing brights and labeling them uniquely for each independent grocer they serve would be an interesting return to the past.
The differentiation on fresh items is dead on. This is what they need to do. Center store collects dust, short codes, and is a huge use of space for a lot of these independents. Listen to the customer and find out what they want, and stock it.
If they have a good wholesaler, they have a fighting chance on center store, but there are a lot of bad wholesalers. And there are a lot of bad independents that may not use their wholesaler’s programs to their potential to get deals on center store and drive sales.
This works when the independent’s own store brand is working. They need to have the consumer trust in their brand to transfer that trust to the lesser known or unknown brand. The smaller brand has to be as good as the retailer’s or better.
No, they should not give up on big brands. However, they better be looking for ways to bring “unique” and “differentiated” factors into play or they may become redundant.
This seems like a broad suggestion that cannot be applied across independents. It’s also an old question that small independents have struggled with for years. It depends on where the retailer I’d located, who their customers are and a slew of other factors. The key is, they have to differentiate themselves. How they do that will vary from independent to independent. It’s no different than any other small business owner, some will figure it out and some won’t.
This may be a great suggestion in affluent neighborhoods. Another company might find success in specialized services such as home delivery or packing your car. But abandoning big brands, in my opinion, will likely cause customers to go elsewhere.
Hello…I’m back from a fancy food show in Florida, and I’ll be brief. Keep the top 150-200 SKUs very competitive, by using the regional wholesalers to your advantage. I am getting rid of more “me too” items, especially the lower tier quality products, that take up space.
Again…pound the perimeter of the store, with great values, playing the markets to bring in the best deals.
The show I attended will get me motivated to increase my gourmet category, and I’ll be able to discount the products, as I always do and still get 28-30% (no sense being greedy).
In the end, YES I agree that we should thin the herd of poor selling SKUs and increase the space on unique quality products that Walmart doesn’t carry.
By the way…. Many of the vendors I spoke with hate Walmart, as their demands would bankrupt them, and have chosen to not do business with them. I say great!
And man, you go away for 5 days, and all hell breaks loose! Bye for now….
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The key words here are “fewer profitable shoppers.” The concern I see is fewer never means good business. Another approach is for the independents to stay with one wholesaler and not try to buy from several to get better deals. That would give the wholesaler more buying power and help the independent with better pricing.
First, I think you have to separate those that are geographically in direct competition with big chains from those who aren’t. If you’re the only store for miles around, behave like a big chain. When you’re in direct competition, I like Al’s ideas about becoming something different.
Can’t wait to see what Tony Orlando, our resident grocer expert, thinks.
Unfortunately, any strategy which includes becoming “less competitive” in center store is doomed to disappoint, as it will drive more of the independent’s business to the bigger stores, in the process losing entire shopping trips and eventually losing entire shoppers. Further, bigger stores, even Walmart, are getting better at perishables and are gaining share in those critical perimeter departments.
Certainly, independents should promote and emphasize perishables and service, as they must over-achieve in those departments as they continue to lose category share in paper, pet food, detergent, and other commodity categories. But without an attempt to stay competitive, either through promotions and/or continuities in center store, independents will not be able to attract new shoppers and grow basket size necessary to sustain their business.
It should also be considered that despite all the competitive and brand support issues in center store, commodity grocery categories represent as much as 50% of the independent’s business and in some cases about 70% of the real estate in the store. It’s very difficult to make the numbers work when that much of your business is in decline.
Attracting brand support can only come from the independent’s co-op or wholesaler. While that approach is viable it has not been overwhelming successful as independents tend to be “independent” when it comes to complying and participating in brand funded programs en mass when wholesalers or co-ops present these programs.
Ultimately, independents will have to make compromises and act in unison with those agencies that can aggregate their stores to qualify for brand programs. Center store is just too much of the business to ignore.
My first impulse was to state that you are eliminating huge audience slices from your business by the absence of national brands. However, I then thought of a fantastic, almost 99% private label, smaller footprint grocer that has some of the highest profit and sales per square meter in the US.
Can you guess which grocer has made this work? And, yes, they are still an “Indie.” A very big one, but they certainly didn’t start that big.
Independent grocers will always have the size issue, however, I agree with Frank Riso, they should definitely corner a piece of the market that people will pay for. Due to buying power and supply chain, they will never have the lowest cost on some brands, so perhaps independent grocers should focus on products within categories to try and add value. Or a niche item people wouldn’t mind spending extra money on that’s independent of a brand, like mini fry pans. These products could be tested out on a small scale to determine if they’re attractive and scalable.
Of course, a focus on quality should always be in the forefront. The locality and uniqueness of products should be stressed, along with adapting to regional characteristics that ingrain stores in communities.
I think this article might be onto something but more from the perspective of the wholesaler role in the supply chain. Wholesalers could offer their independents a whole new supply chain model.
With today’s printing and labeling technology, what if each independent no matter their size, could offer their own private label brand? Wholesalers, instead of carrying branded merchandise would carry high quality “bright stock”. They would work with their independent retailers to help them develop their own brand image that could be easily transferred across various templates for canned goods, dry grocery, frozen, etc. The completed templates would be used to produce and apply “just in time” labeling to the bright stock. From the wholesaler’s perspective they would not be carrying a variety of brands, simply carrying the unlabeled stock and applying labels when the merchandise is ordered. From the independent’s perspective, they can offer a unique branding experience to their customers that cannot be achieved anywhere else.
It is difficult to describe how a long existing supply chain model can be “disrupted” in three paragraphs, but I really think this deserves some thought. It is obviously more challenging in the departments that have special cold-chain requirements but, in shelf stable departments, it seems totally feasible to me. Maybe someone will pursue it.
I think Ralph was alluding to Whole Foods, and I have seen many grocers make this work in upper income and/or resort areas. I think with the increased public attention on what we eat and the backlash against packaged foods, we may be at a tipping point where the concept that Al describes and upscale grocers have pioneered could start to catch on in more mainstream locations.
It depends on the market the store is serving. If you are in an underserved area by big box, then you need the large CPG items to improve your walk in and merchandising. If you are head to head with a big box, then you need to slant towards store brands/product differentiation with an eye on key basket items that your customer wants from the national brands to fill the order
An interesting concept, and one that many independents probably use already (limited shelf space tends to make limiting brand selection an automatic process). But, as Dr. Needel hints, “independent and small chain” is a broad category, covering everything from corner stores that are — literally — little bigger than a (household) pantry, up to chains that would be considered “big”. So I’m reluctant to give generic advice to people whose individual situation I know nothing about. (I usually let the government do that.)
If the assumptions are true about the number of stores in aggregate (20,000+) this represents, this is equivalent to several of the major chain players put together. It would seem that instead of acting like disparate entities, they should begin to harness the power of the collective and act in aggregate through their common cause. Otherwise, hoping to compete without the benefit of volume is folly. The industry needs the independent grocers but they face an uphill battle without harnessing technology and aggregation to help their common cause.
Each situation is unique depending on the competitive set. As someone else said, if you are the only game in town, you have one set of competitive dynamics and you would need to carry a more full spectrum of products to meet community needs. On the other hand, if there are many large grocery stores in an area and you are a “me too”, then there is a need to absolutely find a way to differentiate which may be through more perimeter department focus, unique items, local foods, and specialty items.
Tony, where are you? This article is primed for your opinion.
You pays your money and you takes your chances. Independents know their customers best, and should have made this kind of decision for their stores a long time ago.
In the “The more things change, the more they stay the same” dept.: Thanks, Bill Bittner, for putting me in the way-back machine. In the late 60s while paying my way through college, I threw cases at night in Stokely-Van Camp’s pork & beans plant in Lawrence, KS. Besides producing this iconic product, they also maintained a warehouse containing all SVC products — in “brights.” It was my job to build pallets of brights to ship to labelers.
Years later, while with Fleming Foods, I was part of a task force to consolidate the dozens of private labels we’d collected while acquiring many smaller wholesalers. Bill’s idea of wholesalers purchasing brights and labeling them uniquely for each independent grocer they serve would be an interesting return to the past.
The differentiation on fresh items is dead on. This is what they need to do. Center store collects dust, short codes, and is a huge use of space for a lot of these independents. Listen to the customer and find out what they want, and stock it.
If they have a good wholesaler, they have a fighting chance on center store, but there are a lot of bad wholesalers. And there are a lot of bad independents that may not use their wholesaler’s programs to their potential to get deals on center store and drive sales.
This works when the independent’s own store brand is working. They need to have the consumer trust in their brand to transfer that trust to the lesser known or unknown brand. The smaller brand has to be as good as the retailer’s or better.
No, they should not give up on big brands. However, they better be looking for ways to bring “unique” and “differentiated” factors into play or they may become redundant.
This seems like a broad suggestion that cannot be applied across independents. It’s also an old question that small independents have struggled with for years. It depends on where the retailer I’d located, who their customers are and a slew of other factors. The key is, they have to differentiate themselves. How they do that will vary from independent to independent. It’s no different than any other small business owner, some will figure it out and some won’t.
This may be a great suggestion in affluent neighborhoods. Another company might find success in specialized services such as home delivery or packing your car. But abandoning big brands, in my opinion, will likely cause customers to go elsewhere.
Hello…I’m back from a fancy food show in Florida, and I’ll be brief. Keep the top 150-200 SKUs very competitive, by using the regional wholesalers to your advantage. I am getting rid of more “me too” items, especially the lower tier quality products, that take up space.
Again…pound the perimeter of the store, with great values, playing the markets to bring in the best deals.
The show I attended will get me motivated to increase my gourmet category, and I’ll be able to discount the products, as I always do and still get 28-30% (no sense being greedy).
In the end, YES I agree that we should thin the herd of poor selling SKUs and increase the space on unique quality products that Walmart doesn’t carry.
By the way…. Many of the vendors I spoke with hate Walmart, as their demands would bankrupt them, and have chosen to not do business with them. I say great!
And man, you go away for 5 days, and all hell breaks loose! Bye for now….