January 20, 2009
Specialty Food Brands Find Space Scarce
David Wenner,
president and chief executive of B&G Foods Inc, said that retailers’
focus on private label is hurting specialty products such as his company’s
Ortega and Cream of Wheat brands.
“The
room available for our specialty products has shrunk,” Mr. Wenner said
last week at the ICRXchange conference.
According
to Mr. Wenner, companies such as his are also being hurt as retailers
push back on price increases. According to a Reuters report, B&G
sought a price increase as it saw the cost of beans and materials used
to make cans go up over the past year.
“We are definitely
getting resistance from grocery customers on grocery price increases,” he
said.
Discussion Questions:
Do you see specialty items losing significant shelf space to private
label and/or national brands? What are the implications, if any, in terms
of the customer shopping experience and retailers’ ability to differentiate
from competitors?
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This comes down to the age-old fight as to who owns the customer. The retailers feel that they own the customer. It is their belief that if their store does not stock a specific product, the customer won’t leave, they will simply buy a different product. The brand owner, conversely, wants to own the customer. They want to make certain that if the brand were not available, the customer would either ask for it, or shop a different retailer that carried the brand.
For specialty brands, they have to do all that they can to continue to innovate, and make certain that they maintain a loyal, growing customer base. If the demand for their brand continues to grow, it forces the retailer to carry the brand. The days are over where a brand was carried simply to offer variety. A brand has to show strong demand, strong customer loyalty, and innovative new products to force retailers to carry the brand.
The heightened focus of own brands across all retailers in all channels has come directly at the expense of specialty foods. Companies have seen the uniqueness of specialty food packaging, flavor profiles and niche categories as the engine for assortment decisions and growth. While doing an own-brand pasta sauce has always been there, now you are seeing the expansion to unique flavors and add-on segments of lines like pesto to round out the assortment.
While there may be some short-term growth for sales, over time I believe there will be a challenge for innovation as the process becomes more mainlined and the evaluations of these lines and expansions begin to show what they were intended to be initially: unique, slow moving, incremental sales and margin complements to the category. Large chains will begin to evaluate the need to tie up logistics space in warehouses and management of these items and eventually turn them back out to specialty distributors.
Specialty items will be stocked in your average grocery store if there is a demand for them. If shoppers don’t differentiate between, say Old El Paso and Ortega, and the retailer makes more money selling Old El Paso, it should be goodbye to Ortega.
As a counterpoint to his complaints, look at the pasta sauce category–more and more stores are carrying premium and super-premium pasta sauces (Patsy’s, Rao’s, and so forth). There is consumer demand for better pasta sauce and it makes sense for retailers to carry these products.
In books, I learned about the concept of “fixture inventory”: there are some books in each genre that you HAVE to carry, whether they sell or not, because people use them to decide whether the retailer legitimately understands the genre. If the Horror section doesn’t have a good selection of Steven King, then consumers think the retailer won’t have anything good in the category.
We had the same thing in home goods, though we didn’t consciously call it that. Cuisinart had the worst margins–we hardly made any money selling it, but it doesn’t speak much for a retailer’s expertise in all things cooking if they don’t carry Cuisinart.
In grocery, specialty brands need the same perception among consumers–but it’s the brand’s responsibility to create that perception. What is the “fixture inventory” in salsa? Or in the broader condiments category? Is it Ortega? If you can hold that kind of sway with consumers–and I’m not saying that’s easy or cheap–then private label is not an issue.
Price, quality and value are all relative terms. And shelves that become filled with private label products start to lose their appeal, which in large part is primarily price. The fact is that consumers need to be given the opportunity to set their own standards for what kinds of products they want to purchase. While some categories may flourish with private labels, others may experience reduced sales without the selection of name brands.
To do a mass push out of brand name products for the purpose of profits is short sighted and poor business. Consumers still need access to name brand products, if even just to reinforce their decision to buy private label.
The real push is margin now so as a store manager, I’m going to give real estate to the products that are the most profitable. Now that doesn’t mean we shouldn’t have a healthy mix of name brand, specialty and private. But we have to really take margins into account when merchandising our stores and if PL is going to offer the most points, it will have the most exposure. I would like to see the rare specialties get aggressive in their promo allocations. That’s how we will get more space for those SKUs.
Shortly after the dawn of time, I conducted a major study of variety and duplication, sponsored by Frito-Lay and published by FMI. SKU proliferation was the problem then and it is the problem now. However, much has changed, so any company that is not using new solutions to solve this persistent problem can count on losing customers for all the reasons listed above.
Retailers, wholesalers and manufacturers now have much sharper tools in two areas: distribution automation and data analytics. The key is to challenge some of the old operational idioms that block the path to progress. One is case pack. Manufacturers who creatively break this barrier stand a chance of growing distribution, even better than maintaining. The examples of how to do this, by the way, are in use daily around the center store categories.
This comment isn’t going to win me any new friends today, however, most retailers are making erroneous assumptions about how to approach the economy and product assortment, and it’s painful to watch. In times of recession, many items that are niche, specialty, or premium, actually serve to replace the dollars that were otherwise spent in other channels and means. Retailers are giving away new dollars and higher margins that they so desperately need. Private label is part of the solution but it’s not the complete answer for surviving, and even thriving, in these economic times.
I played the specialty foods game once–and my bank account still bears the scars. The company was called Championship Recipe Foods and we made and distributed a premium chili based on a two time Texas State Champion recipe. In addition to premium ingredients and recipe, the products featured an then unique retort cooking process that greatly enhanced flavor and texture. They were, in a word, good.
Like most limited line start-ups, we went to market through specialty foods distributors. And like most specialty foods start-ups, we fell to the demands for slotting fees and/or usurious margin demands by the major chains.
Not much has changed it seems. Except that chains have even more focus on growing Proprietary Brands (and rightly so).
Specialty brands best chance for the future may be to establish a system akin to what book, music or DVD retailers use to supply “deep catalog titles” through an online or special order approach. In-store kiosks offering shoppers the opportunity to swipe their loyalty card, shop the inventory and place an order for a guaranteed in-store pickup date might be the ticket.
The struggle for shelf space highlights the degree to which the recession is testing brand loyalty. Yes, many consumers are turning to private label, and the smaller/specialty brands don’t have the deep pockets of national brands to pay slotting fees or create large promotional programs. That said, retailers ought to take these brands into greater consideration because they are often important to some of their most loyal shoppers, they are often very profitable, and they can differentiate retailers from competitors that focus only on one or two top national brands and private label.
This is all the more reason that specialty CPG manufacturers should use transactional data and store-level information to the greatest extent possible. Part of the way these manufacturers can buck the trend is by translating customer insights and shopper context into more prominent store placement.
Coincidentally, this quandary is somewhat unique to grocers and food manufacturers, as big-box retailers are currently seeing the opposite effect on clothing and apparel sales.
All of the chains I’ve worked with have used rack jobbers for specialty and import food items. There are usually two, four-foot sections in different parts of the store that rack jobbers are responsible to manage. This removes case pack and SKU decisions as areas of concern, since the jobber can put onesies and twosies on the shelf to pack it out and chooses the mix based on what they–and the retailer–find most profitable. Raley’s here in Sacramento, for instance, even stocks Turkish Delight candy in their import section (it’s the British candy from “The Lion, The Witch, And The Wardrobe,” remember?). I’m no fan of senseless Private Label incursion, and a feature I like about these four-foot sections is that it’s difficult (but not impossible) to integrate PL into them.
Specialty brands are definitely on the rise. Stores like Shoppers and Food Basics carry a very wide selection of specialty brands, to cater to their diverse customer base.
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This comes down to the age-old fight as to who owns the customer. The retailers feel that they own the customer. It is their belief that if their store does not stock a specific product, the customer won’t leave, they will simply buy a different product. The brand owner, conversely, wants to own the customer. They want to make certain that if the brand were not available, the customer would either ask for it, or shop a different retailer that carried the brand.
For specialty brands, they have to do all that they can to continue to innovate, and make certain that they maintain a loyal, growing customer base. If the demand for their brand continues to grow, it forces the retailer to carry the brand. The days are over where a brand was carried simply to offer variety. A brand has to show strong demand, strong customer loyalty, and innovative new products to force retailers to carry the brand.
The heightened focus of own brands across all retailers in all channels has come directly at the expense of specialty foods. Companies have seen the uniqueness of specialty food packaging, flavor profiles and niche categories as the engine for assortment decisions and growth. While doing an own-brand pasta sauce has always been there, now you are seeing the expansion to unique flavors and add-on segments of lines like pesto to round out the assortment.
While there may be some short-term growth for sales, over time I believe there will be a challenge for innovation as the process becomes more mainlined and the evaluations of these lines and expansions begin to show what they were intended to be initially: unique, slow moving, incremental sales and margin complements to the category. Large chains will begin to evaluate the need to tie up logistics space in warehouses and management of these items and eventually turn them back out to specialty distributors.
Specialty items will be stocked in your average grocery store if there is a demand for them. If shoppers don’t differentiate between, say Old El Paso and Ortega, and the retailer makes more money selling Old El Paso, it should be goodbye to Ortega.
As a counterpoint to his complaints, look at the pasta sauce category–more and more stores are carrying premium and super-premium pasta sauces (Patsy’s, Rao’s, and so forth). There is consumer demand for better pasta sauce and it makes sense for retailers to carry these products.
In books, I learned about the concept of “fixture inventory”: there are some books in each genre that you HAVE to carry, whether they sell or not, because people use them to decide whether the retailer legitimately understands the genre. If the Horror section doesn’t have a good selection of Steven King, then consumers think the retailer won’t have anything good in the category.
We had the same thing in home goods, though we didn’t consciously call it that. Cuisinart had the worst margins–we hardly made any money selling it, but it doesn’t speak much for a retailer’s expertise in all things cooking if they don’t carry Cuisinart.
In grocery, specialty brands need the same perception among consumers–but it’s the brand’s responsibility to create that perception. What is the “fixture inventory” in salsa? Or in the broader condiments category? Is it Ortega? If you can hold that kind of sway with consumers–and I’m not saying that’s easy or cheap–then private label is not an issue.
Price, quality and value are all relative terms. And shelves that become filled with private label products start to lose their appeal, which in large part is primarily price. The fact is that consumers need to be given the opportunity to set their own standards for what kinds of products they want to purchase. While some categories may flourish with private labels, others may experience reduced sales without the selection of name brands.
To do a mass push out of brand name products for the purpose of profits is short sighted and poor business. Consumers still need access to name brand products, if even just to reinforce their decision to buy private label.
The real push is margin now so as a store manager, I’m going to give real estate to the products that are the most profitable. Now that doesn’t mean we shouldn’t have a healthy mix of name brand, specialty and private. But we have to really take margins into account when merchandising our stores and if PL is going to offer the most points, it will have the most exposure. I would like to see the rare specialties get aggressive in their promo allocations. That’s how we will get more space for those SKUs.
Shortly after the dawn of time, I conducted a major study of variety and duplication, sponsored by Frito-Lay and published by FMI. SKU proliferation was the problem then and it is the problem now. However, much has changed, so any company that is not using new solutions to solve this persistent problem can count on losing customers for all the reasons listed above.
Retailers, wholesalers and manufacturers now have much sharper tools in two areas: distribution automation and data analytics. The key is to challenge some of the old operational idioms that block the path to progress. One is case pack. Manufacturers who creatively break this barrier stand a chance of growing distribution, even better than maintaining. The examples of how to do this, by the way, are in use daily around the center store categories.
This comment isn’t going to win me any new friends today, however, most retailers are making erroneous assumptions about how to approach the economy and product assortment, and it’s painful to watch. In times of recession, many items that are niche, specialty, or premium, actually serve to replace the dollars that were otherwise spent in other channels and means. Retailers are giving away new dollars and higher margins that they so desperately need. Private label is part of the solution but it’s not the complete answer for surviving, and even thriving, in these economic times.
I played the specialty foods game once–and my bank account still bears the scars. The company was called Championship Recipe Foods and we made and distributed a premium chili based on a two time Texas State Champion recipe. In addition to premium ingredients and recipe, the products featured an then unique retort cooking process that greatly enhanced flavor and texture. They were, in a word, good.
Like most limited line start-ups, we went to market through specialty foods distributors. And like most specialty foods start-ups, we fell to the demands for slotting fees and/or usurious margin demands by the major chains.
Not much has changed it seems. Except that chains have even more focus on growing Proprietary Brands (and rightly so).
Specialty brands best chance for the future may be to establish a system akin to what book, music or DVD retailers use to supply “deep catalog titles” through an online or special order approach. In-store kiosks offering shoppers the opportunity to swipe their loyalty card, shop the inventory and place an order for a guaranteed in-store pickup date might be the ticket.
The struggle for shelf space highlights the degree to which the recession is testing brand loyalty. Yes, many consumers are turning to private label, and the smaller/specialty brands don’t have the deep pockets of national brands to pay slotting fees or create large promotional programs. That said, retailers ought to take these brands into greater consideration because they are often important to some of their most loyal shoppers, they are often very profitable, and they can differentiate retailers from competitors that focus only on one or two top national brands and private label.
This is all the more reason that specialty CPG manufacturers should use transactional data and store-level information to the greatest extent possible. Part of the way these manufacturers can buck the trend is by translating customer insights and shopper context into more prominent store placement.
Coincidentally, this quandary is somewhat unique to grocers and food manufacturers, as big-box retailers are currently seeing the opposite effect on clothing and apparel sales.
All of the chains I’ve worked with have used rack jobbers for specialty and import food items. There are usually two, four-foot sections in different parts of the store that rack jobbers are responsible to manage. This removes case pack and SKU decisions as areas of concern, since the jobber can put onesies and twosies on the shelf to pack it out and chooses the mix based on what they–and the retailer–find most profitable. Raley’s here in Sacramento, for instance, even stocks Turkish Delight candy in their import section (it’s the British candy from “The Lion, The Witch, And The Wardrobe,” remember?). I’m no fan of senseless Private Label incursion, and a feature I like about these four-foot sections is that it’s difficult (but not impossible) to integrate PL into them.
Specialty brands are definitely on the rise. Stores like Shoppers and Food Basics carry a very wide selection of specialty brands, to cater to their diverse customer base.