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Think BR: Why retailers are losing the brand war

Are traditional retailers becoming more reliant on manufacturers, asks Thayne Forbes, joint managing director, Intangible Business.

Thayne Forbes, joint managing director, Intangible Business

Thayne Forbes, joint managing director, Intangible Business

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Premier, one of the UK’s leading food producers, has recently given up a £75 million bread contract with a leading supermarket over claims it was ‘costly to service,’ illustrating a power shift between retailers and manufacturers which is particularly prevalent in the food and drink industry.

Turn on the TV and it’s clear that shoppers are a fickle bunch, with supermarkets constantly competing to provide rock bottom prices which lure customers in.

These so-called price wars are evidenced by adverts with graphs clearly illustrating which store has the cheapest average basket cost each week. This shows that supermarkets recognise their customers are heavy-switchers, a fact intensified by the uncertain economy.

Despite supermarkets’ best efforts, brand value is not just connected to price. When faced with a choice of coffee brands, a shopper will often be drawn to a certain jar among a shelf of alternatives.

This instinctive choice generally has little to do with price, and is routed in branding which creates a series of messages which are meaningful to the consumer. Indeed, recent research from media analysts Kantar showed that when food shopping, only 18% of those surveyed listed price as the deciding factor.

Kantar also found lower income earners are more likely to buy premium branded goods, which is linked to the social status associated with brands such as Ben & Jerry’s and Coca-Cola.

Consumers are willing to shop around for these brands to find them at the cheapest price, making the retailer less material.

Aldi, the fastest growing UK supermarket, reported 25.6% growth in the 12 weeks to September 2012 - surely in part boosted by the increase of premium branded goods stocked in these stores alongside Aldi’s own brand.

Intangible Business considers three main ways of quantifying brand value. The driving methodology is the relief-from-royalty approach which essentially calculates how much money the company is relieved from paying by owning their brand. 

The other methodologies look at comparable market transactions and market participant multiples and costs to replace or recreate if applicable.

When undertaking a brand valuation it is important to appreciate consumer dynamics on a benchmarked research basis as well as the competitive landscape. This enables a more accurate assessment of key assumptions that drive the value equation. 

Wider commercial factors have also boosted manufacturers’ brand value. For instance, online marketplaces such as Amazon are platforms where customers can shop for specific brand names, rather than being at the mercy of the supermarket, and globalisation is also seeing supermarkets and other retailers struggling to compete on a stage where brands such as Coca-Cola and Kenco Coffee thrive.

For instance, Tesco currently operates in 13 international markets as one of the most prominent supermarket retailers on a global scale, but its brand penetration still cannot compete with globally available branded products.

Marketing and other PR activity can give food and drinks brands an image and voice that transcends cultures, whereas the brand differences between Tesco and Sainsbury’s, for instance, doesn’t always translate as well.

In a challenging economic environment, manufacturers have developed several channels of distribution outside of retailers, and are becoming more innovative with their distribution methods.

One example of this is the way that Unilever sells products in rural India - its Shakti Entrepreneurial Programme helps women set up small businesses as direct-to-consumer retailers, creating a new distribution channel direct to the fast growing market of low-spending consumers.

The implications of this are that traditional retailers are becoming more reliant on manufacturers, making the relationship less symbiotic.

The repercussions of this power shift for the future may well be that more food manufacturers like Premier have the confidence and clout to terminate contracts with supermarkets which are not cost effective for them.

The supermarket industry is also becoming a more level playing field as budget stores like Aldi continue to grow in popularity and mainstream supermarkets lose customers.

Brand value is built on consumer loyalty, the message a brand conveys and the social status this message carries.

To claw back the authority in relationships with manufacturers and to ensure a more solid footing in the retail market in general, it may well be that supermarkets focus on growing customer loyalty through boosting their own brand value with strong marketing campaigns profiling the type of shopper the store suits. Higher end stores like Waitrose and Marks and Spencer in particular can capitalise on this.

Although the power shift between retailers and manufacturers certainly looks like a long term trend rather than a flash in the pan, with clear and consistent branding, a constantly developed product offering and adaptation to fit manufacturers’ innovative distribution channels, retailers can certainly fight to maintain their share of voice in the market.

Thayne Forbes, joint managing director, Intangible Business


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