DISCUSSION
BrainTrust Query: How is the economy affecting the value perception of brands?
Written by Guest contributor
By Devangshu Dutta, Chief Executive,
Third Eyesight
About seven months ago, a spat occurred between the leading retail company in India, Future Group, and branded supplier Cadbury's with respect to margins offered to the retailer. (A friend described it as a Bollywood saga.) Future Group had also previously had run-ins with other suppliers including the likes of Pepsi.
Now, there's a European film noire sequel in the making, in a battle between the Belgian retailer Delhaize and European consumer goods big daddy Unilever. Delhaize has suspended purchases from Unilever as, according to Delhaize, Unilever is making "unacceptable demands" that the chain stock more Unilever brands.
Like other branded suppliers, Unilever has obviously been impacted across Europe and the U.S. as retailers have become more sophisticated in their approach to private label, squeezing out brands that they have been able to replace with their own products.
Given further weakening of the economic scenario, it is likely that consumers would switch to cheaper private labels offered by retailers, and retailers would be tempted to give over even more shelf space to their own labels where they get higher margins than branded products - a continually losing spiral for the branded FMCG (fast-moving consumer goods) companies.
According to a consumer survey carried out by an agency in Flanders in northern Belgium, apparently 31 percent of shoppers polled were choosing to shop at chains other than Delhaize, and another 19 percent were not happy with Delhaize's decision (but there doesn't seem to be indication yet that they would switch). Most of the customers who said they were remaining with Delhaize are either switching to other brands or to Delhaize's own label products.
However this brawl ends, and whether it turns out to be a win-lose or a lose-lose situation, even this survey demonstrates that the retail store has the upper hand -- less than one-third of the surveyed customers displayed their hard-core brand loyalty by switching to other stores.
That is obviously a worrying sign for branded suppliers who have invested humongous sums of money and decades of effort in developing their brands. But it also raises questions about whether the consumer really perceives any value out of the billions in advertising and millions of man-hours spent by the FMCG companies in developing the nth variation of toothpaste or detergent.
Tough times raise tough questions, and the ones that comes to mind are these...
About seven months ago, a spat occurred between the leading retail company in India, Future Group, and branded supplier Cadbury's with respect to margins offered to the retailer. (A friend described it as a Bollywood saga.) Future Group had also previously had run-ins with other suppliers including the likes of Pepsi.
Now, there's a European film noire sequel in the making, in a battle between the Belgian retailer Delhaize and European consumer goods big daddy Unilever. Delhaize has suspended purchases from Unilever as, according to Delhaize, Unilever is making "unacceptable demands" that the chain stock more Unilever brands.
Like other branded suppliers, Unilever has obviously been impacted across Europe and the U.S. as retailers have become more sophisticated in their approach to private label, squeezing out brands that they have been able to replace with their own products.
Given further weakening of the economic scenario, it is likely that consumers would switch to cheaper private labels offered by retailers, and retailers would be tempted to give over even more shelf space to their own labels where they get higher margins than branded products - a continually losing spiral for the branded FMCG (fast-moving consumer goods) companies.
According to a consumer survey carried out by an agency in Flanders in northern Belgium, apparently 31 percent of shoppers polled were choosing to shop at chains other than Delhaize, and another 19 percent were not happy with Delhaize's decision (but there doesn't seem to be indication yet that they would switch). Most of the customers who said they were remaining with Delhaize are either switching to other brands or to Delhaize's own label products.
However this brawl ends, and whether it turns out to be a win-lose or a lose-lose situation, even this survey demonstrates that the retail store has the upper hand -- less than one-third of the surveyed customers displayed their hard-core brand loyalty by switching to other stores.
That is obviously a worrying sign for branded suppliers who have invested humongous sums of money and decades of effort in developing their brands. But it also raises questions about whether the consumer really perceives any value out of the billions in advertising and millions of man-hours spent by the FMCG companies in developing the nth variation of toothpaste or detergent.
Tough times raise tough questions, and the ones that comes to mind are these...
Discussion Questions: In recent years, fast-moving consumer goods (FMCG) companies have rationalized their brand portfolios, but have they done it enough? Are FMCG companies really clear about the value the remaining brands are delivering? Are the retailers really playing fair when they build up so-called partnerships only to take on board the product learnings and then develop own-label copycat products (sometimes down to package coloring and graphics)?