Why are grocers still missing the mark with small food brands?

Photo: RetailWire
Oct 15, 2019
Warren Thayer

Through a special arrangement, presented here for discussion is an excerpt of a current article from Frozen & Refrigerated Buyer magazine.

Are you merchandising plant-based foods not only to make a profit but to satisfy consumer wants and build loyalty? Terrific. These goals are not mutually exclusive.

Are you really on board or are you buying and merchandising based on habit or with the SWAG (scientific wild-ass guess) method?

Much of what I see is based on both habit and SWAG: Shelf-talkers here and there; little online education; item-price without any romancing of product benefits; prime shelf space dominated by big manufacturers paying the big slotting fees; innovative and trend-leading small brands exiled to the bottom or the top shelf, often with just one facing; few endcaps or secondary displays.

The growth in our industry lately has come from small brands, despite facing huge market disadvantages.

No, the small brands aren’t all angels. But the fact remains that shoppers today — especially the younger consumers shaping our industry’s future — tend to see “Big Food” as a big problem. Justifiably, trust has been gone for a while now and the big guns are flailing to get it back. 

Slotting — and quarterly earnings — are still our industry’s worst addictions.

Slotting and demands for marketing funds give large vendors enormous advantage. They also give buyers a familiar comfort zone, helping them meet their numbers. Buyers have to meet numbers, or they’re gone.

As for Wall Street, I’ve long held that the demand for quarterly earnings leads companies to consider the short-term over the long-term. The periodic cuts in ingredient quality, packaging costs, jobs, etc. are what got Big Food into so much trouble in the first place. 

Yes, new products fail. Often. Badly. But some retailers are creating a self-fulfilling prophecy by giving short shrift to the upstarts that consumers will buy if they see them on the shelf. We are at the start of a slow, genuine sea change in America’s eating habits that can make you or break you.

Who gets hurt the most by the slow response from retailers? Shoppers. If you’re just giving all this lip service, it may be time to dust off your resume. Just sayin’. 

DISCUSSION QUESTIONS: Does the slotting-fee culture in the grocery channel still weigh heavily against smaller brands? Has resolving such allocation barriers become more important as smaller brands appear destined to drive food trends? Any suggestions?

Please practice The RetailWire Golden Rule when submitting your comments.
"The current system of paying for space in the grocery channel puts the less financed smaller brand at a disadvantage."
"...the attraction of large CPG big money is not going away. The money goes beyond slotting to ad fees, corporate programs, selling show fees, etc."
"Simply put, old-school FMCG retail vendor collaboration is dead, as it was a one-way relationship to begin with."

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19 Comments on "Why are grocers still missing the mark with small food brands?"

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Neil Saunders

I think this really depends on the grocer.

AJ’s here in Arizona carries a lot of smaller, niche brands and this is part of its appeal. Waitrose in the U.K. also has a mix of big and smaller brands, including niche local offerings. It is not a coincidence that both players are more expensive, upmarket grocers: their customer base and price structure probably allow them to be more flexible when it comes to brand selection.

In bigger grocers, small brands can be – but are not always – overlooked. Resolving barriers is important, however, as small brands can drive growth and create interest and traction with shoppers.

Zel Bianco

I totally agree with Warren. Young people — and I just came back from a Bachelor party weekend in Denver with a big group of them — want to eat foods that are real and let’s be honest, those “better for you” foods are coming from the smaller brands. Those retailers and manufacturers that get ahead of this, for the long term, will win the race. Those that stick to the old tried and true slotting fees and stack ’em high and let ’em fly will win in the short term and be the Kodaks and Blockbusters of the future.

Adrian Weidmann

Retailers like to talk about how innovative they are or brag about their commitment to their shopper, etc. The cold fact is that they continue to take the path of least resistance — follow the (easy) money. Who needs to be innovative or use creative marketing and merchandising when you can extract all your profits from your vendors before you even put anything on the shelf!? Younger shoppers want and expect more transparency, sustainability, and honesty from their brands and retailers. They will vote with what, where, through whom, and how they make their purchases. Those that don’t listen and react will be marginalized and join others in the retail history books.

Tony Orlando

It comes down to cost in my area, and that is the hardest part of moving this product. Many folks here are poor and can not afford any of these “healthy” alternatives. The few that do still want a great deal on them. I seek out healthy options in restaurants when I travel and even today, the selection is very limited — even in cities with money. I’m all for this kind of really good stuff and occasionally I bring in some great deals on it, but the success is limited.

Brian Cluster
The current system of paying for space in the grocery channel puts the less financed smaller brand at a disadvantage. Since these brands don’t have the established volume and profits from products already in distribution, they are impacted more by hefty slotting fees. Retailers have been used to working with established brands and making minor changes to assortment such as flavor or size changes. But consumer tastes are changing and many are less loyal than a few years ago. According to Nielsen, “A whopping 46% of consumers tell us they are more likely to try new brands than they were five years ago.” So, what can be done? I would recommend that retailers consider a hybrid approach to new item introductions. Set up a two-option approach where brands can elect to 1.) Follow the established slotting program or 2.) Enroll in a new test-and-learn approach in a set of test stores to analyze the potential of new products. By offering a less costly test program for smaller brands, the retailer will open up their assortment… Read more »
Mohamed Amer

The addiction to slotting fees is a structural impediment to a healthy innovation economy in the grocery sector. Warren’s article is just as valid today as it would have been 20 years ago. Let’s hope 20 years from now it will lack relevance.

Jeff Sward

I think about this conversation under the banner of “testing.” By the very nature of the process a big grocer would start small with a new, emerging brand. It would be a test. And hopefully the big grocer would make that test easy to execute and easy to measure. I would think the important part of testing is the data, the information, not the slotting fee. Slotting fees may be a reality at some later point. But the process of exploring new, emerging brands should be as unencumbered as possible. The first objective of testing = LEARN. Learn about new product and evolving customer demands. Lots of time for slotting fees later.

Ken Morris

Slotting fee culture still drives the sector with the loser being the customer. Pay to play seems like it should be illegal as it is essentially a bribe but unfortunately, it isn’t illegal. Smaller players find it almost impossible to compete in this environment. I believe that this is driving more local, specialty store shopping trends which are eroding the big grocery base. One of my clients, Roche Brothers Supermarkets, offers a wider assortment of these smaller brands and has established a niche offering in the Boston area. This model works, maybe big grocery should take a page from a savvy competitor and stop relying on “big food” and listen to the voice of the customer.

Jeff Weidauer

I once had a conversation with a large CPG rep, and he told me that “No one ever got fired for doing what they’ve always done.” That defines the problem today in supermarkets. It’s not just slotting fees, it’s the overall budget that retailers expect the manufacturers to fund, including advertising co-op and promotional dollars. The smaller players can’t compete and, despite consumer demand, they never get a seat at the table – or a space on the shelf.

Brent Biddulph

Simply put, old-school FMCG retail vendor collaboration is dead, as it was a one-way relationship to begin with.

As customer-centric pure-plays and digital disruptors continue to exploit (take volume from) many traditional FMCG retailers’ lack of sharing meaningful consumer insights and shared performance metrics (e.g. advertising, demand forecasts, in-stocks, consumer behavior) with trading partners – this will not change.

However, leading FMCG retailers like Walmart, Kroger, Target and Edeka have not only recognized this gap, they are capitalizing on it – with success. Whether through incubators for local, unique products to bypass traditional slotting fees in a shared success model (a la Shark Tank), or by subsidizing small brands via online selling, even marketplace pricing support versus pure-plays like Amazon.

Data- and analytics- driven FMCG leaders will continue to lead, laggards will continue to fall further behind.

David Naumann

Many of the larger grocery chains are heavily influenced by slotting fees associated with big brands. It is hard to break the habit.

Some regional chains have done a better job of appealing to the growing “locavore” market. As more consumers gravitate to local and smaller brands, grocers will need to rethink the amount of shelf space they allocate to big brands and expand their offerings of smaller brands.

Susan O'Neal
3 months 3 days ago

It’s dangerous to generalize all “grocers” as it is still a very diverse and fragmented space in comparison to other retail verticals. That said, the “pay to play” model that has evolved over the past two decades to the favor of large national and regional grocers which creates both financial and cultural barriers to small company innovators =- whether that innovation is in the form of a consumer good or a new solution/technology vendor. Smaller or newer companies cannot afford to pay to play in that culture – whether it’s funding the retailer’s marketing or other initiatives, funding staff to keep the products/relationships top of mind with the retailer or something even more direct and overt as has happened in recent years.

Ralph Jacobson

Ugh. As someone who started in the grocery biz in 1976 (at the age of 1), I cannot believe how little this business has evolved. Seriously. Can you imagine a small laundry detergent brand trying to break into that aisle? LOL. Give it up!

Dick Seesel

The phenomenon of small food brands getting squeezed for space seems more prevalent among the big chains like Kroger vs. smaller locally based grocers. The big chains have more leverage with the big national brands, and those brands have the marketing power and financial strength to deal with slotting fees and other allowances. At the same time, chains like Kroger are making more space for their own private labels, often at the expense of those national brands. The small companies and unique products get squeezed from both directions, and I don’t see this trend changing anytime soon outside of the local chains.

Michael Terpkosh

I agree with many of the comments already expressed today. As someone that has spent over 32 years in grocery wholesale and retail, the attraction of large CPG big money is not going away. The money goes beyond slotting to ad fees, corporate programs, selling show fees, etc. Many larger retailers even charge for access to their POS and loyalty data. As far as the large CPGs — Kraft-Heinz, General Mills and others have learned the hard way you can’t save your way to prosperity when it comes to driving your traditional brands via trade funds. I feel a blended approach is needed by all retailers to balance the big, traditional brand money with keeping an eye on innovation and maintaining enough space (shelf, ad, etc.) for innovative, smaller CPGs. A retailer must create a strategy of innovation meaning the retailer is actively looking for new brands, adding them to their item mix and shouting them out to the consumers.

Mel Kleiman

It all comes down to bandwidth. How much shelf space do you have and what products and brands produce the greatest return?

Carlos Arambula

The short-term focus will eventually hurt traditional grocers as small brands will find distribution channels — including DTC, and resources exist promote and educate consumers on their brand/products in more efficient ways than the traditional grocery aisles and slotting. Resources that are welcomed by younger consumers.

Innovation will find a way to circumvent what Mr. Thayer describes as the industry’s worst addictions.

Paco Underhill

This is one of the themes of the new book “The Future of Eating and Drinking” I am working on now. Yes we have a major loss of trust to many of the Global food brands. We want to eat better and healthier. We want to get beyond processed food. The farmers market is growing and the range of local products in that market has expanded — the alternative grocery store that doesn’t charge slotting fees is no longer beneath the radar screen. And those smaller brands are finding way to get their customers. My Ginger Juice from the Ginger People just arrived via the mail at my office….

John McIndoe

Slotting fees are and will continue to be part of the manufacturer-retailer relationship. However, it’s shoppers that control the purchase experience today and if they don’t see the products they want on the shelf – whether from a large brand or smaller one – they will go elsewhere, whether it’s to buy the brand online or directly from the manufacturer.

As with so much of the CPG experience, manufacturers and retailers must continuously update their understanding of shopper wants and needs, and in this age of multi-channel competition, work hard to meet these needs, or someone else will.

"The current system of paying for space in the grocery channel puts the less financed smaller brand at a disadvantage."
"...the attraction of large CPG big money is not going away. The money goes beyond slotting to ad fees, corporate programs, selling show fees, etc."
"Simply put, old-school FMCG retail vendor collaboration is dead, as it was a one-way relationship to begin with."

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