Will Classic Brands Survive on the New Battleground for Shelf Space?

There was a time when shoppers would peruse their local grocery aisle and easily spot their favorite tried and true classic brands without a hitch. But ever since the pandemic, times have changed as "the biggest U.S. food makers, already dealing with increased competition and shifting consumer tastes, now face an additional threat: supermarkets are taking away prime shelf space," according to The Wall Street Journal.

Classic brands like Clorox and General Mills are up against a new challenge. Supermarkets are now relying on their own consumer data to reconfigure shelf space, sidelining these well-known names to introduce smaller up-and-comers. This shift in retail strategy means significant changes for these established companies "in favor of niche items and store brands that deliver higher margins and are often in higher demand."

“Our retailers have better information now. So more of our conversation is about ‘How do we drive growth together?’”

Jeff Harmening, General Mills Chief Executive, via WSJ

Previously, it was common for retail brands to wield significant influence over how their products were displayed in grocery aisles. However, the power dynamic is now changing.

Retailers are prioritizing their own data-driven insights to determine the best product placement on store shelves. Particularly, Kroger has been investing heavily in data collection. The resulting insights have been shifting the dynamics of the relationships it has maintained with big brands over the years. The company is also tracking customer loyalty metrics to understand how clients interact with various brands.

Nowadays, retailers like Walmart and Kroger are getting savvier with how they gather and analyze data about their customers thanks to AI technology. High-tech methods such as video surveillance and customer walk rate analysis — which gauges the customer's patience in finding an item before abandoning their search — are being employed. The most sought-after grocery items are strategically placed in the “strike zone,” the area directly below the customer's eye level. This location usually guarantees the highest sales. Data-driven insights, rather than brand recommendations, are driving such decisions now.

“It used to be more of a personal relationship. It’s become cold, hard facts that make decisions.”

Former Kroger executive via WSJ

In the past, retailers often followed the advice of "category captains," the top sellers of particular products. But today, grocery stores are also utilizing private-label products that are often priced lower than name brands to gain a competitive advantage. Grocers, which once advocated for these category captains for their product expertise and attractive slotting fees, are now veering toward a new strategy to drive sales growth. This approach includes promoting their own store-branded products over big-name brands.

The fall of classic brands in gaining prime shelf spots can also be attributed to their failure to keep pace with the evolving healthy food trends. As a result, grocers are also showcasing a changing array of products to reflect consumer trends, such as healthy snacks or infused beverages. Nielsen data shows that between 2013 and 2020, about 3.5% of the packaged-food market, totaling $17 billion at the time, had migrated from established brands to startups. Large, publicly traded food manufacturers saw a dwindling retail distribution, with a 2.8% decrease in their distribution points between 2019 and 2020. Brands, even iconic ones like General Mills, have started losing to smaller competitors and store brands, forcing them to devise new strategies to remain relevant.

The Bigger Picture of Decreased Shelf Space

In 2023, stores had fewer new products and less variety overall. According to The Wall Street Journal, new products accounted for only 2% of items, down from 5% in 2019. Fresh food offerings like dairy products, fruit, and deli meats in grocery stores also decreased by 15% to 20%. Many major companies trimmed their product lines, including packaged goods makers like Coca-Cola, Mondelez, Nestle, and Unilever along with toymaker Mattel and PVH, parent of Tommy Hilfiger and Calvin Klein. They did so in order to ease supply chain stress during the pandemic and cut costs as consumer spending on nonessential items decreased.

Many shoppers didn't miss the reduced variations, which mostly affected unnoticed areas like special packaging. The list of discontinued brands or those in the process of being phased out includes "Newell Brands' lines of Yankee candles, Unilever's Sir Kensington's dressing, Coke's Odwalla juice, and regional brands like Northern Neck Ginger Ale."

It turns out, having more variations doesn't always stimulate growth. According to Bloomberg, Nestlé reported that a third of its more than 100,000 product versions contributed to just 1% of sales. Furthermore, studies show that consumers are more likely to make a purchase when they have fewer choices.

On the flip side, some industry experts caution against trimming the product list too much, saying it could stifle innovation and hurt smaller brands that rely on retailers for exposure.

This move toward less variety marks a big shift from the increase we previously saw, fueled by the internet, which trained shoppers to expect an almost infinite range of options. Before the pandemic, grocers "believed they had to carry everything to avoid losing customers to the store across the street," Stefan Kalb, CEO of Shelf Engine, told The Wall Street Journal. He explained that "grocers are now saving money because they have fewer items to manage and that the slimming of product options is reducing food waste."