I have to admit I love Shreddies.
Little woven parcels of wholegrain goodness which, if you listen to the marketing blurb from Nestle, are lovingly hand knitted by a nana called Pearl and her friends. They have their own Facebook page and Twitter account. Part of British life since 1953, over 3m people in the UK seem to agree that its a tasty start to the day.
When we go shopping, I ask the kids to go grab a box of Shreddies and they quickly grab it and drop it into the trolley.
The problem is, they didn’t grab a box of Shreddies.
Instead, they grabbed a box of Harvest Morn Malted Wheaties because I’m shopping in Aldi, now just about the 6th largest grocery chain in the UK. In fact, Alid and Lidl between them have attracted over 50% of households to shop with them - thats 13m people. With sales for Aldi up 30 percent on the previous period and an aim to double UK stores by 2021, it’s a trend that doesn’t look like it’s set to stop any time soon.
You only need to look at Germany, the heartland of the so called hard discounters to see the effect this could have where they dominate with 44% of the market.
The reason is obvious - consumers are saving a tonne of cash!
For example, I get around 625g of Malted Wheaties for 1/3 the price of 500g of Shreddies. The price today for 500g of Shreddies is £2.49 (49.8p/100g), for Aldi Malted Wheaties its 99p (15.8p/100g). Overall, these types of savings have translated to pretty much a 50% cut in my household food bill. Great for me, not so great for Tesco who used to have my loyalty and my purchases.
However, whilst we hear a lot about the woes of Tesco et al., we don’t hear too much in the press about the packaged goods brands and the impact it’s having on them. I buy Malted Wheaties not just because they are cheap, but also because thats the only choice I have - almost everything in Aldi is own-label which means the more market share they get, the less market share the consumer brands will have.
This isn’t something that might happen in the future - it’s happening now.
A recent report from IRi showed that the UK saw the biggest decline in grocery sales since the second world war. Compared to the first half of 2013, there was a decline in sales of CPG products across all UK supermarkets by 1.2% in value and 3.2% in volume. This at a time when brand promotions themselves are at an all time high.
A report by McKinsey back in 2010 entitled "Trends that will shape consumer goods industry" forewarned of this when it highlighted one of the top 5 trends to be that of “The shift to value”, with consumers looking for ways to save money and to trade down. The report suggested that CPG brands were looking to address the issue head on with more competitive pricing through the use of scale, product sizing and finding ways to work with or displace private label products.
The problem with fighting on price alone though is that this simply erodes category value over the long-term.
Speaking about this issue last year, P&G UK Managing Director Irwin Lee indicated that 5 years ago, brands excluding P&G sold about two-thirds of their volume at an average of 33% off - this had now risen to 80% of volume with an average deal size of over 40%. To address this, Lee set out the P&G strategy, saying:-
“Our focus is on value creation to complement, if not offset, the over-reliance on unsustainable value give away. There is nothing proprietary in price promotions. We believe promotions win quarters, but true innovation wins decades.”
As Lee points out, consumers need more reasons to buy the product than price alone. Innovation is part of the equation, however all products can be copied as private label shows and with the emergence of the hard discounter “private label only” stores such as Aldi, this battle just got harder. Brands are no longer fighting for premium shelf space but instead are fighting for customer head space.
Consumers are now shopping in both hard discounters and traditional stores - buying the bulk of their weekly shop at a low price and the little extras at the one of the big 4. Those little extras are also increasingly being done via an online trip from established e-commerce brands like Amazon or dedicated online grocers like Peapod or Ocado. Some brands are even experimenting with their own dedicated online solutions such as P&G with its P&G e-store.
This is leading to the relationship between the brand and the consumer to become more fragmented. No longer able to simply pay for in-store promotions and positioning to reach consumers, brands now need to look to build direct relationships with consumers.
The challenge for brands then is not how to get into the trolley - thats where the discounters win - but how to get into the basket; how to convince customers to make that extra trip just for them. This is heart vs mind; emotion vs rational.
There are many tactics to achieve this such as advertising, digital couponing, receipt scanning or on-pack codes, but what is really needed is a co-ordinated and long-term customer relationship strategy. Some might call this loyalty marketing - I’d call it the future of CPG marketing.