What’s really driving the CPG brand cull?

Articles
February 19, 2009

What’s really driving the CPG brand cull?

Do CPG brand manufacturers see the dangers lurking in their variety excesses, or are they simply cutting expenses in a tight economy? Do they truly understand the frustrations and time-waste they heap on consumers by overpopulating categories with too much redundancy and not enough originality? Time will tell how profound the shift becomes. But in the throes of this harsh recession, CPG makers have begun to shed their lesser-selling brands. It will take a long time, however, until daylight reaches center-store. After all, the past decade has seen retail shelves “strain with about 50% more products than 10 years ago,” including line extensions, Bain & Co. consultant Mark Gottfredson told The Associated Press this week. But here’s the real urgency behind CPG’s latest trend to get lean and mean on store shelves: The Tesco-style stores being opened by Safeway, Supervalu and others will all carry about 75% less product than the typical supermarket, estimates SupermarketGuru.com. Even in conventional stores, the new center-store category formula will include three top brands and a private label, we feel. Two other reasons the time is right for this move: There’s the spending slowdown in today’s economy. And there’s the consumer being forced to work too hard in the store to fulfill shopping missions, obtain the brands and varieties she desires—and then pay for the privilege. It’s all just too tiresome.

Do CPG brand manufacturers see the dangers lurking in their variety excesses, or are they simply cutting expenses in a tight economy? Do they truly understand the frustrations and time-waste they heap on consumers by overpopulating categories with too much redundancy and not enough originality?

Time will tell how profound the shift becomes. But in the throes of this harsh recession, CPG makers have begun to shed their lesser-selling brands.  It will take a long time, however, until daylight reaches center-store. After all, the past decade has seen retail shelves “strain with about 50% more products than 10 years ago,” including line extensions, Bain & Co. consultant Mark Gottfredson told The Associated Press this week.

But here’s the real urgency behind CPG’s latest trend to get lean and mean on store shelves:  The Tesco-style stores being opened by Safeway, Supervalu and others will all carry about 75% less product than the typical supermarket, estimates SupermarketGuru.com. Even in conventional stores, the new center-store category formula will include three top brands and a private label, we feel.

Two other reasons the time is right for this move: There’s the spending slowdown in today’s economy.  And there’s the consumer being forced to work too hard in the store to fulfill shopping missions, obtain the brands and varieties she desires—and then pay for the privilege. It’s all just too tiresome.

Some CPG leaders seem to agree. Kraft Foods is eliminating South Beach Living meals and Handi-Snacks pudding. Procter & Gamble sold the Folgers coffee, Jif peanut butter and Crisco shortening brands to J.M. Smucker. More letting go will surely be news throughout 2009.

“The more we can simplify, while clearly meeting our customers’ needs, the better off we are and the more cost we can drive out of the business,” Scott O’Hara, who manages the global supply chain for Heinz, told AP.

While some brand cutbacks will help, retailers and brand makers will need to critically assess which brands, lines and items will be able to survive in the next five years, and invest in them rather than in full portfolios, which are often too expansive. Brands involved in controversy might be the first to go.

We see the brand cutbacks as a welcome part of ongoing improvements in shelf and operating efficiencies (think wholesale clubs as the predecessors of limited brand choices). More importantly, this is an overdue move to satisfy consumers, who can definitely live with fewer (barely differentiated) items on the shelves.

However, to help their strongest brands survive, CPG will also need to shore up their retailer relationships on other fronts, through excellence in product innovation, trade events, performance analysis, thought leadership, consumer insights and more.  Though some of their brands may go away, CPG suppliers can stay competitive through other intelligent means.