Brand Ownership and Distribution Wars

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In Australia we are forever hearing the cries of foul play about the way the major supermarkets play the game. The Australian Competition and Consumer Commission (ACCC) has declared war on their behaviour with a recently announced inquiry into how the major supermarkets are using their muscle to demand lower prices, bigger promotional spends and new line fees, and provide private label alternatives to supplier branded products.In short, the ACCC is assessing whether there is enough evidence to prove that the supermarket chains are behaving unconscionably or if they’re misusing market power.  Regardless of the future findings of the ACCC it all comes down to a case of who can most influence the purchase decisions of consumers, brand owners or the retailers. We are all aware to the increasing role online is playing in arresting back some of the control from retailers, however in the US some brand owners are also choosing to go directly to consumers to more proactively and directly stage manage relationships with customers.

Dannon in the yoghurt category is rolling out a yoghurt bars in Manhattan. They are offering a choice of traditional and Greek style yoghurt and continuing to grow their retail footprint. They are doing it under the banner of The Yogurt Culture Company, with a commitment to sustainability and all-natural, organic food products. All very positive attributes on which to build a connection back to the parent brand.

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Also given our own new business venture with the opening of our fresh pasta bar Etto in South Melbourne (still offering to buy readers a lunch there if you email me at: peter@trulydeeply.com.au) it is interesting to see pasta manufacturer Barilla’s intention to launch branded pasta restaurants as a way of enhancing the preference for their pasta products in supermarkets. It has also been reported that a competitor manufacturer, Pastificio Rana is about to open the first store of a chain in New York. They already run a chain of pasta places in Europe.

Some brand owners are claiming their own presence within retail purely for promotional purposes, while others are seeing it as a whole new business opportunity that provides a new sales stream, as well as a way of growing customer franchise. The more brand owners feel exploited by retailers, and a diminishing sense of control over their brands, the more they will seek to explore new ways of building their relationships.

However, the challenge for brand owners is the cost of capital to roll out a meaningful retail presence. The ROI will always remain problematic, in particular for low margin products. But whatever way you cut it, there is a need for brand owners to seize a greater level of control over their brands. In terms of the supply chain they need to, at the very least, find a way of moving from the seemingly lowly status of ‘suppliers’. Their role needs to be perceived as far more dynamic and mission critical in the lives of both distributors and consumers.

Peter Singline
Brand Scientist

 

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