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Retailers vs Brands – a sequel

February 19th, 2009 by Devangshu Dutta

About 7 months ago a spat occurred between the leading retail company in India Future Group and branded supplier Cadbury’s, with respect to margins offered to the Future Group. (A friend described it as a Bollywood saga.) Future Group had also previously had run-ins with other suppliers including the likes of Pepsi. (The previous post is here.)

Now there’s a European film noire sequel in the making, in a battle between the Belgian retailer Delhaize and European FMCG big daddy Unilever. Delhaize has suspended purchases from Unilever as, according to Delhaize, Unilever is making “unacceptable demands” that the chain stock more Unilever brands.

Like other branded suppliers, Unilever has obviously been impacted across Europe and the US as retailers have become more sophisticated in their approach to private label and squeezed out brands that they have been able to replace with their own products.

Given further weakening of the economic scenario, it is likely that consumers would switch to cheaper private labels offered by retailers, and retailers would be tempted to give over even more shelf space to their own labels where they get higher margins than branded products – a continually losing spiral for the branded FMCG companies.

According to a consumer survey carried out by an agency in Flanders in northern Belgium, apparently 31 per cent of shoppers polled were choosing to shop at chains other than Delhaize, and another 19 per cent were not happy with Delhaize decision (but there doesn’t seem to be indication yet that they would switch). Most of the customers who said they were remaining with Delhaize are either switching to other brands or to Delhaize’s own label products.

However this brawl ends, and whether it turns out to be a win-lose or a lose-lose situation, even this survey demonstrates that the retail store has the upper hand - less than one-third of the surveyed customers displayed their hard-core brand loyalty by switching to other stores.

That is obviously a worrying sign for branded suppliers who have invested humongous sums of money and decades of effort in developing their brands. But it also raises questions about whether the consumer is really perceiving any value out of the billions in advertising and millions of man-hours spent by the FMCG companies in developing the nth variation of toothpaste or detergent.

Tough times raise tough questions, and the ones that comes to mind are these:

  • In recent years FMCG companies have rationalized their brand portfolios, but have they done enough?
  • Are they really clear about the value the remaining brands are delivering?
  • Are the retailers really playing fair when they build up so-called partnerships with suppliers, only to take on board the product learnings and then develop own-label copycat products (sometimes down to package colouring and graphics)?

What do you think?

Posted in Branding, Consumer, Food & Grocery, Market Research, Marketing, Retail, Strategy, Supply Chain, Uncategorized | 2 Comments »

2 Responses

  1. Jan Urlings Says:

    Fact 1
    The consumer survey carried out was a very unscientific and biased online survey. Delhaize reported a 2 to 6% growth of sales in the same period.
    Fact 2
    Delhaize adapted its strategy to compete with the low cost retailers. it is within this perspective that one has to see the clash with Unilever, occurring during renegotiations of the contract between Unilever and Delhaize.
    Fact 3
    Delhaize holds a 25% market share in Belgium. No way Unilever can make up for that with other distribution companies.

  2. Devangshu Dutta Says:

    Jan, we share your concern about the quality of data from such surveys. And yet, even that survey (baised or not), raises the same question: are consumers clear about what the brands stand for? If not, its is an easy decision for the retailer to substitute them with private label.

    See the results of our own little online poll on the fairness (or not) of this battle here:
    http://thirdeyesight.in/blog/2009/02/26/retailers-vs-brands-the-reactions/

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