Cutting the clutter cuts the costs

For the past five years the humble retail marketer has spent many weeks in real time watching retailers reduce the number of manufacturer brands per category per store, and consequently advising survivor brands on how to increase share of voice in store, as well as advising lost brands on new market entry points to sell to new consumers – looking for “blue ocean”.

Conversely, we’ve watched the shopper battle conscience on whether the own brand is a lesser quality than the established.

The latest move in this evolving retail story is this week’s news out of the US reporting that Wal-Mart will drop more brands in general household FMCG categories to make room for yet more cheaper own-brand products. Wal-Mart’s figures reported on Monday by CNN Money show that since the recession, own-brands have grown market share in the US by between 2-6%.

In Australia, we are behind the US and Europe, but catching up fast, as retailer own-brand quality has improved markedly in the past three years.

Wal-Mart will reduce brands in the toilet paper category by 44%, mouthwash by 39% and household wipes by 25%, CNN Money states. Chlorine bleach by 9%. Who ever suspected the choice in chlorine bleach brands was so vast?

So why do we care Down Under?

These changes from the world’s largest retailer spell a new pace for change that will filter down to retailers across the western world – Australia and New Zealand included.

And the impact will be threefold. It will have implications for the retailer, the shopper and most heavily on the manufacturer.

And this is why.

Firstly, let’s look at the retailer. The decision maker in this deal.

As a retailer, I’m looking to make the biggest profits on the stock I sell. I can do it (as I’ve mentioned in previous blogs) by working with suppliers to cut logistical costs. I can also buy bigger volumes of smaller numbers of brands in each category, and I can make my store a better environment in order to keep shoppers in there longer and buy more stuff.

The well-run retailers are doing all three to make their stores a more efficient environment. Wal-Mart leads the way. In Australia it’s become a close run race over the past 12 months between each of our key retail categories, two in grocery, three in discount department stores and the two big department stores.

Next, the shopper.

“I get confused when I must choose between 20 brands of toilet paper or 10 brands of toothpaste. It wastes time and I don’t know which is the best value for money. I also can’t stand the clutter. I’ll get in an out as quickly as possible to avoid it.”

In both Coles and Woolworths, new store formats reflect this with every store opening; less clutter, more space and light.

Since the economic downturn, shoppers have become savvier. We know they’re thinking more about their dollars, and investing only in products perceived to be good value. The recession created the perfect breeding ground for own-brand growth in all western markets.

Wal-Mart is simply capitalising on this now. Locally, Coles and Woolworths have significantly stepped up their own-brands push, and it will only get more competitive for manufacturer brands.

Which leads me finally to brands themselves. The manufacturers.

If you’re not one of the top three or five brands in a store, you’re not likely to make it in a major FMCG retailer.

But you have a few choices.

If you still have time in stores to prove yourself, you can employ marketing strategies to entice the shoppers at the point of purchase.

If you’ve already been flicked – or been given your notice, there are other options to consider.

Taking a brand to “blue ocean”, as we call it in retail speak, you’re looking for a new sales avenue to get your product into the hands of more committed and brand-loyal consumers in alternative markets. Maybe you’ll take the independent channel, for instance.

Or, in Costco’s latest case, news reports revealed that the manufacturer of one household product was flicked from the shelf, only to have its line reinstated after a deal, whereby the manufacturer could sell its branded product in store in exchange for offering Costco the manufacture of its own-branded competing product, at a lower margin.

The manufacturer effectively became the only supplier of product in its category to this huge retailer – both the manufacturer brand and the retailer’s own brand.

Symbiotic, profitable and very clever!

In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.