According to a recent Reuter's article: "Foodmakers tout innovation to battle imitation," food manufacturers stated at the Reuters Food and Agriculture Summit in Chicago in mid-March "that they are the ones who develop innovative new products and spend marketing dollars to draw shoppers into retailers' stores."
This statement was issued, no doubt, to counter perception of the growing strength of retailer private labels–and of retailers' brands taking the lead when it comes to innovation.
We're at a crossroad in the food industry. Food and beverage manufacturers are competing with their retail partners for market share more than ever before. National brands have slowly lost share to store brands, and this economy is speeding the process up.
It is true that manufacturers spend considerably to research and develop products. They also spend considerable marketing dollars to draw shoppers into retail environments. However, it is also true that larger food companies are reluctant to bring any innovative products to market that ensure less than total success, that is, a huge return on their investments. Marginally successful products simply don't deliver the ROI manufacturers are looking for.
In the meantime, retailers have been increasingly focused on building their private label brands by touting the same or higher quality as the national brands at lower prices. While this phenomenon has been decades in the making, the competition between manufacturer and retailer for shelf space and consumer dollars has really heated up recently.
More valuable shelf space is being given to store brands. That means slower selling national brands are being squeezed out of assortments altogether. More promotional activity on store brands has followed suit. All of this as a direct response to the sour economy. Retailers have a unique opportunity to pick up not only market share, but additional profit dollars, in their struggling operations.
And yes: savvy retailers are increasingly taking the leap from imitator to innovator. That goes for product assortments and product packaging, as well.
Here's the thing: retailers find that modestly successful innovations in their food and beverage offerings are perfectly acceptable. With the economies of scale they enjoy in working with manufacturers on the production end, and the ability to test new products by ensuring distribution in as many outlets as they like, retailers have numerous advantages.
Even marginally successful products can offer two important advantages. Think about it: with a new product, pricing can be set without reference to competition because it is breaking new ground. That translates to heftier profit margins. Especially until competing products join the fray. Besides that, it teaches consumers that here are store brands that offer them new food or beverage options, while reinforcing the perception of value pricing.
Some food industry executives worry about the eventuality of retailers taking the lead with innovative products in future. . .but that's already been happening. Trader Joe's, Whole Foods, Wegman's and other small to mid-sized food retailers have been making inroads for a while now when it comes to private label innovation. Safeway is, too. And what about Costco? So can the other major food retailers be far behind?
Is this necessarily a bad thing, though? I mean there's nothing like competition to keep everybody sharp and on their toes, is there? What do you think?
Are there specific innovative store brands that you really like?
Are they big box store brands or niche food retailers' brands? Which ones and why?
Which national brands do you find most innovative? Do you think they still have the edge over store brands?
I'd love to hear from you.
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