The market dominance of big CPG brands is slipping, and the challenge is increasingly coming from smaller players. For those who doubt it, here are some salient and sobering statistics:
- Over the past year, the sales of small CPG firms grew by about 5.8%, far faster than the 0.9% growth rate of the largest CPG brands.
- The market share of big CPG brands has declined by 7.2 percentage points over the past three years; by contrast, the market share of small brands is up 6.5 percentage points.
- Over the past five years, small CPG brands have accounted for 84% of all new brands added to both online and physical supermarkets and merchants.
Why and how are small brands outperforming the likes of behemoth companies with multi-million-dollar marketing budgets?
Newness and coolness
One of the truisms about modern-day consumers is that they are both easily bored and hard to impress. Ultimately, this means they are always on the lookout for something new and exciting.
Unfortunately, consumers do not believe that bigger CPG brands are creating compelling new products in their categories. Only 23% of shoppers agree that big consumer firms do a good job of developing interesting new lines.
Similarly, when consumers are shown a representative selection of products from both big and small CPG brands, they are almost three times more likely to pick the products from small firms as being more exciting.
Why is this the case? Aside from the fact that shoppers like to try new things, which is the top reason, there are a range of factors driving people towards smaller brands. Foremost among these are the premium feel and status of many new products. This is because most new launches are, unlike established CPG brands, not positioned in the middle of the market. They are more expensive products that are designed to appeal to consumers’ tastes, their desire for status, their lifestyle positions, and their wishes to be healthy and/or ethical. This automatically means the appeal and allure are much stronger.
The premium nature drives many of the other reasons consumers see small brands as innovative and interesting.
Trust and authenticity
A further factor that helps small CPG brands is trust and authenticity. What’s interesting here is that when consumers are asked which brands they trust most, they tend to default to the larger, better-known labels. However, this is mostly a function of brand knowledge and recognition rather than a true measure of underlying consumer sentiment.
When consumers are asked how much they trust individual brands, those belonging to small CPG firms score slightly higher than those belonging to the larger companies. So, in essence, when it comes to shelf-edge decision-making, trust is not that much of a differentiator for the big brands.
However, this picture also hides important nuances. One of these nuances is that consumers are much more likely to trust smaller brands on specific issues and attributes. When it comes to organic, for example, small firms are trusted more than bigger ones. The same holds true for attributes such as wellness, ethical standards, and health benefits. Being small throws a halo around brands that allows them to be associated with feelings of localness, honesty, trustworthiness, decency and sustainability. That is not to say that larger brands can’t engineer these feelings; it is just much harder for them to do so.
Another important nuance is that younger consumers are much more likely than older consumers to feel an affinity towards smaller brands and to place their trust in them. This is important, as these are the consumers of the future. As they become more influential and spend more, these trends and the issues they raise for big brands will become amplified.
A level playing field
Aside from how brands make consumers feel, a critical factor in the success of smaller labels is that the retail environment is now more conducive to the showcasing and discovery of new products. Online has leveled the playing field substantially, as it makes it easier for small brands to both promote themselves and to be found on retailer websites. Within physical stores, the need to differentiate and drive growth has made retailers much more alert to new product innovations and smaller companies.
In short, the primary advantage of being big – the power it brought in terms of marketing dollars and being able to influence positioning in store – no longer applies. This works to the disadvantage of the largest firms.
How can big brands fight back?
Although big brands are suffering, there are several ways to fight back.
Foremost among these is to buy out smaller brands and integrate them into your portfolio. If a degree of distance and operational separation is maintained, there is no reason a niche label cannot thrive under the ownership of a big corporate firm. However, as history suggests, this route is unproductive if bigger brands exert too much control and influence over their acquisitions.
Large CPG brands can also attempt to emulate some of the characteristics of smaller firms. These include speeding the pace of innovation, creating more authentic connections with customers, regularly reviewing and refreshing things like packaging and product content, and developing sub-brands and ranges to focus on growth areas like wellness and health.
In both cases, one component is critical: big brands need to change their mindsets away from driving market share and volume to driving mindshare and satisfaction. This can be challenging, but it is key to emulating the success and traction of the new entrants into the CPG market.
Neil Saunders is a retail analyst and consultant. He currently serves as Managing Director of the research firm GlobalData, where he oversees the development of the company’s retail proposition and its research output. He also works with clients to help them understand the retail, shopper and market landscape.
Neil is a founding partner of Prasentia, a firm that works with clients to help them communicate more effectively. Outside of work, Neil is an advisory board member for the faculty of business and law at the University of Southampton, an Honorary Lecturer at the University of New Hampshire, and a Visiting Fellow at the University of Surrey.