I have spent most of the last 9 months rewriting and updating a business book - Store Wars: The Battle for Mindspace and Shelfspace – first published in the mid-1990s. It has been very illuminating to see how much has changed, and what hasn’t, in the grocery space.
When we consider the horizontal competition between brand owners for share of market and then between retailers for share of shoppers, much remains the same. The big have mostly got bigger: brands have extended their footprints through line extensions into related categories (e.g. Tide To Go) while retailers have extended their footprints into related formats (e.g. Walmart on Campus). The weak have gone to the wall as has always been the case. New fields of battle have arisen, most notably online, but the fundamentals of competition remain very recognizable to marketers and retailers trained in the 1990s.
In contrast, the vertical competition between manufacturers and retailers for share of transaction profits has changed almost beyond recognition. FMCG retailers are now bigger, faster-growing, more complex, more sophisticated, better managed and better financed than their suppliers to whom they previously played second-fiddle on all counts.
Virtually all these changes have been powered by a seismic shift in the availability and usage of consumer knowledge, captured at retailers’ checkouts and combined with shoppers’ loyalty card information. In 1994, just as the first edition of Store Wars was being written, Tesco, then the UK’s number 2 retailer, hired DunnHumby to help them analysis their database and within three months then Tesco chairman, Lord MacLaurin, was moved to say, “What scares me about this is that you know more about my customers after three months than I know after 30 years.”
Nearly 20 years on, data on billions of individual shopping transactions is now used to identify thousands of customer segments with retailers’ marketing efforts customized to create exceptionally strong relationships with their best shoppers. In contrast, the availability and usage of manufacturers’ knowledge on who buys their brands where, when, why, how often and with what would be very recognizable to a marketer from the 1990s.
Perhaps the most potent use of this explosion in retailers’ shopper knowledge has been in driving another dramatic change: the increased scale, scope and sophistication of retailer private label.
Fifteen years ago, private label was widely available but was mostly limited to basics or copycats of big brands. Today however, retailers have used their knowledge of the shopper to become sophisticated marketers of their own complex ranges of brands. Tesco, now dominant in the UK, has, depending on store format, up to ten different Tesco branded private label ranges available. Tesco Value covers the cheap generics; Discount Brands at Tesco is their manufacturer brand copycats; Tesco Standard represents the high end national brand equivalent; Tesco’s Finest their super-premium, along with a range of benefit-based sub-brands such as Tesco Healthy Living, Tesco Light Choices, Tesco Organic, Tesco Kids, Tesco Free From and Tesco Wholefoods.
Each of these brands has scale, even though only available at one retailer, the private label brand transcends dozens of categories. By employing segmentation not just horizontally across price bands targeting different shoppers but vertically across consumer needs, ranges can expand or be refreshed almost indefinitely, directed by the ever-aggregating sales databases. As the product ranges become more segmented, the resulting sales data becomes more refined in a virtuous circle of ever-increasing consumer satisfaction. With live sales data across tens of thousands of products, retailers can become drivers of consumer trends. The widespread availability in Europe of GMO-free products almost entirely resulted from the major retailers demanding such options from their reluctant suppliers. And a consistently-branded range of private labels such as Tesco’s has tremendous media efficiencies.
A well-segmented range of private label brands, as well as increasing store margins, bringing in more shoppers and making them more loyal, puts the squeeze on brand manufacturers. This has contributed to another notable change over time: the flow of money from brand owner to brand retailer, which has become a torrent in recent years, dwarfing consumer investment in many cases. It is common for brand manufacturers to be more worried by this increased pressure for discounts than by the fundamental reason behind it: the relative shift of knowledge.
Manufacturers, though, should not lose hope. The shift of power to the retailer is neither inevitable nor irreversible. It has shifted back and forth several times since mass markets emerged in the mid-19th-century. When it shifts it does so because of significant innovation aimed at understanding and serving consumer / shopper needs better. Which is what we are paid to do.