Retailer ‘brands’ have taken a huge toll on the ability of proprietary marketers to profitably market their brands and build markets in FMCG.
A proprietary marketer may spend several years and make a huge investment in product R&D, market research, advertising and listing fees in various forms in order to get a product on shelf. They carry all the risk in this exercise.
Retailers carry no risk beyond the inventory risk when they choose to stock a new product. That inventory risk would normally be mitigated by the supplier, at least partially in the deal to secure initial shelf space.
Retailers have at their disposal detailed information about the performance of every product on their shelves. Volumes, margins, behavioural data such as what consumers have in the same basket, what products have been removed by consumers from their basket, and price sensitivity and elasticity.
Based on this information, they can reverse engineer formulations, and have a contract manufacturer supply a direct copy very quickly, with very little risk.
An innovative proprietary product will normally be supported by advertising, which will also often benefit the housebrand product.
If a small manufacturer copied a product and launched it into the market, perhaps via alternative channels, the proprietary marketer may have the option of legal action for passing off. It is illegal to mislead consumers, yet this is happening every day on supermarket shelves, in the name of choice.
It seems a different set of rules applies to the major retailers who have all the power in the relationships.
Over the time I have been watching FMCG markets, the level of investment in product R&D, and brand building has declined substantially. Many brands that had created and built markets have virtually disappeared. The investments previously made in product and brand growth have been directed towards retailer profits, and to be fair, consumers have benefitted by lower prices in some product categories. The downside is the lack of innovation and category building which delivers benefits over the long term, that has occurred as a result.
I do not have an easy answer to the dilemma faced by marketers, and it would be suicide for any manufacturer to sue Coles or Woollies for passing off a housebrand, but in an idle moment, it may be a question worth asking?
