Recent news portends a rocky future for traditional CPG brands -- legacy behemoths like the Kraft Heinz Co. portfolio and Gillette face some steep challenges.
Kraft took a huge write-down after news that its Kraft and Oscar Mayer trademarks are losing value, while Gillette has seen its market share rapidly decline thanks to Harry’s and Dollar Shave Club. Among the biggest headwinds are two large retail shifts.
First, the quick ascent of D2C brands has impacted the playing field for several years, but that’s been ramped up as formerly pure-play D2C brands like Harry’s shaving and most recently Quip oral care, are now sitting on brick-and-mortar shelves. It’s one thing to battle over the under-40 consumer demo online, and another to see Oral B sitting next to an electric toothbrush that was a twinkle in its founders' eyes three years ago.
Secondly, retailers are introducing private label and "own brands" at breakneck speed. The pace car in this field, Target, launched 20+ private label brands in the past three years which now make up nearly 1/3 of their revenue, including the $2B Cat & Jack kids’ line. Walmart’s Allswell mattress and bedding brand was incubated in-house but presents itself as a standalone D2C on par with Casper and Avocado (and my Instagram feed can attest that they have an equally large retargeting budget).
The common thread between those two factors is first party sales data, an Achille’s heel of traditional CPG players. They can divine aggregate sales patterns, but much of the granular sales data—who’s buying what? —is a black box that the retailers keep under wraps.
But when Target brings a brand like Quip into their assortment, they know that the company has already spent loads of investor money on building a strong brand, nurturing an engaged fan base, and identifying untapped customers by collecting and analyzing tons of 1st party data. It's like a traditional CPG brand in overdrive: they hold both the brand and the consumer intelligence in their hands.
The start-ups have done the legwork, and the retailer reaps those rewards. Yes, retailers took an immediate hit from high-growth online D2C brands at first, but now they’re hedging their bets by making peace and inviting them onto their shelves.
In response, I predict we’ll continue to see CPG brands trying to launch D2C programs — subscription services and experimental ecomm models — as a way to leverage their advantages but minimize their liabilities. The conglomerates still have a huge advantage in industry knowledge and consumer insights that smaller upstarts and retailers don’t. If they can get their hands on some of that sweet 1st party sales data through their D2C efforts they may be able to enjoy a dual advantage.
Until then, if you manage a traditional CPG brand, there’s some comfort in knowing that we’re nearing peak D2C saturation. At some point customers will tire of having to manage a different one-to-one relationship for every basic need: from vitamin packets to socks to hair dye to underwear.
But taking proactive steps like beefing up second party data through sophisticated social media listening or syndicated business intelligence can help bridge the gap a bit. As will finding innovative and smart ways to leverage your strengths like new product development and supply chain efficiency to meet customer needs in a way that the heel-nippers can’t.
While giant ad budgets certainly aren’t the moat they once were, especially thanks to affordable micro-targeting on digital/social, there are still legacy brands in every portfolio with enough power to justify a hefty media buy. And blue chip brands like Tide are able to extend their potent equity into new ventures like their recently-launched nationwide wash-and-fold laundry service aimed at convenience-obsessed 20-something consumers. Not every legacy brand will survive unscathed, but the strongest ones will find a way.
Lastly, acquisitions will continue to be a viable alternative. If you can’t beat the pastel-hued, whimsically-named Millennial/Gen Z-bait brands -- buy ‘em.
Jeremy Cesarec is strategy director at Planet Propaganda.