Wednesday 18 November 2015

Guest Blog: Riding Two Horses – Managing a Mixed Business For Success by Richard Nall

It is the eternal conundrum for many CPG suppliers:  Should we ‘get into’, or stay in, Own Label?

With core customers losing share (e.g. to grocery discounters), and lean manufacturing techniques releasing capacity year after year, organisations face a constant battle to fill their factories.  Other solutions, such as exporting, take time to research, and appointing the right distributor can be fraught with difficulties; whilst M&A can exacerbate the problem (and concurrently release second hand kit for sale following manufacturing rationalisation, inadvertently creating a new competitor).

Superficially, it can seem attractive to fill capacity with own label but if that is as far as your thinking goes, then stay with your knitting.  I suggest that you think carefully how you will ride both horses, both today and tomorrow.  Is the problem that your and your competitors’ brands are not distinctive enough, or are your innovation efforts too weak?  For many, these might be improved, so this should be your immediate focus.

If you still believe that your future lies in own label then start with a mental re-positioning.  Think Retail Brand or Customer Brand.  Successful firms treat customers’ brands as their own with concomitant levels of brand development and innovation resource.  The only outwardly visible difference should be the lack of dialogue investment for the latter.  Start with a crystal clear category vision, defining consumer and shopper growth drivers, followed by a hard-edged discussion as to portfolio roles, and expected levels of financial and organisational benefit and resource requirement.

You might ask yourselves some questions such as:  Why would competing in retail brand be a good thing?  What is their role in driving category sales and profit?  With which retailer(s) do we want to work?  What value would we add?  How can we differentiate from our proprietary brands?  How do we sustain those differences?  What financial and organisational benefits will it bring?  What rules need laying down?

An answer to these questions might look like:  “Competing in Customer Brands allows us to drive category growth, and compete against Brand(s) X (Y and Z) with a diverse portfolio differentiated between the core category drivers.  We will focus Brands A & B on Drivers M & N and develop our customer brand portfolio against Drivers P and Q where Brand(s) X (Y and Z) are strongest.  Our category insight and operational capabilities set us apart so that we will make superior profits vs customer brand competitors.”

“We will earn scale benefits - procurement, manufacturing, distribution and trading - enhancing cash flow and shareholder returns.  This will provide opportunity for increased investment in our branded portfolio.  Net, we will fix our competitors with customer brands, gaining freedom of action to grow our branded business.  Through learning how to be effective retail brand developers, we will create a more agile organisation that operates with significantly greater urgency than today.”

It might sound good but you need to consider, make and stick to some hard decisions re: key practicalities:  How do we ensure our brand development stream remains a core priority and is not disrupted by short-term customer demands?  How will we prioritise resource bottlenecks?  How do we retain corporate enthusiasm for proprietary brands against customer brands?  What IP will we allocate to Customer Brand innovation, if any?  What are our ‘lines in the sand’, and are we REALLY prepared to enforce them?

If you think some of this might be nit-picking, think again.  They are critical issues our clients face daily.  Time and again, we have seen Leadership Teams, and particularly the CEO/MD, inadequately articulate and police their expectations here.  The consequence?  Resource and innovation that should sustain proprietary brands is diverted onto customer ranges.  Over time, the brand stumbles, becoming less important to the manufacturer and customer who is (usually) earning better margins on their own products.  The long-term outcome is invariably commoditisation and category stagnation as insight & discovery, true innovation, and dialogue investment decreases with marketing expenditure switched to customers to prop up sales.

So if this is a live issue for you, or you are already riding both horses, pause and reflect upon the strategic choices you are making, and ensure that your organisation (particularly your sales and innovation teams) fully understands what they are, what they mean, that they buy into them, and, critically, that they abide by them.

Richard Nall -

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