Are Brands Fighting Back?

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One could be forgiven for thinking that brands are surviving the recession with the Premier Foods announcement of their latest six months’ results. Their overall sales were up by 3.5%, but within this sales of Branston Pickle were up by 41%; Loyd Grossman Sauces by 35%; Hovis Bread by 17%; and Hartley’s Jams by 12%. These results prompted Premier to claim that shoppers are turning away from supermarket private label products towards branded products.

At a cost.

Premier reported a loss of £30 million compared to £2 million profit previously. Admittedly some of this loss is made up of one-off costs – pension charges, currency movements and the acquisition of RHM and Campbell’s UK business – but buried within this are the increased costs needed to drive brand growth. Promotions expenses, for example, have increased by 10% – a high price to pay to make the brands competitive.

Other company reporting suggests that Premier’s brand growth is the exception rather than the rule. Procter & Gamble reported a net sales decline of 11% with a profit decline of 18% for its fourth quarter, with premium brands such as Olay and Braun being particularly badly hit as consumers turned to cheaper alternatives. Unilever managed to achieve a 2% volume increase for what was their second quarter but at a huge cost – profits down by 31% – prompting one analyst to comment: “Volume performance has been bought at a high cost to margins.” The Unilever CEO said that “The consumer is making more value choices and I don’t think that’s going to change that easily.”

Despite its sales growth, even the CEO of Premier Foods had to admit: “We are not seeing anything that says we are coming out of recession.”


The End of Premiumisation?

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Over the last decade of economic boom, the big brands we are so familiar with stemmed the growth of retailer private label. Not only that, most companies adopted a strategy of premiumisation confident that consumers had both the desire and ability to pay more for perceived quality.

Now in more straitened times, private label is resurgent helped by clever retailer strategies such as the Waitrose range of 1,400 products known as “Essentials”.

Kellogg’s Cornflakes 500gm: £1.94
Essential Waitrose Cornflakes 500gm: 95p
Saving: 51%

Sainsbury’s now estimates that two thirds of their customers buy from their ‘Basics’ and ‘Taste The Difference’ ranges. Price comparison website uswitch estimate that 31 million consumers are trading down from familiar household brand names to cut the cost of weekly shopping.

Marginal differences in quality alone are insufficient to maintain premium pricing – especially when the difference between a value mustard and a premium mustard is only 3% more mustard powder.

Premiumisation is looking increasingly like a strategy for failure rather than for long term success.