In an Omnichannel World, Brands Need Business Partners
If you believe all that business media coverage last month, Amazon's planned acquisition of Whole Foods Market marked a game-changing event in the consumer packaged goods industry. Anyone who believes that to be true still has his head planted very firmly in the sand.
Let's be clear here. The potential implications from Amazon acquiring a 460-store grocery retailer are extremely significant. For one, the world's largest online retailer would immediately gain a national network of distribution/fulfillment points that could turbo-charge the national rollout of its Amazon Fresh grocery service.
But while the move was certainly a surprise, it isn't so much a "game changer" as yet another milestone in the relentless, real-time evolution of the CPG marketplace. By this stage, no one should be surprised by anything that happens — especially anything orchestrated by Amazon, a marketplace disruptor for the ages.
Just consider some of the other, lesser "game changers" that took place in June. Walmart spent $310 million to buy online men's apparel retailer Bonobos, the latest in a string of e-tailer acquisitions aimed at amassing market share, e-commerce expertise and online customer loyalty. The acquisition was announced the same day as the Amazon-Whole Foods deal, so it was treated like a media afterthought.
And then there was the other true potential game changer that also was pushed right off the front page: the official U.S. debut of German discounter Lidl, which opened 10 stores in North Carolina on June 15 — one day before Amazon's announcement. The arrival of a strong brick-and-mortar disruptor from Germany — which has been worrying retailers and national brands alike for more than a year — literally became "yesterday's news."
The Race to the Bottom Continues
Lidl's entry into the U.S. market probably better represents a dangerous industry trend for any company that manufactures packaged goods: the continued devaluation of national brands, both literally and figuratively.
Amazon and Walmart have been involved in a competitive pricing battle this year that CNBC recently calling an "all-out price war." It has become so severe that some CPGs are wondering if they'll have to take a loss to keep selling some products through these two critical accounts.
Price is, of course, a key purchase driver for a large segment of U.S. consumers, a fact that's clearly evident when you look at the current retail landscape. There has been a relentless parade of store closures and bankruptcies among U.S. chains since the start of 2017 — except on the value end of the spectrum, which seems to be thriving.
In addition to Lidl's entry, extreme-value retailing's other German import, Aldi, recently announced plans to increase its store base by 350 through the end of 2018 and add 500 more doors by the end of 2022. Homegrown value chain Dollar General is opening 1,000 stores in 2017 alone.
In this retail environment, it's somewhat ironic that Amazon — a company responsible for wreaking havoc on the pricing strategies of so many CPGs — chose to buy a grocer whose nickname among shoppers has been "Whole Paycheck."
But the one thing that Whole Foods has in common with the likes of Lidl and Aldi is the dominance of private-label products on their store shelves. National brands are not a terribly important part of their business model.
As Amazon and Walmart continue to drive down prices in the name of e-commerce market share, they're proving that the health of national brands isn't terribly important to them either. To use a cliché, brands become pawns in the omnichannel game, used to win shoppers and sales in the short term with no regard for their long-term viability.
Consumers, too, increasingly are far less concerned with brand loyalty than they are with shopping convenience, speed of delivery, product personalization and, yes, cost savings. And these days, they've got plenty of options when it comes to satisfying any and all of those concerns. In short, these are challenging times for established national brands.
It Takes a Network
On the surface, the problems facing CPGs might be viewed as typical sales and marketing issues, requiring productive negotiations with retailers to find a happy medium on pricing and a modern upgrade of the marketing plan to satisfy the changing needs of consumers.
It's nowhere near that simple. Addressing the demands of omnichannel retailers and consumers alike requires CPGs to go much farther back through the supply chain to areas such as product development, portfolio planning, packaging strategy and fulfillment — to find solutions for both retailers and consumers that can move the conversation away from price and back toward brand-building engagement.
Transforming the supply chain is a complex undertaking. It requires far greater internal alignment than has traditionally been exercised at most CPGs, with all organizational functions working in tandem toward common goals. It demands more strategic collaboration with key retailers (who themselves might have to be re-evaluated) to keep brick-and-mortar stores relevant while also establishing effective omnichannel strategies.
And it will require assistance from third-party suppliers that have both the capabilities and the desire to be full business partners rather than just commodity service providers; suppliers who can help manufacturers understand the changes that need to take place, identify and execute the best methods for implementing those changes, and have a vested interest in the business results those changes ultimately deliver.
WestRock has built a team of Six Sigma black belts who collaborate with our clients to identify innovative solutions for their specific manufacturing and supply chain challenges. Our global footprint lets us source proven practices from around the world.
We have an in-house team of engineers and related resources that help clients reconfigure their machinery assets to increase efficiency. One very topical case in point: Our packaging experience is helping clients develop shelf-ready solutions for value chains and home delivery-ready options for the omnichannel market.
In addition, WestRock has moved well beyond its production expertise to help clients stay ahead of industry trends:
- We've partnered with Plug & Play, a leading Silicon Valley incubator, to find opportunities for custom, cutting-edge solutions that can keep clients ahead of the competition.
- We work with the retail futurists at Planet Retail/RetailNet Group to track where the industry is heading and help clients get there faster.
- We're developing Retail Learning Labs with leading Universities to identify ROI analytics on a host of in-store shopper activation tools such as packaging and displays that will help not only clients, but the industry at large.
Investing in these kinds of initiatives should make it perfectly clear that WestRock doesn't just have the capabilities but also the desire required to be a full business partner. We want to make sure that our clients won't be surprised by any future industry changes— because they'll already be prepared to face them.
If you would like any more detail about our perspective on the evolving retail and shopper environment, reach out to WestRock. We have a host of resources at your disposal.