This briefing covers the growing focus of leading food companies on power brands. These are products which have large value sales and are strongly associated with their market. Power brands are a crucial driver of revenue, as a result of their visibility within stores and reputation as category leaders. With retailers strengthening their private label lines, it is now more important than ever to own power brands, which may cause a fundamental shift in company strategies.
Power brands are essential to a number of food’s leading competitors. For example, sales of Heinz’s tomato ketchup account for 15% of the company’s total sales. Such brands remain too important to ignore.
In Western Europe and North America, grocery retailers are highly consolidated. Wal-Mart in the US, for example, has a 26% share of retail sales, while in Germany, the top three grocery retailers account for 53% of total sales. Simultaneously, retailers are looking to rationalise their store space, which includes delisting SKUs. Manufacturers cannot afford not to be stocked by the leading retailers. This gives retailers leverage in negotiations on pricing and in-store advertising.
Private label ranges are becoming more popular, and their market share is growing in a number of sectors, such as ready meals, chilled processed meat and other staples. This sales growth is coming at the expense of branded products.
As a result of retail consolidation, more mergers, such as that of Kraft and Heinz, could occur in the future, as manufacturers look to leverage the reputation of their brands to influence retailers.
At the same time, brands that are not associated with category leadership may be sold off by leading companies, as they offer low growth prospects and more recognisable products present better opportunities.
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