Our beloved Brew.

Our beloved Brew.
R.I.P. Big guy.

Thursday, March 25, 2010

Living Without the Brands You Used To Love

Manufacturers, especially in the food and beverage area have long been consumed with "case counts," - the movement of inventory, rather than brand loyalty. This trend has evolved over the past decade and is so prevalent that most brand managers today are more accountant than marketing person. In the "old days" brand managers were largely marketing and promotions people.

In an effort to reverse the decline in soft drink sales being experienced industry-wide as a result of consumer trends toward healthier lifestyles, soft drink manufacturers have begun significantly raising prices. Just last year, in the Chicagoland area, consumers could walk into any major supermarket chain and benefit from pricing wars to buy four or five twelve packs of Coca-Cola or Pepsi products for under $10. Today, on sale, consumers are getting three 12-packs for ten to twelve dollars. In some cases, supermarkets are offering three 12-packs for nine dollars with a qualifying minimum purchase of ten dollars.  

Even more of a threat to sales and margins is the shift in power away from the manufacturer to the retailer.
Costco, with its more than 400 stores drew a line in the sand and stopped offering Coca-Cola products because the beverage company refused to offer the warehouse club pricing that is consistent with the store's below-market strategy. Costco represents a significant portion of Coke's business. Coke, on the other hand, is less than half of one percent of Costco's $70 Billion annual sales.

Costco didn't run the risk of alienating its customers by ceasing to carry Coke because its customer base knows that Costco carries items on an irregular basis depending on pricing and packaging values. The standoff was recently settled when Coca-Cola backed down. Terms of the agreement were not disclosed.

I don't know if it's still true today, but years ago around McDonald's corporate headquarters, they bragged that if Coke lost the fast food giant's business the soft drink company would fall from number one in fountain sales in America to number four. Today, McDonald's is offering "buy any beverage for a buck" promotions. That may sound like a good deal but as recently as last year, McDonald's offered the same size product for as low as seventy-nine cents depending on the market and owner/operator participation. I doubt much of any of that increased margin is finding its way to Coke's Atlanta headquarters.

Walgreens is in the midst of a major makeover of its stores from the "drug store and sundry" model of old to compete with supermarkets and convenience stores. You'll be able to buy cold beer and a number of other previously unavailable products at every Walgreen store. Many of the things you used to buy at your corner drug store won't be sold there anymore as merchants slim down the variety and product offerings to focus on the most profitable margin items.

The shift in marketplace power is dramatic. As consumers preferences continue to change, retailers adjust their offerings to meet customer needs, sales goals and profit margins, you can expect some longtime, iconic brands to fade in prominence faster than ever, be acquired and merged, and in some cases, disappear altogether.