Things are changing all the time, especially in natural. We’ve recently seen stories regarding Albertson’s in preliminary talks about a deal to acquire Sprouts, and Whole Foods Market partnering with Nielsen and Dunnhumby. This is the potential beginning to major shift in the way natural brands and retailers do business.
Advanced business strategies like category management will now be the norm rather than the exception. Natural organic brands and retailers are at a cross roads. They have an important choice to make; they can either lead, follow, or get out of the way. What I mean by this is simply, that they must adapt to a more strategic way of doing business than they are used to if they want to thrive and grow.
Let me help frame this to make it more relevant.
When I started my career many years ago the competitive landscape was very similar to the natural channel today. We did not have large national chains, only regional and local independents. The natural channel really did not exist back then, they were known as specialty or alternative retailers. Brands relied heavily on distributors to help get their products to market. Manufacturers had huge sales teams or brokers that literally called on every store, the same as in the natural channel today.
Back then, everything was relationship-focused. You had to have a good relationship with every store you called on if you wanted full distribution, optimal shelf placement, and incremental merchandising. Buying decisions were made at the store level. The struggles small local brands have today are the same ones that large national brands had back then. I actually had to fight to keep Dove soap (the category leader) on the shelves at several mainstream retailers back then.
The shift came as a result of Walmart and their highly efficient distribution system. Walmart’s claim to fame is that they can put the same product on their shelves for less money than their competition and pass the savings on to their shoppers. Retailers that tried to compete on price went the way of the dinosaurs. This forced a lot of retailers to merge and develop their own distribution capabilities in order to compete.
Category management was born as a result. Category management is the advanced business strategy adopted by most every retailer and brand. Its initial focus was on improving product assortments on retailer shelves and trade promotion efficiencies. Category management made it possible for retailers to compete more effectively against even Walmart. Some retailers however rely so heavily on the methodology that they ignore the whole reason they’re in business — the consumer. The best example of this was several years ago when Walmart decided to eliminate all but the top two brands and their private label. This move resulted in a significant drop in sales and shop and foot traffic. This is the price they paid for ignoring their shopper’s needs.
The primary strength of natural brands and retailers is their ability remain close to their core shopper.
Category Management and the Natural Channel
There is a vast difference between category management in the natural channel and category management in mainstream. This has a lot to do with the available resources for mainstream brands and retailers. Category management is virtually nonexistent in the natural channel, meaning that the natural channel has barely begun to scratch the surface of these advanced business strategies.
Let me explain. Retailers need more than a ranking report and a suite of canned topline reports. They need insights. They need brands willing and able to partner with retailers to grow category sales and profits. This is where my articles, speeches, trainings, and support come in. They are designed to help natural brands and retailers compete more effectively across every channel and in every economy. If natural brands and retailers want to compete at the same level as their mainstream counterparts then they need to adopt a more strategic approach in the way they do business.
First, natural brands need to become experts in their category, their shoppers, the competitive landscape, and their competition. They then need to help their retail partners apply those key findings to support the strategies they use. If done correctly, this will improve the overall shopper experience for consumers by giving them what they want to buy as opposed to what most retailers want to sell. This may seem like a subtle difference, but it’s impact can be dramatic.
Consider this. Retailers generically don’t make anything. They sell other people’s products/brands. Their goal is to serve their community and make a reasonable profit in the process. Their core strength should be their ability to drive shopper traffic in their stores. The brands on their shelves are the fundamental component to this strategy. True category management, as I call it, is focused on meeting the needs of the shopper first, second, and always. This means having the right selection, the right pricing, etc.
The Achilles heel of most mainstream brands and retailers is that they become very silo-ed and fixated in their application of their strategies and procedures. They tend to spend the bulk of their time working to sell the products they want to sell as their primary objective. They do this by focusing on historical information to support their future objectives.
The trends that are responsible for the sustainable growth in most every category across all channels are frequently born in the natural channel. The strength of natural brands and retailers is their ability to remain close to their core consumers and to give them what they want. Natural brands and retailers who are able to do this successfully, while not losing site of why they originally opened their doors, will continue to have a sustainable competitive advantage. Applying true category management will help accelerate the positive impact they have on shoppers and on the industry.