Should we worry for the future of International A-brands?

It looks like leading International A-brands in particular are currently becoming more and more under siege. A development that is of potential concern given that the NPD power of these type of brands is highly important for the general future of the food sector (both for retailers and for suppliers). Should we therefore worry?

In these times of high inflation and tight budgets, consumers are exchanging A-brands for Private Label products on a large scale. This is also influenced by the fact that more often independent product tests by local consumer organizations show private label products as the clear test winner which each time puts further pressure on the perceived intrinsic value of competing A-brands. The actual rise of new, modern, more intensive and effective, cross border, buying organizations is a further threat for suppliers of leading International A-brands. The main reason why leading Dutch retailers like Albert Heijn and no 2 Jumbo Supermarkets recently announced becoming members of different modern International buying groups (Albert Heijn in Eurelec, together with Rewe and E. Leclerc: and Jumbo in Everest, together with Edeka) is fundamentally to increase their commercial position vs. the leading A-brands.

The fundamental answer that A-brands could give to these threats is to develop real innovations. However, A-brands are facing two main issues here.

Firstly major innovations often take place in chilled and, apart from categories like dairy and meat replacers, often A-brands do play a more limited role in these categories as retailers increasingly claim these categories for private label. Secondly, once innovations are being launched they very soon get duplicated by a private label or budget brand.

This has had a negative impact on the real NPD launches undertaken by A-brands in the last few years. Looking at innovations at the last Anuga most of these could be summarized as “more of the same”. Most of these could be clustered for a number of years under trends like “more healthy, clean label and plant-based” but nothing fundamentally beyond that. Real fundamental innovations like in the past Yakult and Becel Pro-Activ are missing in the current climate but would be vitally important for the food sector (retailers and Industry together) to drive the future volume growth in the food sector but also in order to safeguard the future profit contribution potential of the sector.

It therefore is a very fine balance which international retailers are facing in dealing strategically with A-brands. On the one hand the increasing trading friction leading to further promotion of PL’s and stronger international negotiations vs. the need for A-brands to maintain substantial minimum volumes in order to finance the much needed core R&D investments.