Big manufacturers are ‘losing sales to small firms’

The trend reflected small suppliers’ greater agility in meeting the demands of millennial consumers, Mintel’s director of innovation and insight David Jago told FoodManufacture.co.uk at the US-based Institute of Food Technology’s (IFT’s) Annual Convention and Food Expo on Wednesday (June 28).

“This will really change the food and drink industry over the next few years,” said Jago. “It means the big players will be under increasing shareholder pressure and their share of ‘voice’ in the market will become reduced.

“They may find themselves getting a little bit squeezed for shelf-space in some cases. The number one brand may be OK. But the number two brand and, certainly, the number three brand need to start watching out because they may be squeezed out by a plethora of small firms because it is simply about variety [of choice].”

A key factor behind the trend was the rising importance of millennial shoppers – with their clear food and drink shopping preferences.

The millennial shopper was very driven by new experiences – the novelty and the newest – and by healthy lifestyle foods, such as: gluten-free, dairy-free, meat-free and vegetarian.

“If we look at the little companies that have come to market in the past few years, the overwhelming majority are companies that operate in those areas,” said Jago. “So, they [small suppliers] are finding a ready market among millennial consumers and they are also finding a ready market among the retailers.”

Small brands are increasingly appearing in mainstream retail that a few years ago would have been confined to speciality channels.

‘Simply to get the millennial shopper’ 

“Big retailers are increasingly stocking some of those specialist brands, simply to get the millennial shopper through the door.

“Because if they don’t stock the latest best-selling dairy-free yogurt, the millennial shopper is not going to go to their store and if that happens, they have no chance of selling anything to them. So, it [stocking small brands] has become a sales strategy for the big retailers and it works for the consumer at the same time.”

Jago based those views on research revealing the growing retail success of small food and beverage manufacturers. Between 2014 and 2016, the number of companies launching new products went up by 40% in the UK, with small suppliers accounting for much of the rise.

When he compared the sales of big manufacturers, owning leading brands, with the overall category performance, across a range of food and drink categories over the past 12 months, Jago found, in most cases, the leading brand had performed less well than the category total. For example, if the category had risen by 5%, then the leading brand had increased by only 2%.

Leading brand performed less well 

Jago then compared the sales of the leading brand with small brands. In most categories of food and beverage, small brands out performed both the category total and the leading player.

“That information, combined with the huge increase in the number of companies that are active in the market, presents a very clear picture where we can see an ultra-fragmentation. The market in the UK is getting more and more fragmented with all those little guys.”

While a key trend for several years, eventually the cycle will reset itself, said Jago. “It will change back because the little guys will get snapped up [by big firms] or will disappear over time for different reasons. But, for the next few years, this will be a significant difference.”

Another factor was the trend post recession economic pick up, which was boosting sales.

Mintel revealed the research at the IFT17 event in Las Vegas, Nevada.

Meanwhile, read FoodManufacture.co.uk next week to learn how Jago advises big and medium-sized food and drink manufactures to fight back against the rise and rise of small food and drink suppliers.