Brand advertising and innovation create winning brands

At the recent Australian Food and Grocery conference there was as ever vociferous discussion about where the industry is headed, how you keep ahead of consumer’s shifting aspirations and what it takes to win in a dynamic food and grocery sector. The consensus view was that the level of competition and change in the industry is already at an all time high, and yet that level of competition is about to intensify further with Amazon and other disruptive change agents all queuing up at Australia’s door.

Let’s look at some of the facts; the industry grew at 3.1% last year, still very healthy by developed market world terms (US 0.8%, Europe 1.8%) but a step down from previous Australia run rates and continuing to drop through the early part of 2017. Undoubtedly environmental factors such as record under-employment, low wage inflation and rising utilities prices impacted, but the prime driver seems to have been the increased strength of discounters (up 11.3% in 2016) and private label (up 4.3%), and the subsequent reluctance of major retail players to pass on inflationary price increases to consumers. With Costco continuing to grow, further international discounters such as Kaufland on the way, and the likes of Amazon poised to shake up a fledgling online grocery environment, then it's unlikely inflation is going to return any time soon.

So in this disruptive environment how can brand owners win? This is a question I get asked time and time again and the answer I give is simply be brave, buck the trend and invest in your brand. This answer was backed up by the data presented in the Nielsen paper at AFGC where we looked at the growth rates of 230 of Australia’s top food and grocery brands over a 3 year period and identified 54 brands that had outpaced category growth in each of those years. By comparing the strategies of those winning brands versus brands that had consistently grown below category growth rates then two clear differentiating strategies emerged:

1.      Winning brands spent more on advertising and less on promotion. The numbers show that winning brands increased their advertising spend by 7% on average compared to under-performers who reduced by 6%. And in an environment where trade spend is escalating, 55% of the winners reduced their reliance on short term promotions. A little "chicken and egg" perhaps? Possibly, but inspection of the underlying data shows that many of the winners have a continuous advertising mindset and a conviction that their dollars need to work hard to build the brand and not just incentivise short term sales.

2.      Winning brands turned over more of their core range and ran harder at innovation. On average they removed items from their range worth 15% of their sales and introduced new products that drove their brand forward, often premiumising their proposition in the process. In other words they created excitement for both the brand and the category and attracted new consumers as a result.

Other factors didn’t differentiate. Not availability. Not pricing. Winning in a single retailer wasn’t a differentiating strategy, and whilst there are great examples of brands activating differently online the size of that channel currently didn’t lend itself to a significantly different commercial result. Of course Amazon may change that in due course.

So there you have it, empirical evidence of what many suspected which is that when brands re-focus on above the line and introduce choice and excitement to consumers in the form of innovation, they are more likely to win in the medium term. Inevitably the battle for ad dollars between TV, digital, print and other media will continue, but the whole industry can and should rally round this finding and align that in a disruptive era of discounters, private label and deflation it is more important than ever for brand owners to make investments that truly build the brand.