Blog

True-product-innovation-is-the-key-for-retailers.png

‘True’ product innovation is the key for retailers

It’s a frightening statistic that of the c. 10,000 new food products grocery retailers see each year, only 8% will be successful one year on. Just imagine how much time and effort is wasted on the 92% of unsuccessful products.

The obvious question is, why is there such a frightening failure rate? In most cases it is because the products being offered are not ‘truly innovative’ instead they are merely trying to steal shares from another supplier. This means the retailer will reject them because they are not going to grow the category for the retailer or supplier. This scenario was illustrated by James Bailey – Trading Director for Sainsburys when he told suppliers at the IGD conference “stop trying to steal from each other and actually innovate.”

But let’s just look at this for a moment; what does it take for a product to be ‘truly innovative’?

Personally, I think it needs to satisfy one or both of the following criteria’s: -

  1. Increases the value of existing usage occasions
  2. Creates new usage occasions for consumption

The ‘Big 4’ grocery retailers (ASDA, Morrisons, Sainsbury’s, Tesco) need products to be new and distinctive that increase opportunities for consumption, as they face fierce competition from the disruptive but increasingly successful discounters. Analysis shows that of the thousand plus branded packaged products sold by the ‘Big 4’ a colossal 84% can be classified as ‘sold everywhere’ products. Therefore, only 16% are truly ‘distinct products’ to that retail brand. In comparison, the discount chains have only 45% of packaged products that are ‘sold everywhere’ and therefore 55% are distinct products. If you then compare the prices of these ‘sold everywhere’ products the ‘Big 4’ has an average selling price of £1.23 versus the same products at the discounter with an average selling price of £0.94; that is a difference of -31%.

This is causing retailers to rethink how they classify their brand portfolio. They are encouraging innovation amongst suppliers to approach them with products in new brand categories that will increase their ‘uniqueness’ and scope for a differentiated offering from their competitors. These new emerging growth brand portfolio’s, can be summarised as:

Private Label – Supermarket own private brands will continue to be an important growth area and provide opportunity for both the supplier and retailer to be distinctive. This differentiation enables the retailer to distinguish their offer and control price and margin. These brands are no longer seen as inferior to the national brands and premium own brand products are the area of most growth within private brands.

Co-owned Brands – These are growth brands that are keeping the suppliers name and therefore reducing complexity for the retailer. However, they do have a degree of exclusivity that the retailer can exploit.

Challenger Brands – These are new and highly innovative ‘growth’ brands sometimes called ‘disruptor’ brands, that can grow a category or create a new sub category. i.e. Red Bull changed the market for soft drinks by creating energy drinks.  Retailers are actively seeking more products in this brand category.

Commodity Brands – Whilst these lines are popular staples for consumers it does not look good unless they can ‘truly innovate’. They are likely to decline and ultimately will be replaced by newer brands from the above brand categories.

There is also evidence that the increasingly important new generation of ‘millennial shoppers’ have a mistrust of the established commoditised brands. They are looking to replace them with new exciting products, with better claims for attributes like: health, provenance and sustainability.

In many cases the replacement brands will not be cheaper but indeed premium priced as the previous examples showed, but customers are prepared to pay more for:

  1. Taste – better new taste, from higher quality ingredients or better recipes e.g. Haagen Dazs salted caramel ice cream, created a new ‘restaurant’ style for luxury occasion at home.
  2. Experience – A product that delivers a new or better experience. e.g. Nespresso home coffee; whereas a cup of instant coffee costs 4p, Nespresso sells for closer to 25p per cup, and has been a great success as consumers will pay more for the ‘real’ espresso experience.
  3. Convenience – It’s ironic with all the cooking programs on TV every night that consumers want simpler, easier to prepare meals. i.e. Traditional Dried Rice sells for 2p per serving, whereas new Microwavable pouches are > 50p per serving but convenience wins the price war with ease.
  4. Health benefits – In many cases the health benefits are often perceived rather than proven but consumers will pay more i.e. whole white milk is 44p / litre, whereas ‘Health’ Milk is £3/litre.

What is very clear is that the ‘Big 4’ retailers are challenging their suppliers more than ever to create new and exciting products, but in most cases they continue to fail. Therefore, there is an urgent need for suppliers to work even closer to their retailer customers and share information, insights on consumers preferences, track trends and opportunities for innovation.

S4RB as supplier engagement specialists have a series of tools and services that help retailers to consolidate and share data with suppliers to make collaboration on NPD and innovation easier so that new products opportunities can be identified and acted upon efficiently and productively.

Team S4RB

marketing@s4rb.com

Share this blog:
 

Leave a reply

Subscribe to our monthly blog digest

Recent posts