Food firms look to sell direct to consumers - Supply Management

Food firms look to sell direct to consumers

12 March 2018

Food manufacturers facing increased competition from grocery stores own-brand products are moving to “cut out the middle man” and sell to consumers directly. 

Speaking during a webinar on future US food tech trends, Zoe Leavitt, senior intelligence analyst at CB Insights, said one of the major ways grocery chains would compete is through the expansion of their private labels.

“Private labels of course are the store brands that have been sold by grocery stores for decades but in 2018 major chains such as Kroger and Walmart have discussed that they plan to invest heavily in their private label options to differentiate themselves from traditional competitors,” she said. 

“This is not a strategy for only brick and mortar retailers either, we also see online marketplaces and e-commerce platforms beginning to roll out their own private labels – Amazon has been growing its private label brand Happy Belly.”

Leavitt explained that food brands such as Procter and Gamble, Kellogg’s and Unilever, who previously considered grocery stores to be their biggest clients, now see the same stores becoming their biggest competitors. 

“Just recently we saw that Campbell’s Soup reported declining sales because they were unable to reach a sales agreement with Walmart as Walmart had expanded its own private label and emphasised those products in stores, leaving less room for Campbell’s s on the shelves and changing into a direct threat to Campbell’s sales,” she said.

She said as grocers move into brand’s turf by releasing their own private label products, food brands in turn would move into the grocers’ arena by taking control of their own distribution channels and “cutting out the middle man”.

“One of these strategies is e-commerce – many food brands have historically not sold their products online and they have relied on grocery stores but that is beginning to change and for many of these traditional brands that have not built up their e-commerce platforms, partnering with Amazon can seem like a ready-made solution,” she said. 

She cited Tyson Foods, Pepsi and Unilever as brands that had already partnered up with Amazon and immediately gained access to its infrastructure and customer base, but warned that Amazon too would soon be pushing their private label products. 

She said other options brands were looking towards to pull away from their reliance on grocery stores was partnering up with tech companies or acquiring startups that already have direct consumer distribution platforms setup. 

“There are some pretty well funded tech companies like BigCommerce and Magento partnering up with food brands and other all-in-one solutions to set up their own e-commerce platforms to sell products directly to consumers online,” she said.

“We also see food brands experimenting with new offline sales channels that again give them more control over the means of distribution by investing in acquiring startups that already have direct consumer distribution platforms set up. “

She added: “Smart home technologies are relatively in their early stages but will offer food brands new ways to reach consumers directly, independent of grocery stores or even online platforms.”

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