Australian television screens in the 1970s, 80s and 90s were filled with ads for products found on our supermarket shelves.
Many of us still remember the jingles and characters. “Good on you Mum, Tip Top’s the one”, Mortein’s Louie the fly, Colgate’s Mrs Marsh, and “Oh McCain, you’ve done it again” to name a few.
The ads were designed to emotionally remind you to consider those brands when you walked down the supermarket aisle. It was a highly successful brand-building formula, even more so when you combined it with some innovative new product development for the brand.
But today, these fast-moving consumer goods (FMCG) brands not only have to fight for consideration in the supermarket aisles, but also on websites, social media platforms and now on Siri, Alexa and Google Home.
In this environment, using the TV-led brand-building formula for these FMCG brands has been questioned; particularly at a time of declining TV audiences.
Millennial media buyers have rushed to shift spend toward digital and social media. But the latest research from Ebiquity shows that TV is still more effective in building FMCG brands. Digital and social are support mediums. That’s because brands need to drive not only “prompted consideration”, as consumers see them on shelves, but they need to be top of mind when consumers are asking Siri to add them to their shopping list.
The bigger watch-out for Australian FMCG brands is their addiction to price promotion.
According to Nielsen, 40 per cent of FMCG brands sold in supermarkets in the last 12 months were done so on promotion, up from 30 per cent in 2009. The research says that 48 per cent of these sales would have happened anyway, regardless of whether the product was on promotion. That’s $11 billion in sales discounting that didn’t need to happen.
That’s money that’s being diverted from advertising spend and product innovation, both of which are needed to drive the longer-term health of individual FMCG brands and the category as a whole. It’s a category that only grew 1.3 per cent in value in the last year. In the last eight years, marketing spend on price promotion of FMCG brands has increased 70 per cent, while advertising spend has decreased by 17 per cent.
As Nielsen Pacific’s CEO Justin Sargent put it: “FMCG is one of the largest categories for ad spend and yet it has also declined faster than any other category”.
Put another way, in an effort to combat the rise of low price retailers Aldi and Costco, the two major supermarkets have convinced FMCG brands to spend their marketing dollars on short-term price promotions in the supermarkets’ catalogues, rather than invest it in innovation and advertising.
According to Nielsen, the only two categories of brands to grow in value in supermarkets in the last 12 months were premium brands, which grew 5 per cent, and private label brands, which grew 9 per cent. Interestingly value, brands declined by 5 per cent over the same period.
At first glance, the private label growth is counter-intuitive. But when you consider that both Coles and Woolworths invest a large part of their own marketing spend on their private label brands - which provide them with stronger profit margins and help them compete with Aldi and Costco - it makes more sense.
Premium brand growth is indicative of clever marketing, turning what used to be commodity FMCG categories into highly profitable ones.
Twenty years ago there was a race to the bottom on prices for staple items such as bread, milk, and ice cream. Now these categories are filled with premium brands highlighting their artisan roots, health claims and/or provenance stories. A2 milk, Connoisseur ice cream, and freshly baked olive bread now find their way into our shopping trolleys, and as premium brands, commanding a premium price. They’re great examples of marketing spend used more wisely.
The Nielsen report also highlighted that the growing FMCG brands were investing in innovation and new product development (NPD). The report was also a warning to those that were taking a short term approach to NPD, and only investing in the marketing of those new products in the first year after launch. The FMCG brands that were stable or growing in the second year after launch were investing almost as much in year two as they were in year one. In contrast, the new products that were declining in sales in year two had decided to spend on average one fifth of the first year’s media effort.
The underlying source of tension is this battle between the FMCG brands’ need for long term brand building via advertising and innovation, and the supermarkets’ short-term promotional focus.
The supermarkets have developed a business model where many of the FMCG brands are paying to advertise in the supermarkets’ catalogues, paying to cover the constant price promotions being offered, and paying for preferred shelf space in the supermarket aisles. And as the supermarkets have convinced the FMCG companies to shift their marketing spend from long term brand-building to short term promotions, they have been cultivating profitable private label brands of their own.
Unfortunately this has left many FMCG companies feeling as though they could no longer afford to invest in advertising and innovation to build their own brands.
The Nielsen report highlights that not only has this had an effect on many FMCG brands’ growth, it has also wasted $11 billion of their marketing investment on promotions.
It is the first time a report has called out the overall financial impact of what thousands of FMCG brands have felt individually for some time. The positive is that there is a clear way forward that will benefit both the supermarkets’ and the FMCG brands’ growth and profit aspirations. And that is for the FMCG companies to once again have the capability and confidence to use advertising and innovation to build their brands.
