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by Strategy&, part of the PwC network

Taking on challengers: how established consumer goods companies need to rethink their strategy in an evolving market

Large, established brands must adapt and innovate as niche players pick off consumers.

For big, established consumer-products manufacturers, growing - or even just maintaining - market share has become a bigger task than ever as the rise of so-called challenger brands make inroads into mature markets.  

In the UK, a maker of tonic water called Fever-Tree has muscled its way into the premium drinks mixers market; craft-brewers - such as Scotland's BrewDog - continue to wrest market share from producers many times their size; and Juul, an electronic cigarette company, has seen sales explode in recent years. 

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According to data analysis from Catalina, a Florida-based marketing services company, leading brands across 14 product categories have lost market share in recent years - and 90 of the top 100 consumer-packaged-goods (CPG) brands have experienced declines.

"Emerging brands have historically been more focused on emerging shopper needs, lifestyles and preferences - and were more niche than the scaled, established brands," says Marta Cyhan, Catalina's chief marketing officer. "But now the niche trends are becoming the norm and there's fierce competition out there." 

Newcomers are competing across geographies and markets, often proving more effective than their bigger, older and more-established rivals as they respond to shifting consumer demand.

Andre Medeiros, a partner at Strategy&, PwC’s strategy-consulting house, says that these younger, more agile companies have often been quicker than incumbents in terms of coming up with new ways to reach the consumer - both via the physical delivery of products as well as emotionally via customer engagement.

"The global brand universe is being fragmented by more targeted brands," he says. "You are not conquering the world with one monolithic brand anymore."

Strategy& partner André Medeiros evaluates the threat of challenger brands

Examples abound. UK-based Graze has barged its way into the snacks market in recent years, offering consumers fresh and healthy alternatives to brands that have been around for decades. Dollar Shave Club, now owned by Unilever, started out life as a start-up that successfully took on Gillette and Schick by supplying consumers with razors direct to their door. 

Halo Top Creamery, a low-sugar, California ice-cream maker, captured more than 4 per cent of theg US market in less than six years, wresting consumers away from much bigger brands such as Ben & Jerry's and Häagen-Dazs. 

"There has been a move away from 'bigness' for several years now," says Anthony Dukes, professor of marketing at the University of Southern California's Marshall School of Business. "There is a desire for more local, and supposedly more 'authentic' brands, and that is a real thorn in the side of big companies."

Complicating matters, the rise of the challenger brands comes against a rapidly-changing backdrop of regulatory trends, often around sustainability, as well as shifting consumer tastes and expectations that have implications for the wider value chain. 

"The threat from challenger brands is about innovation in product development and marketing but there is also a more systemic enterprise transformation at work," says Colin Light, a partner at Strategy&. "This includes the way you manufacture, how you manage the supply chain and your route to market."

In different times, big brands might have been able to offset this new wave of competition using their global reach and distribution networks to expand into emerging markets. But the global economy is slowing, and many emerging markets that offered consumer products manufacturers double-digit growth before are now becoming mature themselves. 

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As Medeiros notes, "the distinction between emerging and mature markets is no longer as important as it was".  

What can the big brands do to fight back? After all, and as Richard Taylor, analyst at Morgan Stanley, told the FT, "large, fast-moving consumer goods companies are highly skilled at executing known business models but their record on true radical innovation over the past 20 years is downright dire".

Strategy& partner André Medeiros explores how established CPG brands can keep their competitive edge

Ira Kalb, Assistant Professor of Clinical Marketing at the University of Southern California, offers a cautionary note to the threat of smaller companies. For a start, he says, there are hundreds of failed start-ups in the CPG space for every one that has proved successful. That’s a reminder of how hard it is to compete. 

He also says that CPG start-ups often encounter problems when it comes to growing their products after launch. "A lot of smaller companies really don't know marketing at all," he says. "Big companies have something to fear if the smaller brand is good - but then they can always try to buy it."   

That is the route Unilever took when it snapped up Dollar Shave Club for $1bn in 2016 - a price tag that was five times the target company's expected revenues for that year. 

By acquiring the company, Unilever avoided the fast-growing shaving company falling into the hands of a rival. Perhaps more important, argues Medeiros, it acquired an asset from which it has learned. "It has taken Dollar Shave Club's subscription model but also its customer engagement, and applied those practices to its other brands," he says. 

Another way to take the fight to challenger brands is to focus more on product development, for example by offering retailers such as pubs or bars the full gamut of products that would eclipse smaller rivals' capacities. As Light of PwC says, "that is exceptionally hard to replicate for others". 

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A third strategy is to deepen customer engagement, such as by deploying direct-to-consumer, or subscription services. Loop, a start-up that offers consumers delivery of everyday essentials in packaging that is returned to Loop for reuse and resale, has already signed up more than 20 established brands, including Pantene, Crest and The Body Shop. 

In a world of quickly changing consumer preferences, it is clear that established brands have their work cut out. But as Medeiros says, "the players that are innovating now to seek out growth are the ones that will ultimately win".

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