3 DECADES – 3 SESIMIC POWER SHIFTS IN RETAILING AND HOW IT HAS AFFECTED CPG COMPANIES

Author: Terry Berg

There have been 3 titanic shifts in the balance of power in the retail marketplace that have profoundly affected the advertising, distribution, and promotion of CPG brands in North America. Retailers and manufacturers only have 2 choices on how to deal with these power shifts: #1.  Ignore the seismic power shifts and risk extinction #2.  Embrace the seismic shifts and let that be what drives your company’s next level of growth.

What are the seismic power shifts?

The 80s 

At the beginning of the 80’s, manufacturers had the power. There is no better example of that than looking at the top companies on the Dow by the end of the 1980’s.The top 5 companies were all manufacturing companies; not one single retailer was in the top 100 based on NAV.  There were CPG companies in the top 100 whose names you are familiar with including: Procter & Gamble, 3M, Coca-Cola, PepsiCo, and Johnson & Johnson.  There were also names of companies you might remember including Eastman Kodak, Nabisco, Fortune Brands, Beatrice and Norton Simon.

Manufactures wielded their brand power and scale to what was then a fragmented retail landscape.  In 1985, the epicenter of the second great power shift emerged in the unlikeliest of places, Bentonville, Arkansas, with what was then an 800-store regional chain: Walmart.  In 1985, Walmart mandated that all products shipped to a Walmart store must include a UPC code. The power shift started accelerating.  By 1988, 90% of all Walmart stores had bar code scanners and in 1989 Walmart, which had approximately half the stores of the largest retailer in their competitive space (Kmart), became the # 1 retailer in the world based on profit.

The 90s

The power shifts to the retailer –  and a global marketplace emerges.  By 1990, one third of US retail sales came from what was then referred to as ‘category killers’ Malls, specialty stores, grocery stores, and drug stores, understanding they could no longer compete on price, started to emphasize the ‘quality of the shopping experience’ and the in-store environment.  In 1995, Amazon sold its first book, which was the beginning of another seismic change. By the end of 1999, brick-and-mortar retail accounted for 20 billion (59%) of total online sales dollars. The distribution, sales, advertising, and promotion of CPG companies started to dramatically change as retailers started to make fact-based decisions based on POS\scan data.  With POS and scan data  now putting the retailer at the forefront of understanding consumer behavior, CPG companies built silos  around their marketing department and viewed the retailer as a necessary evil in marketing their goods and services to the consumer, now wanted to ‘partner’ (or risk getting crushed by those who do ‘partner’).

By the end of the 90’s there was only one manufacturing company on the Dow that ranked in the top 5 based on the NAV – GE. Walmart was ranked #3 on the Fortune 500.

The 2000’s

The power shifts to the consumer. 4 of the 5 most valuable companies based on NAV on the Dow are now technology stocks: Apple, Alphabet, Microsoft, and Facebook . There is one exception and it is a retailer that is ranked in the top 5. A new kind of retailer – Amazon.

CPG companies that were following the largest, most influential  segment of the population into their golden years and a traditional model of distribution through food/drug/mass, were suddenly were confronted with a fundamental paradigm shift in their business.  The post baby boom generation (millennials and Gen “X” and “Y”), who are sometimes referred to as the ‘most entitled generation’, are now starting to outnumber baby boomers.  As the manufacturing sector went from 25% of jobs in the US to 5% over the last 30 years  – the post baby boom generation endured 3 decades of stagnant wage growth. As manufacturing jobs left the US and wages stagnated, post baby boomers were encouraged to go to college and get a 4-year college degree. When they started to graduate with six-figure debt burdens, they were confronted with a global recession.

These post baby boomers (millennials, Gen X, Gen Y), who were also considered the most ‘connected’, their economic power, shopping habits, and consumption of goods and services differently than baby boomers.  The post baby boomers grew up in a social media driven environment where their friends and individuals within their peer group openly display their lifestyles and financial milestones.  This generation gravitates to better brands and services, but how they access these goods and how a brands communicates with them is profoundly changing the retail landscape, particularly in the beauty sector.

While department stores remain the preferred venue for assessing the upscale brands and services of the baby boomer, Simon properties a R.E.I.T., that by law must pay out 90% of its income as a dividend, has not even paid a dividend in 2017. Macy’s in the is in the middle of a financial restructuring. It is estimated that 70% (top 75%) of all malls are in financial distress!

There are also new retail powerhouses that have emerged in the beauty space – Sephora and Ulta.  While both of these retailers are successful in their own right, it is Ulta’s ascension to the top the # 1 retailer of ‘Masstige’, that makes them particularly unique and formidable.  These new, formidable beauty retailers have a significant post baby boomer consumer base, which puts the brands marketed in these retail venues in a very unique and different position than the ‘baby boomer brands’. The post baby boomer consumers are most influenced by social media, on line research, and in store beauty advisers that work for all brands, not the brand specific beauty advisers that are in department stores!

Suddenly, where a brand is launched or the positioned  is driven by economics, not optimizing consumer research! There are many cases where a ‘MASSTIGE’ beauty brand following a more curated distribution model through the use of social media will get a greater  share of voice marketing to millennials, Gen X and Gen Y , than a large CPG company making a brand launch in FDM and spending 20 to 30 million dollars!.

The Future

Another seismic power shift is inevitable and is happening now, what will it be?

Is it possible that the next seismic power shift will be a transfer of power to small business? MILLENIALS, Gen X, and Gen Y will not tolerate the economic oppression they have endured for the past 30 years. They are highly educated, connected, and worldly consumer groups. In their quest for economic parity with their parents and because of the lack of job availability, post baby boomers will be the greatest entrepreneurs. With the ability to globally source on a laptop —i.e., Alibaba, this generation can now source with almost equal economic power as a large multinational corporation! Will UBER and LIFT transition to become a scalable on demand logistics company even delivering the mail?

FOR THOSE WHO STRIVE TO SEE THE FUTURE, LIES BOUNDLESS OPPORTUNITY!