Our shopping behaviour has changed massively as a consequence of COVID and it is showing no sign of returning to the previous norm.
We used to spend 30% of all our food expenditure out of home in restaurants, cafes and fast-food outlets, but during lockdown, the majority of this spend switched to the supermarkets as home eating became the dominant option.
And during this change, many individuals discovered a love of cooking which has remained part of their daily lives.
With a large percentage of the population still home working, and buoyed by shorter working days due to the absence of the daily commute, this additional free time has resulted to a large-scale switch from eating out to eating in.
This has resulted in another change – local has become the new urban, and the multiples and convenience stores have recognised the increased value in smaller, local brands as spend shifts from cities to towns and villages.
This shift is also a response to a growing demand from consumers who are increasingly concerned with authenticity – seeking out ethical, sustainable products produced by local farmers and producers and in doing so, also supporting their local community.
And whilst historically the multiple retail chains were uninterested in small businesses because there was a belief that they could not supply on the mass scale needed to fill the shelves of the national chains, this is no longer the case for businesses with the potential to become mainstream, nationally distributed brands.
These massive, societal shifts mentioned above has seen an acceleration within the major retailers towards listing start-up stage businesses as it is now recognised that new, entrepreneurial brands can bring diversity and innovation to the shelves – as demonstrated significantly within the vegan category for example.
As a consequence, Tesco, Sainsbury’s, Asda and Morrisons have set up special schemes to attract new brands, providing guidance through the process and offering preferential payment terms – encouraging local suppliers with mass market potential to start close to home as a springboard to gaining national distribution once established.
Increasingly both regional and middle managers have a say in the brands they will stock in their local stores, meaning the dominant retailers are more localised than ever before, providing a viable route to market for emerging start-up brands.
By stocking products from local producers, the multiples can retain consumers who might otherwise be tempted to shop elsewhere and can make themselves a destination store for key customer group targets.
And by shopping at stores stocking independent brands, local-minded consumers can support their community and carrry out their weekly shop all in one place.
But what are the advantages and disadvantages of approaching the major chains?
- Higher sales volumes.
- The potential of nationwide distribution for your product if successful at a local level.
- Banks and factoring companies are more willing to support customers who have a supply agreement with a major customer.
- It’s less complex and cheaper to deal with one or two large customers rather than a myriad of smaller accounts.
- Your product achieves instant visibility to potential purchasers.
- Your marketing spend becomes more effective as more consumers have the opportunity to buy your products having seen your promotional activity.
- You will need to put in place robust systems to ensure standards compliance and uninterrupted product supply. (They are very unforgiving if you experience supply chain problems and fail to fulfil orders.)
- Relying on one large customer can leave you vulnerable if they put pressure on setting your prices and margins.
- You will be expected to fund price promotions and marketing activity to ensure that you drive sales.
- Working capital and cashflow demands which need careful attention.
Having worked with a myriad of entrepreneurial food and drink sectorbusinesses, I have long advocated a ‘big bang’ approach for appropriate businesses rather than ‘start small and grow’ as I believe this is a fundamentally flawed approach to launching a mainstream, successful food and drink business.
This is because the sector is ultra-competitive with net profit margins at a sector average of just 9.7%. As such, sector businesses need scale to grow and thrive – starting small nearly always results in monetary spend exceeding revenue which can see businesses becoming financially challenged very quickly, and long before they have become established and achieved sales of any scale.
This is why I believe in my ‘Walking Backwards’ approach to creating and launching successful food and drink brands. If you’d like to find out more, ping an email so we can schedule a call.