Tough times for food and beverage premium brands

National food brands are struggling due to inflation, losing market share to cheaper private labels. Consumers question their value proposition and transparency, while retailers have become more vocal. National brands need to justify their prices, rebuild trust, and communicate effectively to stay relevant. What lessons can be learned from winning brands?

The food industry saw high inflation in 2023 (+11.9%) and 2022 (+7.3%), driven by value growth across most categories. However, volume growth is almost exclusively in "pleasure" categories like chocolate and confectionary from brands like Ferrero and Mondelez. The biggest winners are retailer Private Labels, with sales up 11.7% in value and 2-3% in volume.

What lessons can be learned from this?

Due to higher prices, national brands have lost proximity and undergone a “de facto premiumization” compared to Private Labels and discount brands across all tiers. This disrupts brand portfolios and purchase habits in several ways:

  • Higher costs for familiar products don’t seem justified without visible added value like recipe improvements or innovations.
  • By switching from national brands to Private Labels, the belief that the former are superior quality has eroded in most categories. Consumers realised there wasn’t a huge abyss between them. Private Labels capitalised through sensory improvements and retailers' quality commitments.
  • The drop in innovation rate among national brands penalised them further by lacking renewal and excitement. As a result, mainstream national brands, with few exceptions, are struggling to find their place.

Trust has also eroded. Highly publicised tensions between manufacturers and retailers have tarnished national brands' image, making them appear opaque and dishonest around issues like shrinkflation, cheapflation and greedflation. Sixty-three per cent believe product quantity decreases when price doesn’t increase – a practice 67% see as unacceptable. Worse still, 71% believe big brands’ profit margins are a main inflation driver. Agriculture protests have highlighted price differences between production and retail. Consumers increasingly question the truth and value behind national brand pricing, but brands don’t help to provide answers.

First, national brands reduced advertising investment, decreasing brand presence, consideration, proximity and empathy.

Second, retailers are communicating more via massive ad campaigns and media appearances, positioning themselves as consumer champions.

Finally, national brands aren’t participating in public debates around inflation and rising prices – the top consumer concern for two years.

National brands face three challenges:

  1. Justifying higher prices while avoiding inadvertent premiumisation
  2. Avoiding vilification when the landscape is stacked against them
  3. Regaining thought leadership so their messaging resonates vs. being perceived as "too little, too late"

So, in summary, national brands are caught in a perfect storm of value shifts, stagnating trust and reduced share of voice. They risk irrelevance if they don’t take decisive action on pricing, transparency and proactive communication.