The brands are trapped

16th July 2018

Jean-Louis Richard, Senior Financial Analyst

For decades producers of consumer products have worked hard to build as strong brands as possible. Recently Nestlé listed all its brands with turnover over one billion. In the supermarket shelves known and recognised products must establish themselves with consumers overwhelmed by choice. To achieve this, companies are willing to invest considerable amounts of money in marketing. L’Oréal for example invests one third of its sales.

This model is now questioned by two independent, even opposite, tendencies. The first is the success of regional brands. One typical example is the success of craft beers, a real headache for the global giant in the sector, AB-Inbev. A new generation of consumers has started to prefer beer locally produced in small breweries. In the Emerging Markets, local brands are blocking large multinationals, which see their growth melt away. These regional products are closer to the taste of the consumers, cheaper and have an equal quality. The large multinationals are still looking for how to deal with this situation, while a new threat has appeared: Amazon.

The online book seller has transformed to become a giant retail distributor. In its virtual hypermarket, Amazon suggests to the consumers which brands are the most pertinent, of which one more and more often will be its own. With the system of shopping lists, consumers are lead to make repeat purchases. This increases the risk of a reduction in the number of suppliers. In this environment, the brand and the producers loose power in favour of the distributor, Amazon. Trapped between their regional competitors and the internet giant, the large multinational producers feel that they are standing at the verge of the precipice.