B. Gildenberg: Welcome to the MPG Path Forward podcast. In today's episode, we're diving into the intriguing world of the Complex Grocery Channel. We'll be exploring the latest trends, sharing valuable insights, and discussing the key growth drivers in this dynamic and ever-evolving channel. We’ll also be delving into the strategies that are truly effective in driving sales and profitable growth in the current year. This channel has always been highly complex, and now, it’s undergoing significant evolution. Marketers and salespeople are facing dramatic shifts in consumer behavior and preferences, and an economy that's navigating the post-hyperinflationary world, with persistent pressure on shoppers and retailers.

 

For those of you I don't know, my name is Bryan Gildenberg. I am the host of the Path Forward podcast series, also one of the CPG Guys, and the managing director of Retail Cities North America, among other things. Today, we're going to sit down with Market Performance Group's EVP Chris Skyers. A former Wakefern executive known for his success launching and growing banner brands such as ShopRite, Price Right, Fresh Grocer, and Dearborn Market, he spearheaded the reinvention of Own brands through the launch of the Bowl & Basket and Paperbird brands and the refresh of the company’s better-for-you brand, Wholesome Pantry. We're joined by MPG's head of Strategic Food, Mike Sainsbury, who previously was the head of the perishable unit of Own brands at Wakefern, overseeing produce, meat, seafood, bakery, food service, and deli.

Together, these two, with their many years of experience in the Grocery Channel, will help us navigate through today's topics. 

 

Let’s dive right in to keep this thing zippy and moving. Look, we’ve all just come out of NACDS Annual and Chris, you’ve had a lot of conversations with clients in this space. The topic of the day is still, first and foremost, around unit growth. What do you think are some of the key pathways to unit growth in this highly competitive, shifting environment? How do you think about this for clients?

 

C. Skyers: You're absolutely right, Brian. Coming out of the Annual, the topic of the day from most, especially those on the food side, was around how to drive unit growth together, whether it's a client partner or a retailer partner. And partnership is the key word. That’s what's going to be required. There are three ways to drive unit growth. If you're not innovating, or you're not driving through additional marketing spend, then it's good old promotional activity.  You’ve got to think: What's your trade spend and how do you allocate that trade spend accordingly? It’s really around understanding where you are on that journey. If you're a brand and you don't have a lot of strong innovation, the investment in marketing may not be enough to get your baseline moving in the right direction. It really comes down to smart promotional spending. And the key is “smart” because what you don't want to do is go back to the days when the promotional calendar was just fully saturated. There's this opportunity to find the right balance based on where you are. The retailers are absolutely going to push you to drive greater promotion if you can't show a healthy baseline growth coming through marketing or innovation. So be very transparent about where you are and then work with that retailer, because the key is to get those non-working trades over to the working trade side of the business.

 

B. Gildenberg: Yeah, and my key to this for anybody old enough to remember is that my favorite Rolling Stone song is not “promotional rescue,” but that's what the retailers are looking for right now. And I think COVID gave us a unique opportunity to get out of some of that, honestly, some really unusually non-strategic promotional spend in the CPG environment. And unfortunately, I think right now the retailers are trying to pressure basically to get back to almost pre-COVID levels of intensity and activity.

 

C. Skyers: Yes, but I think if you can show that you do have the ability to move the needle, the retailers will be more willing to move some of that non-trading work over to the working side. The key is, is there incremental lift with your brand if it goes on promo? And sometimes, the retailers are even willing to partner with their own investment to help you drive that business.

 

B. Gildenberg: Yes. Mike, what’s your perspective?

 

M. Sainsbury: We're seeing more and more push from the retailers to start leaning in and drive that unit velocity through promo. So, it can be a slippery slope, right? Because we know we're going to be asked to cycle that in the following years. So, you've got to be disciplined with your approach. You've got to make sure you follow sound financial fundamentals. And as much as you want to lean in, there are going to be limits to it, especially when you're also considering your total spend, which I know we're going to talk about specific to digital and omni. But also, how does traditional promo fit into that as well? You're going to really want a comprehensive approach by retailer and also make sure it's tying into the fundamentals of your business.

 

B. Gildenberg: Yes, agree. Seems like a good time to shift the conversation to the digital and the omni world as we think about that. Because, when you look at digital and omni today, there’s a couple of good things to keep in mind. By 2025, digital grocery is going to be a $250 billion market in the US, increasingly for retailers, as Ecom sometimes is getting up way north of 10% of business, but also, you've now got the Instacart factor involved as well, where for some grocers, almost half of the e-commerce volume is actually not their volume. It's in store volume, but it's being picked and sold via Instacart. That creates its own set of complexity in terms of how I need to think about promotional funding via Instacart to drive e-commerce volume in a grocery store. And the credit that the merchant gets obviously for the sale, but not for the promotional spend, then that starts to wander into the retail media conversation where every supermarket chain in America is now proclaimed themselves a media network. And they're presenting not just an opportunity to spend trade dollars, but brand dollars as well. So given that sort of snowstorm of stuff, how do you think suppliers need to look at digital spend versus brick and mortar? And how to think about this, how to plan for it, how to balance it?

 

M. Sainsbury: It's a complex question, Brian. When you think about it, you would say follow ROI, right? Let's look at our return on investment and what's given us our biggest bang for our buck. But we know digital is still in the early days and it's got to be part of your strategy. So you can’t just look at an ROI because we know in-store is likely going to beat out any digital performance right now. However, we know everyone's going to be moving towards digital and that's where the consumer journey really begins. So you need to really balance that portfolio and be able to lean into digital, but not at the expense of driving your promo. And so, speaking out of both sides of my mouth, we also know we're trying to drive units with the retailer. It’s becoming more and more complex -- trying to drive units where in-store promotion is probably going to win out of your trade dollars versus some of your digital.

 

So how we're looking at it is just making sure that we're starting with the basics in terms of digital, making sure the digital shelf presence is 100%, making sure that we're showing up online the way we want to be perceived. But that's also flowing to store. So it's a comprehensive experience. Whether you're online or you're in-store that's seamless. From there, you start building upon those fundamentals with retail media. So you have a look at your national media and maybe you've got some gaps where it makes sense to partner with a retailer media network.  Whether that's Hy-Vee launched out in Des Moines or Wakefern in the Northeast, I think there's a time and place for it. But it really comes down to looking at your resources and then optimizing the allocation based on where you're going to get the biggest bang for your buck.

 

C. Skyers: I think Mike said it well. And the only thing I would say is, this is a “measure twice, cut once” conversation with the retailer as a manufacturer or client, you want to make sure that you're a part of the JVP, the annual planning. Or, if you're not large enough to be a JVP partner, that you at least have annual planning at the category level. Because if you don't go in with a very specific plan around how you're going to spend from a digital aspect, in terms of what you're going to spend online versus brick and mortar, you're going to be pulled in many directions from the category manager, and you're going to be willing to pull yourself in many directions based on where you think the ROI is going to come from. So that's why I think you have to play a long-term strategy, where digital and media do play a role. However, if you pull the short-term lever -- let's allocate some to trade, to spend, and to promo -- the retailer may initially be very, very pleased with that. But long-term, you'll end up hurting yourself as well as that retailer's ability to stay current with where the consumer is going today. So it's a careful balance. What is most important is that annual planning process,  so that you have no surprises as you get to mid-year.

 

B. Gildenberg: I think one of the things that I've learned, and I know what MPG does consulting with clients on integrated business planning, is the need to get everybody in the same planning process while also dealing with an enormous vocabulary and capabilities question, particularly when you're trying to bridge the gap between the trade world and the media world. There's so much jargon that people on both sides of that fence are unaccustomed to, right? Some don't know what some of the media acronyms are. Media teams don't really understand how a commercial plan is built. There's an enormous amount of internal education that needs to go on to get a joint business planning session where people actually even understand each other. And then from there, once everybody kind of understands what the other one's talking about, you can start to take a look at wiring some of that together.

 

And, you know, your colleague, Larissa Dannenberg, has done some nice work on this with clients. Once you get that sort of common frame of reference you can pull together these integrated joint business plans a little bit more seamlessly, to create more of a seamless experience for the shopper through digital and omni.

 

The other piece I've observed is that the retailers themselves are in different places on this front, just in terms of what they know, what their capabilities are. And size is not the determining factor. I mean, we talked about Hy-Vee earlier, but Red Media is a pretty sophisticated media offer. So, you know, if you put the Red Media team in front of a media buying group, it'll make sense to them, whereas maybe some larger supermarkets with a broader reach may not have the same media capabilities. And then you've got Wakefern, who's got a different approach to this, because of the way they're trying to wire together the way that they plan the in-store and the online components. So, it's not just one approach either, right? So, you've got to kind of have a little bit more of a tailwind approach by customer where you need it. Does that make sense?

 

C. Skyers: Yes, absolutely. And if there isn’t alignment on the retail side, if there's a gap in the leadership around driving the sales side of the business versus the marketing and digital sides of the business, it becomes very, very difficult for brands to succeed. But when there's a chief growth officer or chief sales officer that has both the digital side of the business and the brick and mortar reporting into them, I think you see a lot more synergies around how to drive both, versus the silo created when you don't have those together.

 

B. Gildenberg: Yes. What I think the other nice thing on the MPG side is that you also have a very robust eCommerce capability, and they can help clients bridge that gap, which is great.

 

So, now let's talk about some of the outcomes of that in terms of the divide between cost and convenience. Are grocery shoppers still primarily price-motivated? Are they thinking about other things? What's working in terms of how to reach the shopper, be it within the store or digitally? What are the messages that are most receptive to hearing?

 

M. Sainsbury: Great question, Brian. I think it comes down to value perception. I'm always reminded of that saying, “Price is what you pay, and value is what you get.” I think that rings true, particularly now with inflation. Price is obviously always going to be a key determinant of a purchase, but I think value -- the consumer's values, what is important to them, the experience -- are also critical to the shopper journey and what that path to purchase looks like. Again, price is a big determinant, but values, the experience, and what the consumer is getting along the journey, whether it's some sort of intrinsic value or ease of shopping, is equally important. It can outweigh the price consideration a lot of the time.

 

C. Skyers: Yes. Just to add some color to that, I think having a retailer that can provide choices for the consumer is important, because you can have a consumer that's basically a mid-income consumer spend like a high-income consumer, depending on the product. So, depending on where the shopper is in their journey, you have to have a portfolio that can help to deliver against that shopper. That's why own brands continue to be a big play here and retailers that have developed an own brand offer that choice for the consumer. We’re seeing a lot of retailers now moving to have their own brand and one or two other brand choices. I think your Gen X and Gen Z consumers are all looking for more choices.

 

M. Sainsbury: I want to piggyback on what Chris said. When you speak of “own brands,” it's important to understand these are not just the “me too” products of the past. These own brands are creating inspiration. We know what we were able to do with Bowl and Basket, and we’ve seen Good and Gather and now Walmart with its own brand. We're starting to see them go after that Millennial and Gen Z consumer, and it's more than just about price, right? Own brand and private label have always been well-priced. But now you've got these great designs and great packaging, and that goes a long way in providing the desired value and experience. Shoppers feel good about it. They’re proud to have it in their pantry. It’s much more than just price.

 

B. Gildenberg: And I think, too, people vastly underestimate the degree to which Gen Z and younger Millennial shoppers -- people who get an enormous amount of their decision input from social media -- will respond and trust “new” if it comes from a place that looks or feels like it's genuine or authentic and has some user-generated content behind it. As my friend Peter Bond will tell you, the most successful thing a private label brand can do to build trust and credibility is to get reviews online. And as you start to think about that ecosystem, if you've got a strong user-generated content environment and great packaging that catches the eye, that's how you build a brand in the social media world. And I think, you know, retailer-owned brands that have put thought into it the way you did at Wakefern, I think there's a really interesting opportunity for those brands to become way more meaningful to shoppers, and not just be about that simple price trade-down.

 

And that's got interesting implications for how brands need to think about innovation. So it gets me to the next question. If I've got an own brand that's demanding more space on the shelf, if I've got stores where e-commerce is a very big part of my shopping ecosystem, so now I need pack sizes for the Instacart shopper to pick up and those pack sizes or configurations might be really different than the pack size that the shopper wants to buy. I've got all these new and innovative products that the retailer is trying to launch. And then I've got the big brands who are trying to maintain their shelf space and their war for market share that creates real pressure on everyday national brands in that market share and shelf war, but also on small and emerging brands to find their path to the shelf. As simple as you can, when you think about getting on shelf and staying on shelf in this changing grocery world, Mike, how do you think this part should be thinking about that?

 

M. Sainsbury: I would say innovation is probably the key. What is the value proposition to the retailer and to the consumer that justifies you being on shelf. But it's also about having a solid go-to-market strategy, and that starts with understanding how the retailer is looking at the business.

 

We've spoken a lot about private label and own brand. But private label, as we know, is driven by gross profit rate. So again, there's always going to be a penny profit argument for the brand. Understand the limitations of private label and that the ring that you're going to get on a branded item is higher. Going in and understanding retail objectives, you can position yourself in a way to win, even though own brand is getting more share of shelf. For the big brands, maintaining their space comes down to innovation. And if they’re coming out with innovation, think about, how are you competing in digital? How are you  attracting those consumers, being more nimble for those consumers online that they're seeing your product on TikTok or Instagram and now they're searching for it with their local retailer.

 

Think, how can you tell that story in a line review and show that you're different, you're nimble and you're capturing a consumer that is out there looking for this, but this retailer is not necessarily carrying it yet. I think that's where MPG really has a lot of success -- being able to put together that story and position brands for success. So when they're having their day in court with the retailer, they're able to tell an effective story, not just with qualitative data, but also with the quantitative in terms of our analytics and insights -- like “horse powering” in the background, showing the retailer, this is all based on facts and figures. And this is where, whether it's numerator, behavioral trends,  and overarching themes all the way down to granular Nielsen syndicated data, we can show this is a category or segment that's growing, and therefore, the brand we're representing is ripe to help that retailer capitalize on it.

 

And the biggest thing: It's about category growth. You can't go in and just say, they're not interested in cannibalization from this brand to this brand. You might have an argument there if you're running a higher gross profit rate, but at the end of the day, they're looking for category growth, and share versus their competitors. As long as you're able to tell that story and show confidence that you're going to deliver, that's when you're going to have your best shot at success with these partner retailers.

 

C. Skyers: Yes. And Mike, the only thing I'll add to that is, again, your brand by itself is not enough. It's the community that you bring with your brand to that retailer.

 

You're going to be one of two things. You're going to be an innovative brand or you're going to be a “Me Too” brand, right? And then the question is, if you're an innovative brand, what is your audience? What audience or what new audience are you bringing to that retailer that's going to allow the category to grow incrementally? So it’s not just, hey, I have this unique offering. What community do I bring with that unique offering for you as a retailer in terms of customers coming into the store?

 

If you're a “Me Too” brand or there are other brands on the shelf that are very similar, it does become a financial proposition where you show, I’m going to drive the greater promotional activity. I'm going to grow the category through greater gross margin, greater top-line sales, and more promo activity. But you have to know that going in. You have to know what your competitive set is across your other competitive brands.

 

The other thing is, you also have to know what's coming up for the line review. So it's really about doing research to say, I may have a unique brand, but you know what? This year, there are three or four other unique brands in the same space that are also being presented that I may have to really think about, making sure that my story is better than those brands. So remember what Mike said, and get that story up front. Understanding where you are in that space is extremely valuable.

 

B. Gildenberg: I'll add a couple of quick thoughts. One, I like the idea of if you have a unique brand, just like the other four unique brands of the category, which I think is, I actually do think is a real issue today because I think that there's some confusion around unique versus different than what you were doing before. And you've got to have a really good read not just on your competitors on the physical shelf, but in the digital ecosystem as well. Because so often, whether consciously or unconsciously, you're deriving inspiration from consumers, but consumers may be getting inspired by something you haven't seen. So now all of a sudden, they're telling you they want something, you think you've discovered it, but in fact, they discovered it on Instagram. And all you're doing is replicating what an Instagram brand was doing six months ago. And that is an innovation cycle I've seen play out way too many times. So really stay on top of where that's going.

 

I think the other piece that is interesting, and this is something that Chris, Mike, when you guys were on the other side of the desk, and I was trying to help brands navigate and expand to private label strategies at retail, one of the things I said is look, retailers are using it to grow margin, but they're using it to change the conversation to margin.

 

And the minute you fall into that trap, you're dead, right? Because you can't doubt margin, something the retailer made themselves. So what you've got to do is be able to present a multi-variable economic argument, which basically is some variation of Jim Roy, right? And Jim Roy's measure scares everybody because it's got three numbers in it. And the number comes out as like 3.77 and nobody knows what it means, which is fine; you don't have to. All you have to know is this one is better than the other. And can I get comfortable with that three-way trade-off between sales, which is one margin rate, obviously, which is two, but then the unit turns, which is the third, and that starts to get into the whole assortment question? Because one of the defenses that we see a lot of brands use to help moderate or manage the retailer’s attempts to grow own brand or private label is what it does to assortment, right? Because it crowds out everything else on the shelf. And now all of a sudden, I've got a bunch of private label on the shelf, which would be great if anybody bought it. But the problem is, I'm out of stock on everything that I'm trying to do. And this management and this getting assortment right at instocks, right, is one of the huge, ongoing conversations. I don't know if you guys are hearing that at the moment, but instocks are a big theme of any CDS.

 

C. Skyers: I think a comfort level around the future of your instock position is one of the key decisions in who you partner with, and who am I going to bet on during the line item review timeframe with their items, in terms of innovation or just replacement items? I think your instock position or your instock health is one of the key decision makers going forward. That can work very well for you or end very poorly for you. So that is becoming more and more of a critical negotiation point.

 

M. Sainsbury: Yes. Going back to brands being able to take share from own brand, we know whenever there are supply chain disruptions, own brand is the one that usually falters first, because the brands come in and try to sweep up as much of that capacity as possible. So again, retailers are looking for strong own brand manufacturers with capacity. We've also had success sometimes having a dual approach, where a brand will also come in and pack the own brand and a nice sustainable margin. But from there, there's supply chain efficiency. Maybe it's on the same truck. And we've seen it being the solution to two problems. Now you can fulfill the branded, but you're also helping them out on their own brand too.

 

C. Skyers: Just to add to that, Mike, again, knowing where your brand is very helpful because when their supply chain gaps own brand, if a healthy own brand typically wins, because you think about if you're in a category, most of the categories, private label, they're typically going after those mid-tier or those key brands, the top brand from a consumer standpoint. So this is where a unique brand can show how it compliments the category. From a transferability standpoint, those brands that continue to be out of stock or have supply chain issues will see a lot of that volume shift either into own brand or into the more premium brand. So I think that's a great play as well to understand where you are.

 

B. Gildenberg: And I think that the need for suppliers to get their head around their own innovation cycle so that they're bringing you to the table, that’s really critical.

 

Alright, we're getting close to the end of our time together. There's one other topic I know we want to touch on quickly, which is the Kroger-Albertson's look. I mean, none of us are lawyers and none of us play lawyers on TV. But the one thing I will say is that obviously, the Kroger-Albertson's merger, the FTC is looking to block it, as well as a variety of state attorneys and general offices. The case against it right now appears to be an interesting one in terms of how the FTC has defined both the market that Kroger and Albertson's are consolidating, which has been very narrowly defined as the supermarket industry.

 

I think it's hard to argue that that's the relevant way in which people buy food today, given the number of different retail outlets that sell food. And the other piece is that one of the major constituents named in the FTC's case is the labor unions that negotiate with Kroger and Albertson's. And I have nothing against labor unions, it's just that they are not historically part of the consideration set when the FTC is deciding what is an antitrust case and what is not. It would be a departure from existing antitrust law where the FTC to prohibit this merger from going forward.

 

Were a judge to look at the FTC's case and go, yes, this is correct; it would be inconsistent with other American antitrust legal decisions in the past. But Chris, what's your advice to clients at the moment on this front, given where that is?

 

C. Skyers: Brian, you said it perfectly. There's a lot of complexity here. And what I would say is if you have plans, continue to plan. That's what I would do. I would not change course, because I think that the courts will continue to work this through.

 

It may take a little longer. But what I would not do is change course on my current plan to think about a world where Kroger and Albertson are together. What I would say is if you're not thinking about that, you should be. You should be understanding item match;  where you are at one retailer versus the other.

 

Truly understand what you want to be your go-to-market strategy for your brands, because that's going to be very, very important. But I wouldn't change course. I wouldn't add too much more than that other than it may not be this year, it may be next year. But I think we're still moving down a path where there's an end that's going to be a joint relationship between Kroger and Albertson.

 

B. Gildenberg: Fantastic. All right. I'm going to give you each one last word. What's your one last thought on either the channel or how MPG is and should be helping brands continue to win and grow on this channel? Mike, I'll start with you.

 

M. Sainsbury: If I had to give one parting word: Discipline. Maintain the discipline. Chris spoke to it there. If you're planning things for Albertson and Kroger, again, it's about the discipline. Stick to your plan. While measured twice, cut once. So I think that's where MPG helps, right? In terms of planning and being strategic, that's where we are as an agency partner and what we offer the most value. We are deeply strategic and we're focused on all these different inputs that are going into the decisions that these retailers are making. If there are any brands looking for strategic help, know that MPG is a safe space and a great home to kind of ideate some of these things and grow their business.

 

C. Skyers: For me, Brian, I think the word I would choose is “growth,” because whether it's unit growth, top-line growth, trade growth, or media growth, if you're not growing, you're going to have a very short life as a brand and or as a retailer. So if you're in the conservative mode in terms of pulling back, I would say that's very dangerous right now if you're a brand or if you're a retailer. We know our retailers are looking for growth from a unit standpoint. So I would pick the word “growth” and if you're not doing anything that relates to growth, I would be very, very concerned.

 

B. Gildenberg: Yes, I would say that classic investor maxim of you invest when people are scared, not when they're happy, and I think right now, there's a lot of uncertainty in the marketplace. Looking for growth is never a bad idea when people are afraid to look for growth. Well, Chris, Mike, thank you very much for your time today and your valuable perspective. I hope this was an enjoyable listen for everybody. For the Market Performance Group and the Path Forward Podcast, I’m Bryan Gildenberg signing off. Thanks, everybody, and have a great day.

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