Stretch and Reach:
Growth Potential for CPG Brands in the Home Improvement Channel
When you think about stretching into other categories to expand distribution and market share, do you think about the Home Improvement channel? Over the past couple of years, many established brands are doing just that, taking a hard look and asking, is this the time to re-enter? They know brands that are winning in this channel are seeing great margins. But it’s also a highly complex channel to navigate, with six verticals and a unique set of requirements for each. Determining whether this channel is right for a specific brand requires careful consideration and a deep understanding of each channel's trends, opportunities, and success requirements.
In partnership with E.A. Langenfeld Associates, we are helping guide fast-growing brands to navigate and realize profitable sales in this channel. A long-time leader in the category and Ace Hardware Quality Award winner with over 60 years in the industry, E.A. Langenfeld is recognized for delivering unmatched excellence with retailers. Together, we have the end-to-end expertise and long-lasting retailer relationships needed for strong placement, distribution, and omnichannel growth in this channel.
We recently sat down with MPG EVP Jason Henney, E.A. Langenfeld CEO Steven B. Henley, and E.A. Langenfeld Partner/VP Darren Fraser to discuss what is critical for brands to know when considering distribution expansion into this channel.
Let’s start by talking about the key dynamics shaping this landscape in 2024. What’s your take?
We are always closely monitoring the changing retail landscape, remodeling trends, inflationary pressures, and emerging technologies, and adjust our approach as needed to ensure our clients and retail partners thrive. This year, we have several key developments shaping our industry.
These include:
a cautiously optimistic consumer | the housing market’s uneven road to stability | the competitive yet shifting construction and remodeling forecasts |
Each brings unique challenges and opportunities. For the past five years, we’ve also seen consistent annual growth in independent hardware retail – now nearly 15,000 independently owned hardware stores in the US as of 2023, and while the Big Box retailers are seeing continued softness in some big-ticket discretionary purchases, they expect spending will recover in line with the broader economy in the second half of 2024. The good news is that the remodeling market is stabilizing, with home renovation spending expected to decrease slightly to $457 billion in 2024.
We were encouraged to see consumer sentiment perk up at the end of last year. This rebound, much stronger than expected, came as households saw inflation pressures start to ease. At the same time, though, we know that the majority of U.S. households have depleted pandemic savings and rising debt burdens. No surprise, then, that we’re seeing a shift in consumer demand – moving away from big-ticket remodels toward smaller, high-ROI projects, as homeowners look for cost-effective ways to upgrade their living spaces. Findings from HIRI’s 2023 Project Decision Study showed close to 80 percent of homeowners tackle multiple home improvement projects annually, with the average number of projects completed increased to 3.4 in 2023.
Brands in this space should focus on affordability and value, adjust product offerings, offer targeted promotions and incentives, and tap into loyalty programs and their granular data to meet customers where and when they shop. Consumers want the right price, at the right store, at the right time.
Who is the DIY home improvement consumer?
The DIY market is estimated at nearly 100 million households and ranges from Millennials and Gen X’ers to Baby Boomers. Each has its distinct behaviors and path to purchase. Very topline:
Millennials, the largest group in this space, are most likely to find new brands online, heavily rely on recommendations and “how-to” content, are price-sensitive, and have no issue in switching products, channels, and brands. They make more purchases at Amazon than the other groups, but still value the in-store purchase environment to some degree.
Baby Boomers, on the other hand, prefer brands they know and in-store research and purchase, particularly at big box stores like Lowe’s and Home Depot.
Interestingly, Gen X consumers are similar, in that they also prefer in-store product discovery, and are driven by a combination of product quality and price.
What should CPG marketers consider to determine if home improvement is the right fit for their brand?
This is a very viable distribution opportunity for marketers if you have the right brand equity and the right portfolio. But given a stringent selection process, it’s important to carefully consider if you have the right proposition and the right partner to expand into this channel.
Among the critical success factors to be considered before moving forward:
Are you the category leader? Does your brand enjoy high awareness?
Is your product a basket builder? Perhaps a seasonal product?
Can your product be included in a home project and if so, does the consumer understand its use/application?
Are you an impulse brand that could benefit from being in the checkout aisle?
What is already in distribution here from a competitor standpoint? (Do some store walks for a quick read.) Have you considered the presence of competing brands within this channel and how your products can differentiate? Driving incrementality beyond current assortment will be a key decision factor.
Does your product align with the needs and interests of this shopper? Will your brand’s messaging resonate with this audience, which often values quality, durability, and practicality?
Can your supply chain handle the unique demands of home improvement retailers, including large order volumes and specific packaging requirements?
Are you prepared to tailor your marketing strategies to address regionalities and other unique aspects of this channel?
When we meet with a CPG marketer, we want to make sure the product is a good fit for this channel. We want to create a better understanding of the channel, the opportunities for that particular brand, and the costs and terms to get in, which can be very different than the primary FDM retailers. For example, while there are no slotting fees in this channel, there are significant retailer trade show requirements and costs that vary depending on the partner.
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What do you feel is the biggest mistake marketers make in approaching this channel?
The Home Improvement channel is really made up of six, very distinct verticals – and retailers that require tailored approaches. They all have different footprints, different regional differences, and different customers. There’s a lot to take into account when developing your strategy. But a lot of brands lump them together – and that’s a major miss. Our business model is unique, as we have representation in each vertical and manage them separately. It’s important to know the nuances – just as it is with Walmart and Amazon, one size does not fit all here.
What’s the right entry point or mix for brands looking to stretch into this channel? Independent hardware stores? Home centers?
Big box retailers can offer large assortments and often lower prices. Local hardware stores have that extra element of trust, given their ties to the community and highly personalized, expert service and shopper connection. And often overlooked by CPG brands are stores falling in the Farm & Ranch category – which, in many rural areas of the country, function as General Stores. Each channel has its own distinct advantages and challenges, so it’s important to take a deep dive to pinpoint the best path forward. It depends in part upon the individual brand and its objectives, of course. But also, when we sit down with a brand to develop our strategy, we’ve made sure we have carefully assessed the consumer in the aisle and identified where there is white space offering significant growth opportunity.
As you ponder the right entry point, it’s also important to consider the channel through an omnichannel lens. For example, getting on-site distribution at a home center is a longer process than getting in aisle at a hardware store. For some brands, the better path is to forego brick-and-mortar merchandising and instead sell solely through the home center’s digital marketplace.
Let me give you an example. We were approached by an outdoor living and camping brand which needed to increase penetration in local communities not served by Big Box Retailers. After helping them to understand the opportunities and requirements, we were able to place their portfolio of brands within hardware stores we identified as a destination for consumers who actively camp and support outdoor activities. We were able to help them gain placement and sell through in targeted hardware and farm stores in local communities. For another brand with a strong desire for Big box placement to build brand recognition, it was better to go all in on an eCommerce strategy at Home Depot and Lowes to build volume, sell through and consumer awareness, allowing our Digital teams to present a solid marketing plan to the customers.
With end-to-end commercial capabilities, E.A. Lagenfeld prides itself on industry expertise, a best-in-class network, and in-market executional excellence. With the right brand opportunities, we have proven, consistent results in our decades-long journey in this channel.
While the home improvement retail channel offers promising opportunities for CPG brands, it requires a strategic approach tailored to the channel’s unique environment, and the right expertise and relationships to make it happen. Interested in learning more? Reach out to @Jason Henney at Jason.henney@mpgllc.com.
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