“We are moving from a consumer market that is motivated by deference to one of reference.” is the topic of my talk at the up and coming Scotsman conference in November on food and drink. What on earth does that mean?
Since the second world war mass produced products were developed into big brands by creating the scale to afford expensive, global media channels such as TV advertising, to outspend and out distribute competitors. The world of deference is one where the consumer is led by the authority of the big brand.
“Coke – the real thing”, “Guinness is good for you” or “Carlsberg – probably the best lager in the world”. These brands are authoritative; they tell the consumer what to think, do or even feel.
However, this is all changing. The millennial mindset is moving away from trust in big brands, in advertising, in experts and generally from authority. The internet and social media has given consumers access to information and opinions from peers that mean their influence is driven by a desire for the real
story, whether this is driven by heritage, function, quality or uniqueness of a product. It is also heavily influenced by what other users think rather than being told what to think by big corporates. This is the world of “reference”.
It is therefore not surprising that 90 of the 100 top consumer brand companies in the US are losing market share despite a growing US consumer market, or that WWP is struggling due to the collapse of the big brand advertising market.
Consumers are moving to small companies where they feel the brands identify with their lifestyle and values. In addition, these smaller companies are driving innovation, at pace, with faster and cheaper access to their target consumers, often internationally, enabled in a cost effective manner by social media and e-commerce. Craft and artisanal drinks, wellbeing products such as free from foods, lifestyle brands, heritage based companies refreshing their products and image are all driving exciting growth in niches within consumer markets.
The response from big corporates has been to outsource their product development. Less than 2% revenues is now spent by big corporates on R&D compared to 18% on advertising and promotion but these corporates are prepared to buy fast growing small company brands with little or no profits for
as much as 3 to 5 times revenue.
This trend seems set to last and is a huge opportunity for small brand companies in Scotland. We have the benefit of being a highly innovative nation as well as have a heritage of great stories and products that have global appeal.
Five years ago I set up Inverleith with two partners both CEOs from major consumer companies to invest and then help build small companies in food and drink into fast growing success stories.
So if you have a good product there has never been a better time to grow your business quickly with hungry big corporates desperate to buy you if you succeed.
By Ben Thomson, Partner, Inverleith LLP
Book your ticket for Ambition and Innovation: The future of food and drink in Scotland to hear Ben speaking first hand, here.