Crisis in the high street
Pressure from consumers, upmarket chains and discounters is forcing mid-market brands to fight for survival. By Martin Moritz
The current financial crisis adds momentum to a process which has been going on for some time in Germany: the erosion of the affluent middle class and with it the mid-market segment plus many of its brands. These brands, attacked by upmarket chains and powerful discounters like Aldi, Lidl, Penny, Plus, etc, are having to fight for their existence. The abundance of different products and brands has led to a feeling of overload and choice fatigue. Growing scepticism towards traditional brands goes hand in hand with the demand for really convincing added values in products. The main attitude at the moment is If not a fascinating brand then better no brand at all.
The mere choice of a shopping channel could mean that one is automatically less exposed to traditional mid-market brands. This is best exemplified by the opposing paradigms of the very popular discounters and organic supermarkets.
The triumph of "smart shopping"
Back in the 90s there was a huge range of popular mid-market brands offering expertise and quality with interesting brand images. Lifestyle marketing was more important than the actual product benefit and consumers were fine with it. The market for discounter and own-label products was emerging only gradually and still had the stigma of "underclass shopping".
Loyalty towards traditional mid-market brands was more the rule than the exception, due to both habit and the lack of alternatives. The difference between a brand and an own-label product was also easy to detect: the latter always looked cheap and unappealing, slightly embarrassing to display at home.
Today, however, discounter products are much more attractive, picking up the latest trends (smoothies, goats cheese), penetrating traditional mid-market domains, accounting for nearly 40% of the food retailing.
Pack designs are often very clever plagiarisms of mid-market brands, thus contributing to general brand diffusion. Some consumers now find it virtually impossible to tell the difference between a "real" brand and a discounted version, except by the price. And how about the prices: Whatever you put in your shopping trolley you can be sure that it won"t blow your budget. To carry away two big bags for only €30 or so gives a feeling, indeed, of being one step ahead. The rational benefit of saving money leads, in turn, to the emotional relief of current underlying angst about the threatened loss of affluence.
Another — very different — paradigm in Germany is to look for added value in organic brands and supermarkets. Back in the 90s organic food and natural cosmetics were only available in rather pathetic little stores with a typically uncool, fusty, "70s touch. Part of a whole alternative lifestyle (Green party, jute bag), this was very much a niche thing.
Due to a growing interest in health and wellness issues, however, this market has become huge. There may also be cheaper organic products available (discounters), but the average LOHAS (Lifestyle of health and sustainability) consumer disregards them, viewing them as rip-offs, sold in the "wrong" shopping channels.
There are currently 30,000 organic supermarkets in Germany, with demand still growing. The concept of "Erdkorn", "Bio Basic" and "Alnatura" is clever, combining convenience, authenticity and health expertise.
Their products and brands offer a kind of philosophy, a "green glamour" for the ethical and ecologically responsible German consumer. The same €30, which would buy sufficient product to fill a whole trolley in a discounter, would send an organic supermarket shopper home with just a small bag (loaf of bread, some cheese, some fruit and vegetables, plus a bottle of a biodegradable detergent). Less is more? The price differential is certainly jaw dropping! But in times of global warming, third world exploitation, genetically modified food and allergies shoppers want to relieve their guilty conscience and make a statement by buying the "right" products, in the "correct" shopping environment.
These products provide a feeling of safe distance from the shallow world of capitalism and manipulation. Less marketing, plus less hot air, equals more product benefit. The brand names boost and complete this feeling: "Harvest blessing", "Dew drop", and "Naturata". The most exceptional example of all is the organic company Alnatura. It has become a huge umbrella brand covering nearly everything from baby food, coffee and yogurt to an "Origin Italy" line and a design award-winning premium line (Alnatura Sélection). Its products are available not only in drugstores, but are also to be found in Alnatura"s own shops (there are 32 "Super Nature Markets" countrywide). Its success stems from a combination of good value for money, a focus on the product benefit, and a minimum of marketing.
Mid-market brands struggle
Meanwhile, in drugstore chains — and some discounters — mid-market brands are often only sold at a loss, bought in bulk when on special offer. They seem to serve a kind of justifying function, upgrading the shops" own-label offer, and acting as a price reference.
That way the shopper can feel smart. The strategy to premiumise, however, does not really work since own labels are doing the same thing, leading to even more muddying of the waters. So, what could classic mid-market brands learn from a brand like Alnatura?
As Nielsen"s Pete Blackshaw claims, added value nowadays must come from a background combining trust, authenticity, transparency, affirmation, listening and responsiveness. Successful relaunches (Dove Knorr, Lagermaster) are proving this partly by stimulating renewed interest in their products. Consumers might turn again to mid-market brands, but their expectations are certainly high. Let"s see which brands are going to be "the fittest to survive"!
Founder, consumerone qualitative research and innovation
This article was first published in InBrief magazine, January 2009
Copyright © Association for Qualitative Research, 2009