spending £billions each year on business services
leaving an opportunity for those that serve them
Rise to the Challenger is the first industry campaign of its kind, calling for all organisations working with or within the food and drink industry to do their bit to give young challenger brands the best chance of success and growth.
The UK food and drink eco-system is wonderfully interdependent and couldn’t thrive without the invaluable contribution of all its 7,290 players. As a combined effort of younger and more established brands, our industry contributes £31.1bn to the UK economy, with 8,500 new products added to supermarkets each year. And although the industry has long been geared to accommodate bigger businesses and subsequent deep pockets, a massive 97% of them are in fact SMEs.
SMEs are already the majority growth drivers and there is still huge value potential that a more balanced industry can unlock.
So whether your business can offer more proportionate payment terms, lower MOQs, or more flexibility in service, every pledge will effect positive change.
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Young Foodies works with FDF, GS1 and the DIT to Change the Game
YOUNG FOODIES WORKS WITH FDF, GS1 AND THE DIT TO CHANGE THE GAME FOR CHALLENGER BRANDS AND SMALL BUSINESSES.
This started with a pioneering industry roundtable debate: “Changing the Game for the Game-Changers”.
Any debate needs a panel, but a debate about the future of the FMCG industry deserves a panel that reflects the industry ecosystem today and in the future:
- Rachel Eyre, Head of Sainsbury’s Future Brands
- Raj Burman, Head of SME at GS1 UK
- Ian Wright, CEO of the FDF
- Liam White, Founder of Dr Will’s
- Angus Murray, Senior International Trade Advisor at DIT
- Charlie Warwick, Head of Futures at Kantar
And to facilitate the discussion as chair of the panel: Adam Leyland, Group Editor of The Grocer.
This event had one overarching aim: to get all levels of the FMCG industry talking about the unrealised potential of challenger brands.
The stage was set, the panel ready, and the audience packed with industry representatives from retailers to manufacturers. Kicking off with opening statements from Young Foodies co-founders Chris Green and Thea Alexander, focus turned to the panel, to ask: how can the FMCG industry level the playing field for challenger brands, and why is it so important to do so?
This led to a number of key insights…
1. The FMCG industry is ripe with opportunities for challenger brands
Opening the debate, Adam noted that “Entrepreneur” is a far more viable career now than it was 20 years ago, with more people are taking the leap to launch their own business every day. The panel identified this as the result of a number of emerging trends:
The importance of impact
Charlie explained to the panel that the assumptions big businesses were built on in the 20th century are being seriously called into question, and commercial viability can’t just be about margins and profit anymore. She explained that a whole new world is starting to emerge, in which commercial viability is about more than the money, and is increasingly about impact, both personal and corporate. Sustainability data was named as offering a new type of business cost to be measured, and the panel agreed that it is challenger brands who are on the frontfoot in this regard. Chris added that as reputation directly impacts the growth of a brand, the rise of new metrics of success offers a really exciting opportunity for challenger brands.
Living large, carrying little
Continuing, Charlie explained that while technology is playing a massive role in driving new trends and effecting change, people underestimate the importance of social value change. It was heard that a growing proportion of consumers are demonstrating a whole new set of values, one which is about more than sustainability. In particular, millenial and Gen Z consumers were identified as driving this trend, striving to live large and carry little: seeking meaningful experience but minimal material possession.
The pace of change
The panel agreed that these changes aren’t happening slowly, but at a pace that demands rapid structural change and flexibility. Adam explained that, while big businesses are struggling to keep up with the pace of change, challenger brands are completely subverting the status quo and doing things in brand new ways. They are changing the face of the industry to mirror emerging trends, and Thea added that as a result they are driving 60% of category growth and occupying an ever-growing space within the market.
After all, unlike their older counterparts, many challenger brands were born in the midst of these changes, and are the direct product of emerging trends. Too young to have settled into the status quo, they naturally seek out new routes to growth.
2. The tables are turning, but the playing field is far from level for challenger brands.
- 81% of challenger brands believe they get less support from industry than their larger counterparts.
- 24% have considered giving up as a result of this.
While there was consensus that new opportunities are arising for challenger brands within FMCG, the panel agreed that the industry remains fraught with obstacles hindering their growth. It became apparent during discussion that there exists a clear and problmatic focus on short-term profitability within the industry, as well as a number of out-dated processes that don’t cater for smaller businesses:
Retailers and buyers
Speaking of his own experience founding a challenger brand, Liam explained that it is often hard for buyers to justify spending time with smaller brands, unless there’s a mandate from above. While smaller brands are driving incremental growth, larger retailers risk a focus on short-term profitability. Similarly, buyers seeking to de-risk their investments will ask potential suppliers for evidence of a proven rate of sale and track record, which a young challenger brand looking for its first major listing just won’t be able to provide.
He concluded that ultimately, without directive from above, buyers will tend to favour the larger businesses who can offer a stronger guarantee of immediate profit.
Rachel challenged this thinking by talking openly about the material, unquestionable commercial impact that the Future Brands initiative has delivered to Sainsbury’s and speaking loudly about the commercial benefits to a more challenger focused model.
Ian asserted that small margins aren’t an issue that challenger brands alone are battling – this is an issue across the FMCG industry. Operating on extremely small margins themselves, most logistics providers and manufacturers demand minimum order quantities (MOQs) from customers. As Liam attested, in many cases these requirements set an unattainable target for challenger brands, or result in them paying an additional premium for their small orders.
Liam went on to name cash-flow as the greatest single challenge facing challenger brands. He explained to the panel that this is a unique issue in that it actually becomes more severe as a business grows from startup to scale-up. It is also an issue that is greatly exacerbated by the long payment terms which he explained are currently provided by many retailers. It was heard that retailers routinely delay payment by 14-90 days, which Liam explained means that in worst cases there could be 180 days between initial payment to the manufacturer and payment being received from a retailer. Ian added that this is more than enough to cripple a young business.
The panel shared a number of examples of businesses adopting favourable payment terms for smaller businesses, emphasising the benefits that this can bring.
3. Collaboration could be the key to levelling the playing field
Ian made it clear that players across the industry, from farm to fork, need to be able to collaborate in a way they haven’t before. The panel stated that the FMCG industry needs to balance its focus on short term profitability with a focus on the potential for longer term growth offered by challenger brands. This will require collaboration at all levels, from all areas of the industry.
What could that look like?
Big retailers and wholesalers
While Rachel stated that it is a commercial imperative for retailers to support challenger brands, the panel agreed that, in return, challenger brands need greater support from retailers.
Rachel explained that by definition, these younger brands don’t have experience working with large retailers, which means they require far more support through the process than a larger, more established brand would. However, she agreed with Liam, adding that retailers need to start looking past these short term challenges, to understand the value that lies in accommodating and nurturing this new and growing market.
It was agreed that retailers can play a crucial part in levelling the playing field for challenger brands, whether that’s through preferential payment terms, offering greater access to data, or any other strategy that accommodates the strengths and needs of these agile young brands.
Raj and Charlie discussed the use of blockchain to secure debt in a way that enabled more favourable and risky payment terms.
Manufacturers and logistics providers
Liam explained that while the strengths of challenger brands lie in their passionate and innovative nature, they often face their greatest challenges in manufacturing and logistics. He went on to explain that this offers huge scope for them to work more closely, perhaps in non-traditional ways, with their manufacturers. He added that challenger brands are creating products with lower volumes and higher margins, offering manufacturers a chance to increase their own margins.
Ultimately, it was acknowledged that brands and manufacturers work extremely closely together – each depending on their other, and that this mutual dependence should prompt more joint business planning between brands and their manufacturers.
With growing investment in hardware and software within food & drink, Charlie predicted that the name of the game will soon be agile manufacturing. She added that this means that manufacturers will have the data to predict and adapt their supply chains in an instant. It was agreed that this agility will play directly into the strengths of challenger brands, while big businesses may struggle to adapt to this structural change so there’s benefit in starting now.
The panel acknowledged that the growing number of challenger brands in the UK means that there is an ever-growing network of small businesses with the same goals and needs, and the potential to share skills, knowledge and experience where it is needed most. This offers endless opportunities for collaboration in all areas, but particularly supply chain. As Liam explained, one small brand alone may not be able to meet MOQs or fill a warehouse, but ten small brands working collectively stand a much better chance.
Challenger brands are starting to recognise this growing opportunity: Chris and Thea explained how it was an understanding of the value of collaboration that led to the creation of the Young Foodies community, of which over 800 brands are now a part.
The panel raised the point that out-dated competition laws are currently limiting potential for collaboration within the industry. Ian explained that this legislation needs to be challenged in order for us to build a truly collaborative space. In the meantime, it was agreed that there remain many avenues for collaboration within these laws that haven’t been fully explored.
The blue chips
Thea explained that challenger brands are playing an increasingly instrumental role in the ecosystem, but everything points towards these new brands operating alongside these old ones. The panel upheld the perception of the FMCG industry as an ecosystem requiring the presence of both challenger brands and larger businesses. Thea added that big businesses possess the resources to deliver large messages and build entire categories.
Young, agile brands are posing a real challenge to larger businesses from a market share perspective, but the panel discussed numerous examples of blue chips responding and rising to this challenge to turn it into opportunity.
It was agreed that there is value to be gained on both sides of this competition. Adam noted that we see challenger brands and blue chips collaborating in new ways every day: there are some very exciting things coming out of incubator funds, and many large businesses are key players in the alternative finance that is offering challenger brands new routes to capital.
While it was heard that retailers are reluctant to be seen as offering preferential treatment to challenger brands, Ian contested that differentiating between brands according to their size shouldn’t be viewed as preferential treatment or prioritisation. He added that ultimately, introducing changes such as preferential payment terms could be the difference between a challenger brand failing or succeeding.
Angus explained that the government is starting to recognise the true value and importance of challenger brands, which means there is increasing scope to ask for greater support or a change in policy. He emphasised the power of the government to enact meaningful change for challenger brands, for example in the form of tax breaks, discounts, or greater incentives for innovation.
So, what happens now?
It was cathartic for everyone to debate the value and role of challenger brands within our ecosystem, as well as discuss viable, commercially interesting solutions to the many obstacles they face to growth. If the whole industry is to fully benefit from the growth and innovation that these young businesses are bringing, then that same industry needs to create an environment that is conducive to their success. And that environment needs to add value for everyone – not just challengers. We have to find the win-win and the panel discussion opened our eyes to the belief that it is possible.
The Rise to the Challenger campaign aims to unite the FMCG behind its challenger brands. Young Foodies, FDF, GS1 and the DIT’s Exporting Is Great campaign are calling on retailers, service providers and even supply chain partners to commit to small specific changes to their operating models that will help to mitigate some of the many difficulties that challenger brands face and unlock further value in the operating model.
Young Foodies was founded with a mission to make small brands mighty, but this level of industry-wide change requires support from across the FMCG ecosystem. Everyone in the industry needs to play a part in levelling the playing field for challenger brands, and all have something to gain from it.
Young Foodies is asking you to pledge your support for this campaign. What can your organisation do to help challenger brands have a greater chance of success? You can work with your networks to spread awareness of this campaign and the value of challenger brands. The more people this campaign reaches, the greater the benefit for these game-changing small brands.
Equally, if you know any businesses doing great things already with challenger brands, please spread the word and we can showcase them on our pledge wall!
SMEs and Startups Feel Unsupported by FMCG Industry, Research Finds
Article originally posted by Elena Cherubini, The Grocer, on 22 October 2019. Read the original here.
Four in five fmcg startups feel unsupported and abandoned by the wider industry, research by Young Foodies has shown.
Some 81% of fmcg startups believe the industry offers less support to small challenger brands than to established counterparts, affecting their growth prospects and ability to gain traction.
This is despite the fact that startups are the driving force behind 59% of the current market growth, according to the Food and Drink Federation.
Almost a quarter of entrepreneurs have considered giving up after facing “frustrating” operational barriers “disproportionate” to their capabilities and lack of specific support, according to the research.
The 102 surveyed brands highlighted pricing, payment terms and minimum order quantities (MOQs) as “major trading disadvantages” against larger businesses.
Almost 70% of startups felt excluded from providers’ best rates due to their size, while 57% cited standard payment terms as a “key barrier to growth” due to their more limited cash reserves compared with larger competitors.
More than half the respondents considered MOQs an issue, forcing them to “overcommit” to large orders, impeding the testing of new concepts and trapping cash into assets rather than freeing it for marketing and investment.
When it came to grocery retailers, the research highlighted that 62% of SMEs said they failed to be adaptable and supportive of their size and set-up. A further 56% felt less of a priority to retailers than established blue-chip companies.
Bucking the trend, Sainsbury’s Taste of the Future initiative was cited as a notable example of a retailer willing to invest time and resources into challenger brands.
Launched at the end of June across 68 stores, the project allows small challenger brands the chance to list their products over a 14-week period. When that time is up, they could potentially win a full listing with the retailer.
Meanwhile, a third of startups struggled to find a manufacturer willing to work with them and almost half felt “less of a priority” for manufacturers, compared with larger-volume clients.
The research showed that wholesalers were more “inclined to recognise the value of working with challenger brands”. However, more than half the respondents said wholesalers had not been adaptable and supportive.
This figure remained steady when considering supply chain and logistics providers, with 52% of startups not feeling supported due to their size.
Professional service providers fared better, with almost two-thirds of respondents stating they felt supported when accessing services from marketing to financial advice.
“The UK food and drink eco-system introduces 8,500 new products to supermarkets each year. Much of the innovation comes from disruptive younger brands,” said Young Foodies co-founder Theadora Alexander.
“It’s fair to say that all macro trends point toward a future food and drink market where challenger brands play a central role.
“But with their limited resources having to stretch to the same operational criteria as big brands, the odds are stacked against them.”
Listening to ‘Upstarts’ Builds Mutual Advantage in Business
by Charlie Warwick, Head of Futures Europe, Kantar
I’m a ‘Futurist’ in the most commercial sense, in that my job day to day is working with (largely global) businesses to help them understand how high level trends are likely to combine to shape their future operating environment, and future consumer values and needs. Ultimately it’s about developing strategies and innovations that are ‘future-proof’.
One of the key principles of any Futures consulting project we deliver at Kantar is that you must ‘take a longer view of time to see deeper patterns of change’, and so my team tells a story about consumption that starts way back in the 17th century. This was the beginning of systematised manufacture and global trade – the ‘first age’ of consumption, where luxuries like tea and chocolate and china plates were available to the few who could afford them. Then comes the ‘second age’, where the swell of the middle class and industrial developments democratised the marketplace (think department stores and mass manufacture). We enter the ‘third age’ of consumption in the 21st century, and amidst all this turbulence, many of the assumptions that today’s big businesses have been built on are being undermined.
That’s because this third age is defined by constraint; our economic capacity (our ability to increase GDP), cognitive capacity (our ability to process data we are overwhelmed with) and resource capacity (our ability to live sustainably within our natural means) are nearing their utmost limits. Growth is no longer realised via traditional routes, and material ownership isn’t such a marker of success for consumers anymore. I’d argue that the same rule is true for big business, conventionally based on ownership. Owning patents and intellectual property rights has typically been regarded as a source of competitive advantage. The third age calls for more open businesses operating in more porous ways – letting the outside world in and listening to ‘upstarts’ to build mutual advantage.
Another consideration for big businesses looking to thrive in the third age is that commerce and consumptions are more seamlessly embedded in the context of their lives, i.e. there is less physical and mental distance between daily life and purchase decisions, especially when access sits in the palm of your hand (or on your wrist, or kitchen countertop). The benefit of a start-up outlook is that it can be more human, and more holistic, understanding people as ‘citizens’ rather than bucketing them as ‘consumers’.
Lastly, a successful third age business becomes expert at reframing risk to become opportunity. Trends playing out in the external environment, including regulation and expanding competitive sets full of insurgent brands, could be read as a series of threats. But seeing them instead as a set of signs about societally-set boundaries, and the likely future direction of the market, means that all of those things become a platform for innovation and change. Small, yet growing, movements can help huge, unwieldy, often paralysed companies take a temperature check of social values.
The thing about the future is, it doesn’t just happen to you. Yes, high level trends combine in ways that shape outcomes for individuals and organisations, but businesses (particularly businesses with scale) have far more agency in determining outcomes than they credit themselves with. Lots of our work at Kantar is about empowerment, having the clarity and confidence to make bold bets on fringe trends, early signals and small players – often those players have a more expansive, and honest view of the future.