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The New Premium Distribution Revolution

store deliveryConsumer culture has transformed legacy brands from benign symbols into rich experiences, creating new, greater expectations about how premium products should exist in everyday life. We know consumers react very differently according to the product world at hand, to the occasion for shopping and to the retail environment in which they encounter that product world. In our go-to-market strategies work with clients venturing into the premium space, the first obstacle to overcome is one of dealing with old challenges of sales and distribution in the “natural” sector. Today, we’re witnessing a new generation of emerging premium brands tackling these traditional problems of natural products distribution head on. 

Sales and distribution challenges are most often related to the historic absence of Direct Store Delivery (DSD) for natural products and to the segregation of these products in many grocery store environments. The former reduces the ability to maintain out of stocks on fast-selling natural/organic UPCs (i.e., made by fast-growing, popular brands) and the later reduces the ability to entice mainstream shoppers with the possibility of trade-up they may not have been aware of. 

While some brands, like Stacy’s, have chosen to avoid tackling these issues head on and simply develop their equities in specific locations of the store where branded incumbents do not dominate merchandising decisions at all (e.g., deli and bakery) we see more and more emerging premium brands tackling the old problems of natural products distribution head on. 

For example, we believe we are seeing the beginning of the end of the ‘natural’ section model pioneered by Hain Celestial, Kroger, UNFI and others in the conventional channel context. And, if the trend continues, it will put CPG incumbents under direct tests of pricing power and loyalty they have faced only with specific key customers. Retailers like Mariano’s, Target, Safeway and even Walmart are putting emerging premium brands right next to legacy incumbents or in the same aisle. And often, we find that velocities tend to increase when brands can be sold in mainstream aisle sets, though not if price premiums are extravagant, given the category’s real-world usage occasion.

Annie’s has been the most successful in this strategy, as its officials have noted in recent investor presentations. Its macaroni and cheese business has responded well to mainstream merchandising placement next to Kraft. 

Late July is one of the newer revolutionaries in new premium go-to-market strategies, though, in the difficult bagged salty snack space. Their recently announced alliance with Snyder’s-Lance is allowing them DSD distribution inside natural product sets and inside integrated sets where those are utilized. The ability to control the shelf better than warehouse competitors creates huge advantages for any brand, but introducing this power to smaller premium companies is quite new and could significantly enhance their growth curves. Why? 

Early-stage premium brands can sometimes have very unstable week-to-week sales and velocities that exacerbate the impact of out of stocks during crucial early years of rapid growth. 

Late July’s alliance with Snyder's-Lance is simply one example of how emerging, early-stage premium brands are innovating creative alliances with established larger companies, to accelerate growth through sophisticated distribution. 

We believe that demand will accelerate for premium food experiences as more and more are able to create these alliances. For CPG companies, it is far better to be architecting these alliances yourself on your own terms than to have someone like Chobani do it independently (as they did) and completely out of your control.


Consumer Package Goods Retail/Shopper Insights Point Of View


As leaders in the study of American food culture, The Hartman Group has been tracking how Americans shop for food since the 1990s. From one-stop shopping to multichannel shopping to online markets and click-and-collect, we continue to track consumers’ evolving perceptions, needs, habits and relationships with food retailers. New to the 2017 report is a special section on the expansion of the discount grocery channel, the emerging fresh-format channel and smaller-footprint retail formats.


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