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The brand or the retailer?

"Which do you love more, the brand or the retailer?"


In the "Retail Marketing Strategies" course I've taught at Schulich for the past few years, I dedicate a full class to the topic of Category Management.


For the uninitiated, category management is the art and science of choosing which products a retail store should carry and how they should be presented on shelves.


(There's a lot more to it than just that, but if you asked me to sum up my three-hour lecture in just one sentence, that's how I'd do it.)


About midway through the lecture each term, I show my students a slide featuring a case of Coca-Cola on the left and a photo of a Loblaws store on the right. The headline for the slide reads, "The (Cat-Man) Value of a Strong Private-Label Brand", and the question featured below both photos is simply, "What do you love more, the brand or the retailer?"


The intent of the slide is to highlight the value of private label brands. When a retailer has their own popular brands, I tell my students, they become less reliant on national brands... but only to a certain point. That's because retailers can't usually flat-out refuse to carry beloved national brands; if they do, and consumers decide they love the national brands more than they love the retailer, they'll simply choose to do their shopping somewhere else.


It's a balancing act: retailers sell popular national brands to meet consumer demand while simultaneously developing private-label alternatives to avoid giving manufacturers too much power and to protect themselves against manufacturer decisions they might not agree with...


... like sudden price increases, for instance.


Last week, we learned potato chip giant Frito-Lay has refused to ship products to grocery stores owned by industry behemoth Loblaw Companies Ltd.


The reason? Frito Lay decided to increase the cost of its products to retailers in order to offset the massive inflation they've seen in their cost of goods... and Loblaw refused to accept the higher prices.


If this was a tiny retailer, Frito Lay would have no reason to be concerned. They would increase their prices to the point where what they sell remains profitable, and any retailers who didn't want to pay the higher costs would simply stop ordering.


But we're not talking about a tiny retailer: Loblaw-owned banners control approximately 35% of the grocery industry in Canada.


And perhaps more importantly, they have their own private-label line of exceptional products under their President's Choice brand... which includes a line of potato chips.


Frito Lay, though, has a little-known direct-to-consumer model already up and running: Snacks.com. On that site, you'll find "everything you need, from new flavours to hard to find favourites", and shipping is free for orders over $15.


To recap: Loblaw has its own potato chips, and Frito Lay has its own method of distribution.


So what we're basically watching is a corporate game of chicken.


Who will back down first?


Here's my bet: when you visit a Loblaw banner over the next few weeks, you'll see empty shelves in the potato chip aisle. Then Loblaw will begrudgingly accept a small price increase, and Frito Lay products will be restocked. The price increase will almost certainly be less than the increase smaller retailers will be forced to accept, though: that will be the concession Frito Lay makes to restore the peace with a major customer.


This mutual concession will happen because of one important fact:


Both Frito Lay and Loblaw are powerful brands.


And do you know what happens when the unstoppable force meets the immovable object?


In business... they compromise.


Each brand can survive without the other, but to truly thrive, they need to cooperate.


For now, anyway.


But you can count on Loblaw continuing to focus on their private label portfolio, and Frito Lay to start supporting their Snacks.com channel more aggressively.


Compromise only takes you so far, after all.


And as for my slide? I've decided to update it for the course I'm teaching next term.


Now, it looks like this...



P.S. If you like potato chips and you haven't tried President's Choice chips, you are really missing out! I LOVE basically all potato chips, but my favourite flavours out of all possible chip options are both President's Choice products: "World of Flavours: Buffalo Wings & Blue Cheese" (pictured above in my slide) and "Loads of Jalepeno Popper Flavour". Delicious!



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