Rise to the Challenger has come about because, when we asked you if you felt well served by our industry, 81% of you said no. We were blown away by this statistic given that you’re the ones driving the majority of growth in this market.
If we can enable you to thrive, the whole industry grows with you – and based on our research, it only takes small changes to enable this to happen.
The Rise to the Challenger campaign is calling on retailers, service providers and even supply chain partners to pledge small specific changes to their operating models to make them work better for challenger brands. It could be a pledge to improve payment terms, to give us more facetime with buyers, to operate on lower MOQs…anything that demonstrates that they understand working with us requires something different than working with the likes of MARS or Unilever.
But we needed to communicate this message with the industry, and finally, get them talking about challenger brands.
We started with a pioneering industry round table debate: “Changing the Game for the Game-Changers”.
Any debate needs a panel, but a debate about the future of FMCG deserves a panel that reflects the industry ecosystem… so that’s exactly what we got.
- 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, Europe 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.
With the stage set and the panel ready, we welcomed an audience packed full of industry representatives, from retailers to manufacturers. Kicking off with opening statements from our co-founders, we then turned to our panel, to ask: how can we level the playing field for challenger brands, and why is it so important that we do?
Here’s what we found out
The FMCG industry is ripe with opportunities for challenger brands
“Entrepreneur” is a far more viable career now than it was 20 years ago, and every day more people are taking the leap to launch their own business. Why is this? At least in part, this is the result of a number of emerging trends that are beginning to turn the tables in favour of challenger brands.
The importance of impact
The assumptions that big businesses were built in the 20th century are being seriously called into question: commercial viability can’t just be about margins and profit anymore. We are starting to see a whole new world, where commercial viability is about more than the money. It’s about impact, both personal and corporate. Sustainability data offers a new type of cost to be measured, and it’s challenger brands who are on the front foot in this regard.
Reputation directly impacts the growth of a brand, so the rise of new metrics of success offers a really exciting opportunity for challenger brands.
Living large, carrying little
A common misconception within the industry is how fast we think technology is changing. While technology does play a massive and growing role, people underestimate the importance of social value change. We are at a critical time in that paradigm shift. A growing proportion of consumers are demonstrating a whole new set of values – one which is about more than sustainability. Millennial and Gen Z consumers want to be living large and carrying little: they seek meaningful experience but minimal material possession.
The pace of change
These changes aren’t happening slowly, but at a pace that demands rapid structural change and flexibility, which the blue chips aren’t built to keep up with. 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 as a result, they are driving 59% 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.
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 new opportunities are arising for challenger brands within FMCG, the industry remains fraught with obstacles hindering their growth. What becomes apparent is a clear focus on short-term profitability within the industry, as well as a number of out-dated processes that naturally favour larger businesses.
Retailers and buyers
It’s 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 maintain 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. Ultimately, without a directive from above, buyers will tend to favour the larger businesses who can offer a stronger guarantee of immediate profit and low risk.
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. In many cases, these requirements set an unattainable target for challenger brands, or result in them paying an additional premium for their small orders.
The greatest single operational challenge facing challenger brands is that of cash flow. This is one issue which can actually worsen as a business grows from startup to scale-up, and it is greatly exacerbated by the long payment terms adopted by many retailers. Challenger brands see retailers delaying payment by 14-90 days, which means that in worst cases there could be 180 days between initial payment to the manufacturer and payment being received from a retailer. This is enough to cripple a young business.
Collaboration could be the key to levelling the playing field
Players across the industry, from farm to fork, need to be able to collaborate in a way they haven’t before. We need the industry to balance the 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?
It’s a commercial imperative for retailers to support challenger brands. In return, challenger brands need greater support from retailers.
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.
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. 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.
Manufacturers and logistics providers
While challenger brands by nature are passionate and innovative, they often face their greatest challenges in manufacturing and logistics. This means there’s huge scope for them to work more closely, perhaps in non-traditional ways, with their manufacturers.
Many challenger brands are creating products with lower volumes and higher margins, offering manufacturers a chance to increase their own margins.
Ultimately, brands and manufacturers work extremely closely together – each depending on their other. This mutual dependence should prompt more joint business planning between brands and their manufacturers.
With growing investment in hardware and software within food & drink, the name of the game will soon be agile manufacturing. Manufacturers will have the data to predict and adapt their supply chains in an instant. This agility will play directly into the strengths of challenger brands, while big businesses may struggle to adapt to this structural change.
A 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. 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.
Out-dated competition laws are preventing us from realising the true potential of collaboration within the challenger space and the wider industry. This legislation needs to be challenged in order for us to build a truly collaborative space, but in the meantime, there remains many opportunities for collaboration and partnership within these laws that haven’t yet been fully explored.
The blue chips
Challengers and big brands are by nature opposites. When you are subsumed into corporate and lose individuality, that’s when you are no longer a challenger brand.
Challenger brands are playing an increasingly instrumental role in the ecosystem, but everything points towards these new brands operating alongside these old ones. This industry is an ecosystem that requires the presence of both challenger brands and larger businesses. Big businesses possess the resources to deliver large messages and build entire categories. Young, agile brands are posing a real challenge to larger businesses, but the blue chips are really starting to respond and rise to this challenge.
There is value to be gained on both sides of this competition. 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. Differentiating between brands according to their size shouldn’t be viewed as a preferential treatment or the prioritisation of challenger brands. Ultimately, introducing changes such as preferential payment terms could be the difference between a challenger brand failing or succeeding.
The government is starting to recognise the true value and importance of challenger brands, which means there is an increasing scope to ask for greater support or a change in policy. The government has the power to enact meaningful change for challenger brands, for example in the form of tax breaks, discounts, or greater incentives for innovation.
So, what happens next?
So far, Rise to the Challenger has been incredibly well-received not just by grocery press, but also by the Department for International Trade’s ‘Exporting is Great’ Campaign, GS1 and even the Food & Drink Federation have all stamped their name against the campaign.
We need you to get involved and help us spread the word. Download the supporter pack from the microsite here, and share the campaign across your channels as much as you can. The more people who hear about Rise to the Challenger, the more we can achieve.