The Threat You Might Not See

By Marina Morskaya, VP, Client Business Partner​ (Coca-Cola, Corporate)​, and Ayaz Matin, ​Client Manager

At what point does a company become competition to others already in the market? For many large, multinational global brands, other companies don’t become competition until they’re operating at the same scale and in similar markets. As a result, global companies often don’t pay much attention to the small brands that operate well outside of their global peripheral vision.

Today, however, scale is no longer a prescription for success, particularly in the fast-moving consumer goods (FMCG) industry. Notably, global manufacturers across many FMCG categories are experiencing slowed growth and are not capturing their fair share of the growth that is obtainable. Said another way, the FMCG landscape has proven challenging in recent years for many brands, yet when opportunities do arise, multinational brands are not as successful in capitalizing on them as they have been in the past.

There is no single reason why multinationals are experiencing slowed growth. While factors like digitalization, the prevalence of choice and economic elements can play a role in any company’s success in today’s market, global competition isn’t causing the decline for many multinationals. Rather, they’re facing increased competition from B brands—the small brands that fall outside the realm of multinationals and store brands. While these “invisible” brands don’t typically pose a competitive threat individually, they can shift the balance within a specific category when a group of individual brands are involved. Said another way, a large group of B brands can be a significant threat to a multinational brand in ways an individual brand cannot.

To illustrate, let’s look at the carbonated soft drink category. Globally, soft drinks generate more than $108 billion in total sales. What might be surprising, however, is how much of that comes from about 1,900 B brands: 13%, or $12 billion. Notably, sales from individual B brands aren’t consequential on a global scale. In aggregate, however, the effect is much different.

If you’re a multinational brand seeing the stats above for the first time, you might think the worst: that B brands are taking over and global brands will ultimately fall out of favor. Or if you’re a steadfast believer in the power of scale and resources, you might think your operation has what it takes to beat the odds and thrive indefinitely—just like it has historically.

But regardless of which school of thought you might fall into, Nielsen data can prove that neither are true. In fact, our research shows that small brands are growing and identifies some of the reasons they’re able to improve their commercial successes.

For example, if we look back to the soft drink category, we know that “challenger” brands (characterized by mainstream pricing and compete directly with mainstream multinationals) pose the largest threat to global brands. That’s because they account for $7.5 billion in annual sales. What’s more, a select 25 brands in this segment accounts for 50% of those dollars.

So what attributes fuel success among these challenger brands? Given their goal of facing multinational brands head on, B brands in the challenger segment focus on authenticity and nostalgia. To do this, they keep their pricing in line with the market, use familiar flavors, focus on country-level appeal and appeal to consumers seeking a sense of traditionalism. Combined, these traits appeal to consumers in the same way that global brands do, and, in aggregate, are shifting sales in the process.

But getting back to fearing the worst if you’re a multinational brand: don’t. Yes, we’re seeing growth among B brands, but there is still a bright future for big, global brands. It’s also worth noting that only a fraction of the invisible brands in the market are successful. Even so, however, the future of individual multinational brands will depend on the strategies they employ in the next few years. Since growth has historically gone hand in hand with scale, global companies will need to adjust their growth algorithm. Said another way, they can no longer bank on scale to deliver growth.

Global companies should take the success factors employed by invisible brands to heart, namely their agility and ability to target at a very specific level. Combining functional, social and emotional attributes in innovation and design will be paramount as global brands carve a path for growth and stay ahead of invisible brands.

For additional insight into invisible brands, click here.