Confronting Category Challenges
The less discussed threats of challenger categories and increased private label activity represent long-term obstacles for legacy brands. New categories previously overlooked can quickly become hubs of innovation, drawing consumers away from less nimble competitors. Meanwhile, from the other side of the innovation spectrum, premium private label can deliver high quality products without the price to match. Between the rise of challenger categories and private label pursuers, how can we continue to unlock growth potential in the complicated and fast-changing food business? Here, we break down three different types of emerging threats by connecting them to underlying and underserved consumer needs created by shifting definitions of value.
First, what is a category challenge?
A category challenge can represent an inflection point in a life cycle of a category. It is a threat that can either spur the category on to greater innovation or lead to its decline.
We have localized these category challenges into three distinct groups.
1) Threat of upstart brands. An upstart brand is a brand that comes into a category and rapidly gains market share because it has a new conception of how that category could be considered. It taps into latent desires that consumers might have for that category. This can act as a catalyst for quick change in the very definition of the category. Upstart brands certainly garner a lot of attention in the press because of the disruption they cause, but moving beyond the threat of upstart brands are two longer-term threats to the category status quo.
2) Threat of challenger categories. A challenger category is one that is sufficiently similar to an incumbent category that consumers could replace it with the challenger category. They might do so if the challenger category offers additional benefits that the incumbent category does not possess.
3) Threat of private label pursuers. A private label pursuer is the ability of private label, especially following more premium private label strategies, to act as fast followers or even leaders in some categories and thus force brands to innovate more rapidly to stay ahead of where private label is.
Because upstart brands get so much attention in the press and we’ve written about them and covered upstart brands at Hartman ACT Food Culture summits, we’re going to focus on the two longer-term threats that might go underconsidered when we’re thinking strategically.
Since challenger categories and private label pursuers are longer-term threats and because their impact takes a longer time to play out on the category, to understand how they might work, we need to look a little more historically than traditionally we might otherwise do.
Case in Point: Margarine
Let’s think about a category that is not discussed all that much these days: margarine. Looking through the lens of time, back to the 1980s and 1990s, imagine how consumers viewed margarine in those decades.
A 1987 headline in the Washington Post is an example of how consumers’ perceptions and knowledge have shifted over time. It proclaimed, “Spread the Word About Margarine: Nation’s Fixation on Fat and Cholesterol Has Caused Preference by Consumers.” This article explained the health benefits, in particular, the heart health benefits, that margarine had. This, of course, was well before what we now know about trans fats.
By the time the 1990s rolled along, margarine was still an iconic American category. Articles, advertisements and cartoons from the period speak to how consumers were having to make the choice between butter and margarine, and which would best satisfy their needs. We came across a cultural artifact in the form of a 1990 article appearing in the Chicago Tribune about a taste test they conducted pitting leading margarines against butter. Butter came out on top in their test then, though some of the testers preferred the taste of margarine.
At the time, butter and margarine were viewed as essentially sensory equivalent. Margarine was not perceived as inferior to butter but was just a cheaper substitute. In many cases, margarine at that time was perceived as healthier.
Today, we certainly don’t share these views, so something must have changed in the culture. Despite being a key element of American diets for more than 30 years, peaking at more than three times as much consumption as butter, margarine had a fairly prodigious decline. Three key shifts in food culture brought down margarine as an incumbent category:
• Rise of fat as a demonized macro-ingredient (starting in 1993 and peaking in the early 2000s)
• Awareness of the dangers of trans fats (mid-90s to mid-2000s)
• Rise of desire for minimally processed foods (2008 to today)
All three, acting in concert, led to margarine’s downfall. Although American fat consumption dipped slightly in the height of the low-fat craze, today we are eating as much fat as we ever have. So where did all those margarine eatings go? What are the challenger categories that benefitted?
Margarine lost out primarily to olive oil in particular and vegetable oils more broadly. As margarine declined, other categories captured occasions that previously belonged to margarine, raising the question: why the switch?
While it may seem like too obvious a question to ask, given what we already know, olive oil had a strong suite of benefits that connected to consumer demands — monounsaturated fats, antioxidants plus other more nebulous health benefits, reduced processing. These attributes ladder up to consumers’ desires for heart health, minimal processing and premium flavor experience.
• The category status quo will change — either in the short term from upstart brands or in the long term from challenger categories and private label pursuers.
• Incumbent categories are woven into consumers’ lives — but challenger categories can replace them if they offer a compelling set of benefits.
• With consumers’ purchase priorities in flux, understanding clearly the reasons they engage in your category is necessary to determining if a challenger category is a real threat or a paper tiger.
• Consumers are open to private label and view it as equal to brands on several rapidly mainstreaming need states. However, brands still hold key advantages on other need states.
• Premium private label can fight on brands’ home turf by leveraging connections to modern food culture.