Large retailers have been a dominant force in the American economy for years, but recent trends suggest the market is shifting. An article in The Economist details the rising tide of microbrands and the potential sea change on the horizon.
The biggest 25 food-and-beverage companies, for example, generated 45% of sales in [this respective] category in America but drove only 3% of the total growth in the industry between 2011 and 2015. A long tail of 20,000 companies below the top 100 produced half of all growth.
We see and hear about prominent microbrands in the media (and on numerous internet and podcast adds) like Warber Parker or Brooklinen, but these numbers from The Economist are startling and impressive. The balance doesn’t have to shift much more before the majority of sales in the U.S. are small companies and microbrands.
The barrier to entry for a lot of businesses is shrinking. There have been huge improvements to and a simplification of vertical markets; a variety of shipping and logistics solutions have cropped up that are relatively cheap and easy for small companies to use.
This change in landscape is also, of course, tied up with the rise of the internet and easier, more seamless direct-to-consumer transactions. Large manufacturers rely on large retailers and distributors, and thus have a much more disconnected relationship with their customers. Microbrands proximit to their customers gives them leverage with their customers, and allows them to spot and react to their desires much more quickly.
Selling directly to consumers means that microbrands boast a wealth of data. Mr Sorensen launched his business online in January 2018. He sold $50,000 of snacks and then, on the basis of data gleaned, Blake’s Seed Based changed its recipe and relaunched in September. m Gemi, an online seller of posh shoes, offers new designs weekly so can [sic] respond precisely to consumer demands. Their giant rivals, by contrast, use data filtered by retailers.
What does this mean the landscape will look like in the future? The Economist quotes some predictions:
In the long term some small brands will be swallowed up but others will be encouraged, argues Sonali De Rycker of Accel, a venture-capital firm. More will want to remain independent for longer, or entirely, which will mean larger deals or ipos.
To flourish, incumbents will not only have to acquire these new brands or start their own; they will have to learn from them. And instead of having a discrete set of multi-billion-dollar brands, sold through third-party retailers, they will have to come up with larger portfolios of smaller, more transitory ones, argues Mr Rothenberg. Scale still matters, but it will have to be used more shrewdly.
Acquire or compete — these are the only options. But small agile brands, confidently banking on private success or an IPO, are going to be hard to conquer. We’ll see what they can do.
Read the whole article here.