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In the grocery supply chain, the dish has run away with the spoon, leaving the fork scrambling to match their combined demands. That is, grocery retailers seemingly have teamed up with their customers to demand more organic, small batch, and local products. Large manufacturers, especially the massive brands that have long dominated grocery store shelves, are the odd ones out, and smaller, tailored food producers have been only too happy to step into the void.

Organic produce aisle in supermarketTake Amy’s Kitchen as an example. Since its inception in 1988, the organic food brand has sold frozen and packaged meals, such as organic enchiladas and a natural macaroni and cheese offering at small retailers. But in recent years, as consumers have demanded more and more natural and organic options, major national retail chains have approached Amy’s as well. To be able to supply national chains such as Piggly Wiggly, Amy’s expanded to a second production facility—which it purchased, rather ironically, from H.J. Heinz.

This transfer is symbolic. Whereas once the national brands like Heinz and Kraft could count on receiving preferential treatment and the best placement from their retail partners, those relationships are changing. Retailers apparently have determined that their first priority needs to be stocking what consumers want to buy, not what their suppliers want to place in their stores. In some cases, the retailers even proactively seek out alternative options that might appeal to their shoppers. For example, Kroger worked with a small, local pancake mix manufacturer from Colorado to develop its product and packaging. After allowing FlapJacked to test various marketing strategies and flavors in its Colorado-area stores, Kroger added the products to more than 500 of its stores across the country.

Of course, the big manufacturers are not just ignoring these trends. Many well-known brands have introduced organic or all-natural product lines, including Campbell’s organic soups and Kellogg’s Origins granola. But the size and long-standing reputation of these companies—once among their most valuable assets—may be liabilities in this altered market space. As one observer noted, no one is ever going to accept the notion of “organic Velveeta.”

In contrast, the small companies are little known, which means they can start telling their brand stories to a fresh audience and set the terms of their reputation from the start. They also can choose whether to hold firm to their outsider status. Annie’s Homegrown, another organic, packaged food manufacturer, recently sold to General Mills. But Amy’s insists it will never go that route, because it wants to maintain control over its production and priorities. As long as its retail partners are in its corner, it appears likely to be able to continue to do so, no matter which of the big food brands come calling.

Discussion Question:

How and why are assortments changing in food retailing?

 

SOURCE: Leslie Josephs and Annie Gasparro, “Balance of Power Shifts in Groceries,” The Wall Street Journal, March 26, 2015

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