NO NAME GAINS FAME 

Once upon a time, there was patriotism, nationalism and loyalty. In rapidly changing times, break-down can occur anywhere and will spread among many fields. The same environment that dissolves political choice and TV channel or car preference can dissolve brand loyalty to a food product.

It was not always thus. During the 1980s established brands rode a rising wave to profits for all ... investors, packagers, promoters and advertising agencies. In some cases, the goodwill attached to a well-advertised brand was worth more than the actual factory that produced the product.

Forbes magazine has recently published an in-depth story describing what is happening today, as consumers once mesmerized by such names Heinz, Hershey, Kellogg, Clorox, Kimberly-Clark start slowly switching to house brands. The lead-up and changes are interesting. With slow inflation in the 1980s, the cost of producing brand products increased very slowly as the cost of basic materials only increased at the pace of molasses. Consequently large marketeers boosted prices faster and profit margins became a seller's dream. "Soaps and cereals went up five or eight percent a year" according to Forbes. And profits boomed. "Heinz's earning climbed at an average 13 percent annual rate in the past decade, Clorox's at 15 percent." In "a decade when the market went up only 200 percent" a host "of other such companies showed market gains of 600 percent and more in a decade". This resulted in a decade of take-overs and mergers at ever escalating billion-dollar figures. Obviously, it had to peak sometime. That time is now.

Consumers facing heavier taxes, lower income increases and a general economic slow-down are viewing food shelves through different eyes. When once they wouldn't think of buying anything but top name brands ("keeping up with the Jones" also had an effect), they now look twice at such brands as Quaker Oats whose price increased from 73 cents for an 18-oz box in 1980 to $1.73 today. Shoppers take longer to price compare and find a house brand much lower in price. Why? Perhaps because, during the past decade, as pointed out in the Forbes report, the wholesale price of oats went down by a third", yet "today's retail price is 3,000 percent higher than the price of raw, unprocessed ingredient." This leaves a wide spread for house brands to move in. And, this is just what is happening. In New York, house brand oatmeal now sells 35 percent less than Quaker Oats. As consumers abandon well-known brand names, lost profit reduces advertising budgets (especially for debt-ladened take-over companies who gambled on being able to raise prices forever) which causes ever more customers to choose house brands, who fight the price battle with coupons and retailer rebates. The same has happened recently in the automobile industry, with U.S. carmakers attempting to compete with the Japanese.

Everything is related. As shoppers switch from high-profile brandname foods, profits for promoters drop. Their reduced budgets hit the TV networks who then find their costs escalating and viewers departing at a horrendous rate. Most networks viewing audiences have dropped 30 percent since the 1980s.

Buyers who try switching often find they like it. They may continue to switch constantly instead of blind allegiance to formerly favorite brands. Switching itself becomes a habit and that opens wide the whole market to sudden, violent swings in selection based not on promotion and the resultant reaction from a mass market, but newer, more intimate forms such as couponing at the point-of-sale which appears more personal and still allows shoppers the freedom to change their minds tomorrow. Advertising starts to switch to community newspapers and speciality food magazines from large city dailies because they appear more intimate, relevant and community-minded. All this accentuates the process.

Worry not. Alert grocers who can walk on quicksand and dance with electrons will have a bright future.

Detailed report appears in the September 16, 1991 issue of FORBES.

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