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Small Retailers: It's your time now!

The retail and consumer products sector is the sector we tend to understand. If we’re spending money in shops, the economy is fine. If we’re not, it’s doomed. Well, simply speaking of course!

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Brexit was supposed to cause our nation some significant disruption, particularly in retail and trade and should have had us running to the bank to padlock our bank accounts and pile in to the nearest underground shelter for safety. But it didn’t and we didn’t and there was no real disruption to be seen. Instead we just threw on some sunglasses and went to Oxford Street for some retail therapy.

The British Retail Consortium announced that retail sales in July rose by 1.9% and Barclaycard has reported that in the month following the referendum result, spending in pubs, restaurants and cinemas rose sharply. Furthermore, the warm weather drove appetites for picnics and barbecues, lifting sales of food and drink while summer promotions and holiday preparations boosted fashion purchases, which was helped by some brands offering extended sales to cover pre-referendum dips. Hardly disruption, is it?

Well bizarrely, the biggest, un-disrupted sector today experiencing the most disruption is the retail sector. However, ‘good’ disruption, driven by innovation, with the entire landscape shifting away from the clutches of the large behemoth retailers.

Packaged foods, beverages and apparel are three of the largest consumer segments in the world. By comparison, enterprise software and internet advertising are a mere fraction of what we spend on the aforementioned. For years it has been very difficult for small, entrepreneurial businesses to get their products to market although now, the tables have well and truly turned, leaving the big retail brands too big and consequently too slow to react or control the change.

The retail sector spans a huge landscape, once dominated by only the large market players, but we’re seeing these brands falling down. Across the last 12 months, Forbes has reported that 90% of the top 100 consumer brands lost market share, rendering some terrified faces around the large boardroom tables.

Young brands in almost every consumer packaged goods category have pulled ahead and the emergence of new growth levers have shifted the powers from the legacy consumer brands to millions of newer, small ones.

How? Well, the main reason is the ‘fussy millennial’, insisting on everything personalised which the large retailers have failed to deliver to.

Millennials are demanding more personalised product-offerings that meet their unique preferences. Be it organic, vegetarian, fair-trade… this isn’t simply a quality issue where the middle grocery aisle products aren’t up to the job, we just don’t want middle of the road, generic products anymore. we want everything personalised. Carbs and sugar are OUT, gluten-free, natural, high-protein, sugar-free, vegan and high-fibre are IN. The good old 6-pint semi-skimmed carton of milk has gone ‘off’, replaced by soy, almond, hemp, rice and coconut milks. Forbes also reports that millennials could very well drive 75% of growth in food and beverage over the next decade

The problem for the large ‘strategics’, like Coca Cola or Burger King, is that they have huge complicated supply chains and in many cases, unhealthy products. While massive brands focus on driving efficiency, consumers are moving towards better products, like Pod or Itsu, as well as smaller brands in coffee, snacks and personal care.

New distribution channels now support the small retail brands where big supermarkets like Sainsbury’s and Tesco, once charging exorbitant fees for retailing products that only large consumer businesses could afford have now been dropped allowing smaller, personalised brands onto the shelves. This is why we have been stuck with the same chocolate bars and breakfast cereals for years with large brands monopolising the shelves with generic, stale, branded products.

In reality, supermarkets have had no choice but to remove the barriers to small consumer brands as the need to compete with direct marketing and digital sales has been profound. Online sales and the ease of e-commerce has allowed small brands to get products to market. Amazon, Deliveroo, ASOS and have all helped drive new and better product experiences, meaning that supermarkets, restaurant chains and department stores have had to make it easier for small brands to get products on to their shelves. Those that make it difficult will soon cease to exist.

The transformation in consumer and retail has created a phenomenal opportunity for innovative entrepreneurs in the sector. Having moved away from monopoly, we are back to supporting the small brands. From a corporate finance perspective, investors are very much favouring the small start-ups with significant opportunities for lucrative exits. The millennial disruption has placed control well and truly in the hands of the consumer.

About time, right?

Richard Lindsay is the Principal in Retail.

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