Margins are being squeezed by increased production costs at one end and demand for cheaper goods at the other. It seems to me that the two are interlinked, where the drive for cost reduction inadvertently drives a demand for price reduction from consumers. I’ll use the humble peanut to explain what I mean.
Sun-Pat peanut butter delights
As a young lad at sixth form college, my mates and I went around each other’s houses during lunch break and would devour a loaf of toasted white sliced bread slathered in Sun-Pat peanut butter. Other brands were available, though not of the peanut variety. We were content with their monopoly, we loved our Sun-Pat. A decade or so later Good Earth came along, but I remained loyal to my Sun-Pat, despite the added sugar and palm oil. Recently however, I noticed Sun-Pat has been relegated to the bottom shelf with Pip&Nut and ManiLife transforming this humble shelf into a display of indulgence.
Who would have thought the simple peanut could be elevated into a luxury product, but it has. There are claims of ‘Argentinian sourced peanuts. Why is that better? What’s wrong with former US President Jimmy Carter’s southern states variety? Well, single source is important for premium wine, cheese, coffee and tea, so why not peanuts? They are also hi-oleic (I had to look that one up as the jar was not very forthcoming on this) i.e. apparently very good for your heart, which is sadly lacking in Jimmy’s US variety. The half of the population that are not heading towards obesity will pay more for things that are going to make them healthier so a win there. They also go beyond the normal crunch and smooth variants with salt and sweet and high roast, borrowing from other indulgent categories to enhance their status.
It’s all in the packaging
Also, they have moved their packaging away from the category default of tall-shouldered jars established by Sun-Pat back before I can remember – a packaging icon that was copied by own label and Whole Earth, turning it into a category identifier not a brand asset. It also made you think Sun-Pat manufactured the cheaper own-label stuff. Even if they didn’t, it further diminished the brand. Pip&Nut and ManiLife meanwhile, have put their premium nut alternatives in precious little jars creating a halo tier on shelf that elevates the rest of the range.
All the while Sun-Pat has been driving costs down and clearly refusing to invest a penny back into innovation, branding, or packaging, in order to maximise their dividends. For decades that was OK because there was no threat from competition – then these upstarts from Argentina wiped the floor with them with new ideas and modern branding. Sun-Pat has achieved its aim in being the cheapest brand, but it now has the least value and so sits forlorn on the bottom shelf. I can’t help feeling both these new brands have passionate people behind them, whereas Sun-Pat is run by accountants – but who is making more money?
I’m a total convert to these new products after being a Sun-Pat loyalist for decades. Not because of the branding, or varieties, or the claims, which of course drew me in, but because the peanut butter is so damn good – scrumptious, oily, unctuous, drippy and crunchy. Why was I eating that horrid over processed, cost reduced and meddled-with beige paste all those years when this is what peanut butter could be like?
I hope my peanut story has some lessons for us all. Just because you don’t have any decent competition today doesn’t mean someone won’t come in from left field. If you are a leader you need to innovate to stay the leader. (psst! entrepreneurs have a look around for brands resting on their laurels).
There will always be ways to add value if you know where to look and have faith to invest in them. Your packaging matters so needs investment even though it’s costly. You need to build a range and create tiering not only to offer more, but also to build a strong brand image. Don’t just listen to your loyalist consumers there are other people out there who are up for a change. And finally, the numbers never lie, but they do lack imagination and passion, so don’t let the money men take control because they could lead you down a dead-end.
