Small brands are back in the hunt. Kantar Worldpanel’s tracking of brands around the world that are growing finds a big jump year-over-year in the percentage of growing brands accounted for by small brands.
If big brands were growing in equivalent relative numbers, we wouldn’t see a shift in percentages, so this tells us that, as a size class of brands, small brands are doing a better job of growing. This new news is also old news. Prior to the pandemic, headlines were all about the inability of large brands to grow their toplines even as small and medium-sized brands were growing rapidly. That changed with the pandemic. As noted in Kantar’s 2020 Brand Footprint report, “the biggest brands have disproportionately won.” But as the marketplace has moved past the worrisome year of 2020, when big brands offered consumers much-needed stability, small brands are looming large again.
Some of this is arithmetic. An equivalent increase on a smaller base is always a larger percentage. But equivalent gains are rarely the case. So, free of context, arithmetic can be misleading. But not all arithmetic. In particular, starting small means more upside. Kantar’s 2017 Brand Footprint calculated that “for global brands, there is an 8% chance of growing penetration every year over five years. This rises to 10% for small brands…and falls to just 6 percent for [super brands].” Yet, there is a paradox in this arithmetic when managing a portfolio of big and small brands. Whatever the potential of small brands, big brands in a portfolio must come first because the “gains that can be achieved from growing a small brand are considerably smaller than growing a much larger one.”
In other words, the arithmetic of growth may favor small brands, but the arithmetic of value always favors big brands.
Value versus valuation. Broadly speaking, big brands are playing a different game than small brands. All brands try to build worth and wealth for their owners. But small, venture-backed startups are seeking a valuation for sale or float. Profitability tends to be secondary to growth rate. In contrast, big brands are measured by profits and returns to shareholders. This is not to say that valuation doesn’t matter, only that it is tied more to bottom-line value than to topline growth. (Even for big companies, new brand launches are often unprofitable until they scale.) Now, obviously, I’m over-simplifying, but the basic principle remains—small brands are usually managed for valuation while big brands are usually managed for value. So, comparing big and small brands in terms of growth is not always a fair or relevant comparison. However, it does offer an important clue about what’s happening in the marketplace.
Empowerment. There are always more small brands than big ones. This, too, is arithmetic. But small brands will capture an increasing share of opportunity only when they are hitting the mark better than big brands. Which seems to be the case now. Consumers have come through recent disruptions with an invigorated desire for empowerment—to take control and to pivot the direction of their lifestyles. Part of this is less exposure to risk. The bigger part is more powerful ways of unlocking the benefits of what is newly important. Small brands run this gamut. Locally-sourced brands. Niche-taste brands. Personalized brands. Craft brands. DTC brands. AI brands. On-demand brands. Biotech brands. Natural brands. Purpose-forward brands. Planet-friendly brands. Identity-affirming brands. Even store brands. In one way or another, small brands are delivering big empowerment.
Contributed to Branding Strategy Insider By: Walker Smith, Chief Knowledge Officer, Brand & Marketing at Kantar
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