BrandWatch by Michel Gutsatz

Health Allegations: Kellogg and Others

April 2009: The FTC (Federal Trade Commission) pulled up Kellogg (see decision here), which had proclaimed, on its packaging and in its advertisements, that its "Frosted Mini Wheats" cereal was "clinically shown to Improve kids' attentiveness by Nearly 20%".  Although only 11% of the children involved in the study in question showed a 20% improvement in concentration as claimed...

May 2009: FDA bans General Mills from claiming that their Cheerios lowers the rate of cholesterol (see the article in the WSJ blog).
November 2009: Kellogg is obliged to delete the claim that cereals build the immune defence system of children from its Cocoa Krispies packaging (see my post of November 7, 2009).
June 2010: FTC prohibits Kellogg from claiming that its Rice Crispies has health benefits...
 ... and the company decides, in order to settle this dispute, to avoid asserting the benefits relating to, "cognitive health, process or function provided by any cereal or any morning food or snack food", except if these claims were scientifically validated.

Actimel UK: Of course, this might lead us to think that all these examples only concern the U.S. - and that the new European regulations regarding health claims and nutrition claims will protect us from these marketing excesses. However, one of the major consequences of these issues was the withdrawal of Danone's Actimel and Activia files last April. Danone had also been targeted last October by the Advertising Standards Authority (UK) that banned an Actimel advertisement, stating that the health benefits claimed for the product had not been proven.

However, the most serious indirect consequences lie elsewhere: consumers lose confidence in brands, in advertisements and in their "green", "health" or "nutrition" claims (see the paper presented at the Sustainable Brands Conference 2010). By resorting to greenwashing and claims that are misleading, brands are merely feathering the nests of private brands.

Perfumer, Thy Name is Nobody

On 17 May 1979, during a meeting of the Société Technique des Parfumeurs de France (the Technical Society of French Perfumers), of which he was Vice President, my father Yuri Gutsatz, gave a speech at a conference which was entitled, "Perfumer, Thy Name is Nobody". He deplored the erosion of a "perfumer's perfumery" in favour of "marketing perfumery". He maintained that none of the companies that boasted of their creations in every advertisement ever displayed the name of its perfumers… since then, the world has not changed.

17 June 2010: Givaudan launched "iPerfumer - the first mobile counselling tool for choosing a perfume". Noting that, "discouraged by the extensive range of choices, many people eventually give up. Others still buy the same perfume, to avoid making a mistake. The studies we conducted in this area shows that, particularly among young people, there is no propensity to buy perfume, but on the contrary, they are enthusiastic about technology".  Givaudan (which bought Roure Bertrand, the company where Yuri Gutsatz spent his entire career) offers an iPhone application enabling consumers to select a perfume that corresponds to them. The process is simple: after identifying myself by sex, age and country, I am asked to take note of the six olfactory families proposed (Citrus / Chypre / Floral / Fougere / Oriental / Woody) - some famous examples are cited for each of them.  I can, if I wish, enter the names of perfumes known or used. Based on this information, a list of perfumes appears, my "list of recommended perfumes"....

This application has little interest - for at least three reasons:

• It is strictly functional and does not incite in me any desire to buy a particular perfume. In fact, it merely offers me a list of perfumes with no other information concerning them, except for photographs (when available) and their three olfactory families. This deficiency is appalling: I believed that the main qualities of "perfume" were fantasy and desire ... and I therefore looked forward to a story (the name of the perfume creator, for example). About N°5, I only know one fact: it is a powdery floral aldehydic that was launched in 1921!

• It is not very ergonomic: having finished entering my profile, for example, I could no longer access the olfactory families (except by creating a new profile...), the only one tool available for information...
• Consequently, it is not informative. In the end, iPerfumer tells us nothing about perfumes or perfumery, even though the overriding trend amongst 21st century consumers is, on the contrary, having unlimited access to knowledge.

I can easily imagine the brief: "How can we communicate with younger consumers?" Givaudan makes the same mistake as several other brands: An application that makes you neither fantasise nor understand the world is one that is doomed to failure…

The Rationalization of Product Ranges: the American Debate

At the end of 2008, Walmart announced the launch of a three-year growth plan, "Project Impact", one aspect of which was setting up a new merchandizing strategy, 'Win, Play, Show":

• Strengthen the categories "Win" and "Play" (major categories and those with high potential), by increasing the range and improving the visual display of the shelves.
• Maintain the category "Show" (low importance and reduced potential) - and whenever possible, rationalize the assortment... in other words, reduce it.

The debate on "SKU Rationalization" was launched. Walmart was pleased with the results: "Our 'win, play, show' merchandising strategy has resulted in greater clarity of our offerings across the entire store and therefore cleaner assortments. We will continue to accrue benefits from 'win, play, show', strategy this year". (Eduardo Castro-Wright, Vice Chairman, Wal-Mart Stores, Inc.)... and announced reductions in the number of references of as much as 18% in some categories. This is reflected by both a net reduction in varieties, and for the first time, by the disappearance of entire ranges of products. U.S. retailers have put forward the fact that increasing the ranges and new product lines did not create any value - and therefore unlisted them in order to increase the productivity of their shelves. After Walmart, most of the other distributors did the same: Kroger created a similar programme with dunnhumby, Walgreen launched its "Customer Centric Retail Program".

This movement was accompanied ... by the development of their own private brands: Walmart thus unlisted the Glad and Hefty packaging products and replaced them with the Great Value references. The reasoning is simple: "I un-list brands that are non-leaders - keeping the two or three most important brands for the most part... and I replace them with a private label".
The results were diverse - and largely depended on the category:

• Wal-Mart just announced they were reintroducing 300 to 400 grocery references: "There were some examples when we thought we could take a product out of the assortment and the consumer would substitute something [else], and We made a mistake...".
• Giant Food Stores (a subsidiary of Ahold) have made public some of the results of the experiment they conducted on 20 categories since 2009: in frozen vegetables (where they reduced the selection by 13% - from 217 to 188) sales stagnated in value but the margin, sales volume, and number of customers increased / cooked chicken (which was reduced from 69 to 63 references) saw increases in value, volume, margin and number of customers / on the contrary, the fruit juice category yielded poor results.
• A recent study by Nielsen ("Too Much Choice and Variety: Assortment Realities") shows that in 2009 the market share of private labels increased at the expense of entry-level national brands and new products; "premium" national brands remained stable.
  
  

I am convinced that the process of rationalization of product ranges is just beginning and will spill over U.S. boundaries:

• Retailers will learn how to manage their references better and will gradually reduce the number – by fine-tuning their market tests.
• They will use the opportunity to durably install their private labels.
• The secondary national brands, variants like the "me too" ranges without real added value will be the first victims of this rationalization.
• The leading national brands have already reacted on seeing the opportunity that this movement offers them - and their flagship products: "We're pushing it because it will make room for our power items that are out-of-stock all the time and have to be continuously replenished, and we're trimming our own portfolios and seeing productivity enhancements". (Survey conducted by Bishop Willard among vice presidents of sales in 25 companies).

A&P's Private Brand Strategy

In less than three years, The Great Atlantic & Pacific Tea Co., a distributor in northeast America, has completely revamped its private brand strategy (see Store Brands Decisions for the complete document). It deserves a detailed analysis.

1. A&P has 435 stores, with four different formats (and 6 store names): Fresh (A&P, Waldbaums, Superfresh) / Gourmet (The Food Emporium) / Discount (Food Basics) / Price Impact (Pathmark). The choice of private brands was made by adapting to the format, the ensign, the store itself and the profile of its catchment area - in a completely flexible manner: "We don't change the strategy of own brands based upon store format. We also don't take a carte blanche approach and put items everywhere. What we do is provide that portfolio of brands within each one of those formats and we determine what best suits what best suits their customer base".
2. To implement this strategy, A&P hired Doug Palmer who successfully launched the "O Organics" private brand at Safeway (which I have several times spoken of on BrandWatch): This is a private brand that is today the leading organic brand in the USA.
3. The private brands (which represent 18% of sales volume) were structured in a conventional 3-level manner (Hartford Reserve as a private label Premium / America's Choice as core range / Smart Price as entry-level) with the creation of two transversals that are completely new: Green Way, an organic private brand and Via Roma, an Italian private brand.
   
   
   
   
   
   Each of these private brands was structured like a real national brand: they carry a story, have a strong graphic identity ... and are presented mostly as independent sales displays, giving them even more impact. Via Roma is in this respect, a real success: it conveys authenticity, proximity, fun ... and not the nth 'Italian brand" of the market (all the visuals are pictures of the inhabitants of an Italian village).
   
   
   
4. There is no mention of the retailer and its stores on the private labels. If one considers the "O Organics" case (which is now present in several stores in the U.S. and abroad), the objective is clear: distribute these private brands at other retailers.

A strategy that is comprehensive and sophisticated - modern design, proximity to consumer expectations: this is in complete contrast to the French strategies where private labels are all standardized under a single store name. Will the sole French distributor who can develop such a strategy (Intermarché) take inspiration from it?

Do you know polyvore.com?

"Polyvore's mission is to democratize fashion", said its Managing Director, Katherine McClymonds, at the recent WWD Social Media Forum. Polyvore, Chictopia, Kaboodle: They are the new "social shopping community sites".  What are they?  Each member of the Polyvore community shares information about their favourite outfits and products with all the other members: They coordinate outfits, create collages and mood boards that other members comment on, rate and recommend ... The number of visitors that these sites receive is phenomenal - and they have even recently exceeded those of fashion magazines or websites like style.com
Their success is easily explained:

• Crowdsourcing: The consumers themselves are the creators and judges... Everyone is free to express their creative talents and express an opinion, show their favourite products to the community (like on Kaboodle, where the range of products extend far beyond fashion).
• One can (indirectly) buy the products shown: tie-ups with merchant sites (amazon / netaporter / brand sites...) allow Polyvore to generate income.
• A magazine section that gives members tips, information, advice...

Some brands quickly realized the advantages of such sites: Coach organized a contest on Polyvore during the Christmas season, sending the creations of its members to its own Facebook page in order to select the winners.  Diane von Furstenberg asked members to vote on models from her Fall-Winter collection in order to understand the expectations of her clients better. Thus brands - who wish to retain the control of their image on their site or their blog - can now dialogue with their consumers on sites like this: Web monitoring (where one of the partners of The Scriptorium Company is present) should become an essential part of communication and brand distribution strategies.

Distribution: The inexorable rise of the Net

I received two pieces of information in quick succession which I propose to compare for you:

• Maria Luisa, one of the emblematic fashion boutiques of the last 20 years, has announced that it is closing down.  Its founder, who actively participated in the launch of designer labels and niche brands in this Parisian boutique, decided to transfer her entire business to an Internet site.  The new site, called thecorner.com, will be administered by Yoox.
• Netaporter.com (with a turnover of £120 million, bought by Richemont last April for £ 350 million), is launching a site dedicated to the man, Mr Porter, in January 2011.

Here two facts are important:

1. Yoox and Netaporter/Richemont: a confrontation between two opposite business models. We have analyzed Yoox's strategy in length on this blog (see post of November 2009): to become the indispensable e-commerce provider for luxury brands. The Internet, representing slightly less than 5% of luxury sales today, will most likely reach 15% or even 20% very rapidly. Yoox's strategy is clear: Control all the know-how indispensable to the distribution channels of major luxury brands. The latter - after having resisted e-commerce for a long time - have started outsourcing it - and thereby losing control over it. Richemont's strategy then becomes very clear: to learn these skills and transfer them to all its brands ... and to avoid having to depend on an external provider.
2. The difficulty of having only a shop today consisting solely of 'brick & mortar "- however innovative it may be. At a time when (international) luxury consumers are also adept users of the Net, a presence as limited as a boutique in a given country makes little economic sense. The future of independent networks is either exclusively online (like netaporter.com), or an integrated "click and mortar" presence: with an international network of sales outlets AND a strong presence on the Internet. Rising prices of retail surfaces in prime locations worldwide are very likely to encourage these boutiques to expand their e-commerce offering, to help make their sales points profitable.

China: A Market and a Source of Inspiration for Luxury Brands

Last February, China Car Time published the sales figures of the major German luxury car brands in China: one cannot but be amazed by their progression, smack in the middle of an economic crisis. Audi - which is far ahead as No. 1 (it is THE car used by the government and was also the first brand to be manufactured in China (since 1988)) - sold 160,000 cars in 2009, BMW 90,500 (+38%), and Mercedes 70,000 (+65%). In the month of January 2010 the pace quickened: Audi +115%, BMW +122%, Mercedes +147%. In an automotive environment that is morose, to say the least, China has proved to be a huge market. Here are some statistics:

• Annual sales of Audi cars in China will soon surpass sales in Germany: During the two months of January and February 2010 Audi sold 31,906 cars in China as against 27,304 in Germany. The next launch of models such as the A3 should allow the brand to penetrate the young-urban market (and to change its image as a car "for middle-aged bureaucrats"...).
• BMW announces the launch of one of its BMW Art Cars (similar to the one unveiled this week in Paris, designed by Jeff Koons) in China: "As we deepen cooperation with Chinese artists, I am positive that the first-ever BMW Art Car designed by a Chinese artist Will be unveiled in the near future". Until now Matazo Kayama, a Japanese artist, has been the only one who had this honour in Asia.
  
  
  
• Ferrari stole a lead on BMW by asking a Chinese contemporary artist, Lu Hao, to design an exclusive edition of the 599GTB Fiorano: The artist was inspired by Ge Kiln porcelain of the Song Dynasty when he designed the shell of the car. The interior is no less remarkable: "The ignition button is carved from jade and inscribed with the ancient Xiao Zhuan symbols for 'engine start', while other novel additions include a rev-counter with Chinese characters, a matching luggage set embroidered with the route of the silk road - traditionally the most important trade routes in China - and an engraved plaque unique to each car". 

  
  
  
  
  
  

At the same time, Prada came out with a 9-minute film entitled, "First Spring", directed by Yang Fudong, Director of the epic cult film with its references to the history of China "Seven Intellectuals in a Bamboo Forest". (Yang Fudong recently also created an amazing installation presented during an exhibition at the Ullens Center for Contemporary Art in Beijing (thank you Clara Feder for the photo!)).

This short film, superbly beautiful in black and white, takes us to a world reminiscent of the “Shanghai Dream” as it existed in the period between the two Great Wars.

Thus European luxury brands find in China - not only a market - but also a source of inspiration. By using Chinese artists they recognize the significant status that contemporary Chinese art has attained in recent years, but also the important place that China itself holds in our collective imagination.

Luxury, Craft & Know-how: A Trend Confirmed

It is with pleasure that I welcome Laurence Ouaknine on BrandWatch. Laurence is the creator of "Au Coeur du Luxe" ("At the Heart Of Luxury"), a company specializing in luxury brand retail based in Paris, Hong Kong and Shanghai. "Au Coeur du Luxe" is one of the partners of The Scriptorium Company - and an important associate for the Asian market.

In partnership with the French Chamber of Commerce, Hong Kong just hosted the 2010 edition of "Boutique Boulevard: So Lush, So Central" - the rendezvous event of luxury brands in Hong Kong.
From 14 to 23 May, the most famous brands organized a series of encounters with professionals in luxury who were able to display, to their numerous fans in Hong Kong, their savoir faire, and share their exceptional universe with them.

The event that opened with an evening reserved for the happy few, took place in the most dynamic sector of Hong Kong, the Central District. The itinerary, running through the district, linking the various malls dedicated to luxury brands, allowed one to wander from one boutique to the other and watch the demonstrations:

• A workshop (Scents & Sensibility) proposed by Guerlain and conducted by one of the creators of L'Instant by Guerlain, Ms. Sylvaine Delacourte, showed why and how to wear a fragrance.
• A workshop dedicated to the art of shaving (twice), presented by the barber of the prestigious Mandarin Oriental, Angel Gonzales.
• Advice from the French sommelier, Pierre Legrandois.
• Besides which, a number of brands, from Dunhill and Tiffany & Co to Armani, Cartier, Gucci, along with Louis Vuitton, offered workshops in dressmaking and presentation with tips on fashion and etiquette.
  
  
  

As luxury and art are mutually drawn towards each other, a temporary gallery of paintings and artistic events (flamenco, tap-dancing, jazz) were organized during the event.
This event also echoed the "Savoir Faire Exhibition" held from 30 April to 2 May by Dior in Hong Kong for its new "Rosewood" jewellery collection.

Held for the first time in Paris last year, "the Dior savoir-faire exhibition" helped to firmly establish its unique jewellery pieces as an expression of the expertise and the creative passion of Dior.

Encouraged by the success of the Paris event, three jeweller craftsmen made the trip to Hong Kong this year in order to demonstrate their expertise and display the new Rosewood collection. This collection, designed by Victoire de Castellane, consists of thirteen models and pays tribute to Christian Dior's favourite flowers: the roses from his garden at Milly-la-Forêt.

Where does this obsession for luxury brands to organize this type of event stem from? What advantage do they gain?
This type of 'seduction operation' that presents the savoir-faire of the most prestigious brands is very popular and highly appreciated in Asia. Indeed, with the increasing numbers of Chinese nouveaux riches, luxury brands try to teach their current and future clients about the values on which their reputation in Europe is based. Among these values, craft, expertise, and the demonstrations of the meticulous gestures of skilled workers, validate their legitimacy and the prices practiced by the famous houses.
This display of manufacturing procedures and the immersion in the history and the discovery of the universe of the brand go hand in hand. Once the client has been convinced that the product is well made and of quality, he/she has to be persuaded to adhere to the image of the brand, to what it projects.  This process takes more time than a simple act of seduction, but if it is successful, the loyalty of customers will surely follow and convince them that they have placed their trust in a quality brand that closely reflects their personal values.
Furthermore, organizing commercial operations of this calibre in a group can also attract considerable media coverage and turn Hong Kong into a meeting point for luxury in Asia. In fact, China and Hong Kong are generally very fond of spectacular promotional events that create a buzz. Luxury brands in Asia in fact try to be more imaginative than their neighbour to offer the most popular show of the moment, where one-upmanship is always present.
But, even though luxury brands do not always attract customers immediately in the aftermath of these events, they still would have initiated a few of them. The visitors who turn up out of curiosity, and who do not correspond to the core clientele targeted by the brands, are likely to be fascinated by the universe of a brand and become its customers as soon as they are able. This preliminary approach to a clientele that is less aware also helps to demystify the access to one of these famous luxury brands, often intimidating and somewhat alarming.
European customers are certainly not excluded from the world of handcrafted luxury brands (as the campaigns launched last March by Vuitton and Gucci show), but the approach is different.
It consists, not of justifying the price of an item because of its quality (seeing that the crisis has curbed the spending of some buyers), but of making them aware of the culture of luxury, which is more often the case in Asia. We should also bear in mind that the Vuitton campaign was considered misleading by the Advertising Standards Authority (ASA) in the UK, which estimated that it could lead consumers to believe that its products were made entirely by hand. One has the impression that handmade is used more as a sales pitch for marketing than as a tool for instruction as it is in China.

© Laurence Ouaknine

l-ouaknine@acdluxe.com