The insurgency brands shaking the FTSE giants

It's not just banks and media firms facing disruption big consumer brands are in trouble, too.

Only a decade ago, the world was dominated by a few giant brands owned by a handful of companies. We all ate Kellogg's for breakfast, a sandwich made from Hovis at lunch, and rustled something up with Knorr stock cubes and Uncle Ben's rice in the evening. In the last few years, that has started to change.

New products have been appearing from nowhere, and capturing an increasing share of the market. In the US, the health drink Bai has been a huge success, as has the Halo Top ice cream that is now on sale in this country as well. In the UK, beer manufacturer Brewdog has taken a growing slice of the market from the traditional giants, as have dozens of other craft beer and spirit producers. Walk down the aisles of any supermarket and you will see dozens of new, niche products on sale.

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Dynamic brands with a vision

In a report this month, the consultants Bain dubbed these products "insurgent brands". In total, Bain estimates that insurgents account for 2% of the total US consumer-goods market, and the same kind of figures probably apply to the UK. But Bain estimates that they have taken 25% of the growth and possibly an even greater share of the profits (partly because they are very good at persuading people to pay premium prices). Chobani picked up 20% of the yoghurt market in only ten years, for example, while the arrival of Dollar Shave Club and Harry's reshaped the razor market, prompting big price cuts as market share disappeared Procter & Gamble was forced last year to slash prices and upgrade its Gillette razors.

How the uprising happened

None of the insurgents are pure web companies, but the internet is often behind their rapid growth. There are three reasons for that. Online, there is a level playing field between large and small companies, and smart and savvy marketing can have a huge impact at very low cost. The insurgents, which typically build a compelling narrative around their products, are very good at exploiting that.

Next, the rise of Netflix and other streaming services, and the decline of traditional newspapers, means that traditional advertising is not very effective any more. No-one now sees the advertisements that the massive brands relied on to maintain their lock on the market. Finally, crowdfunding has made it a lot easier to raise capital a quick glance at any of the main platforms shows dozens of companies raising a few hundred thousand to launch an artisan product.

The giants fight back

This matters for the traditional giants of the industry and for their investors. The FTSE is home to some huge consumer-goods companies, including Unilever, Reckitt Benckiser, Associated British Foods and Imperial Brands. Some of the major European indices are as well the CAC-40, for example, is home to Danone, Pernod Ricard, LMVH and L'Oral. They need to work out their response.

One obvious move is to buy up the best of them. Unilever already snapped up Dollar Shave Club for a hefty $1bn, and we can expect to see plenty more deals like that in the next few years. The next step is to try to incorporate some of their entrepreneurial, narrative-driven culture into their own marketing, although that is often very hard to achieve.

For investors, however, the lesson is clear. The traditional consumer-goods giants are looking just as vulnerable to radical disruption as media, retailing and banking are. Their steady dividends might look attractive, but they are going to come under a lot of pressure as the insurgents eat into their sales and margins, and as they have to make more and more acquisitions to bring them into their companies. They are looking far riskier than they have at any time in the past 20 years. At the same time, the tiny artisan brands raising a few hundred thousand on a crowdfunding site may be a far safer bet at least until the giants work out a way to deal with them.