With proper attention to product development and marketing, grocers can flourish in the competitive nonfoods private label arena.
By Craig Levitt
Thanks in part to a vicious recession, consumers’ desire to cut their shopping bills and steadily improving quality, private label food products continue to erode market share from their branded brethren. Some of these same factors are playing a part in the growth of private label nonfoods products as well. How can supermarkets make the most of this trend? Experts say innovative product development and a clear marketing message are among the keys to success.
According to the New York-based Private Label Manufacturers Association’s (PLMA) consumer research report Star Power: The Growing Influence of Store Brands in the U.S. about 20% of consumers claim that they are frequent buyers of private label health and beauty, home office, household and home improvement products. The report is based on an exclusive survey of shopping attitudes compiled by market research firm Ipsos MORI for PLMA.
Unfortunately for supermarkets, many of those sales are occurring at channels other than food stores, primarily mass merchants and drug stores. Brian Sharoff, president of PLMA, says the lack of success traditional supermarkets have had when it comes to nonfoods, and particularly private label nonfoods, has more to do with the structural development and changes in retailing over the years than it does consumer preference.
“The format of today’s retailing is not what it used to be,” says Sharoff. “There used to be three distinct retail formats: supermarkets, drug stores and mass merchants. Those three formats don’t exist any longer. So you are attempting to use an old set of definitions and wondering why the round pegs don’t fit into the square holes. If you were to ask me, ‘how is nonfoods private label doing in retailing?’ I’d say great.”
Competing with mass merchants and drug chains is often a difficult task for “traditional” supermarkets that, more often than not, cannot match either on price or assortment. While some supermarkets have thriving nonfoods private label sales, experts say that some grocers seem to have abandoned the category.
“I think that you would find that companies that have given up on nonfoods have also given up on other parts of the store as well,” Sharoff says. “You are going to find that the retailers that don’t want to adjust to the new environment, or cannot adjust, aren’t able to compete.”
Sharoff does admit that traditional supermarkets will continue to have a hard time competing with mass and drug chains in the private label arena unless they do “something special.” He points to retailers Wegmans and H-E-B as just two that have been able to compete because they have been able to make their reputations on the food side, thus instilling consumer confidence so the customer comes back into the store looking to buy nonfoods items.
“Create an emotional bond with the customer,” says Sharoff. “Make a destination out of your store. Of course not all retailers can do that. But once you do make your store a destination, it can carry over into some of the [nonfoods categories]. As long as your prices are not absurd, you have a chance that [consumers] will buy. Basically the success of nonfoods is related to the success of your company as a retailer.”
While Sharoff suggests that the best way for food retailers increase their nonfoods private label sales is to raise customers’ comfort level with store brand food products, other industry observers say consumers’ first foray into store brands happens in the nonfoods aisle.
“A shopper who is trying a retailer brand for the first time will often start with a nonfoods category, like a cleaning product, which is perceived as a low risk,” say Rahul Mehrotra, vice president of marketing, retailer brands for Orangeburg, N.Y.-based Nice-Pak. “Then gaining from positive experiences they will move up to personal care products and then to foods. So as a gateway to the retailer’s brand, nonfoods programs can mean success or failure for the whole private label program.“
When it comes to nonfoods private label, experts say there are some segments that supermarkets should take a closer look at over others. According to information acquired by PLMA via ACNielsen Scantrack, for the 52-week period ended Sept. 4, the five fastest growing nonfoods private label categories with total category sales of more than $50 million at food retailers with sales over $2 million were: pain remedies (up 4.8%), cookware (up 4.2%), grooming aids (up 2.4%) and cough and cold remedies (up 1.9%). Other categories doing well include soap and bath needs, medications and remedies, and pet care.
Among the five fastest-growing private label categories at all food, drug and mass channels, including Walmart, pain remedies (up 4.1%) are still on top. However, there is no overlap in the next four as kitchen gadgets (up 3.7%), candles/incense and accessories (up 2.2%), first aid (up 2.2%), and paper products (up 2.2%) round out the list.
While not in the top five, sales of private label gloves for household cleaning and home health have been steadily increasing, according to Jennifer Fritz, product marketing manager for Portland, Ore.-based Clean Ones Corp. She attributes the success to retailers reducing the number of glove brands they carry, generally leaving private label against only one other brand. She adds that as the number of consumers that buy private label products increases, the glove category is an area where shoppers are trying lower-cost alternatives and retailers with high-quality gloves that create value for the consumer have enjoyed increases in sales.
Some say private label nonfoods products are held to a different standard than private label food offerings.
“In household cleaning gloves retailers often opt to put a lower-quality household glove with less features in a package that implies it is comparable to the national brand premium product,” says Fritz. “When a consumer purchases the product they are disappointed and the retailer has damaged their brand reputation. Clean Ones has always taken the approach to supply products that are either as good as or better than the national brand. As a result our retail partners have seen growth in their category while the national brand has lost share.”
Observers note that food retailers that closely monitor their private label assortment can fare quite well.
“For food retailers, [nonfoods] private label all starts with the product line,” says Mehrotra. “The products need to be designed to deliver the specific needs of their shoppers. Having done that, the merchandising strategy needs to be aligned with their category strategy.”
One category that has traditionally fared pretty well with food retailers in the past—disposable baby diapers and training pants—has recently experienced declines. Chris Ferdock, vice president of marketing for Duluth, Ga.-based Associated Hygienic Products, which manufactures and markets disposable baby diapers and training pants, says this is partially due to the aggressive pricing and promotion of national brands in response to prior private label growth in the category. He adds, however, that the aggressiveness of the national brands is not the only cause for declines in supermarket sales.
“More importantly, food retailers continue to lose ground to other key retailers in the non food industry who are gaining share due to their commitment to private label programs,” says Ferdock. “For example, Target’s recent re-launch of its up & up brand has generated an annual marketing campaign designed to create brand awareness and trial.”
Ferdock and others insist that supermarkets can compete with other retail channels, emphasizing the fact that they have the inherent benefit of being a regular shopping trip.
While it helps to know which categories are doing well, it is probably more important for retailers to adjust their assortment based on who their primary customers are. Observers also add that strong private label programs go a long way towards establishing a retailers’ equity while improving consumer loyalty.