Despite private label pressure, national brands continue to influence the supermarket landscape.
By Craig Levitt
To paraphrase Mark Twain, the demise of national CPG brands has been greatly exaggerated.
The current economic uncertainty has led to an increase in private label sales. More and more retailers are expanding their private label offerings for a variety of strategic reasons, including building store loyalty, enhancing their price image and improving margins. However, even as private label grows, most retailers still rely heavily on national brands and their ability to drive innovation, growth and education.
“National brands are still the engine that drives the retail marketplace,” says Denny Belcastro, executive vice president, industry affairs and collaboration for the Washington D.C.-based Grocery Manufacturers Association (GMA). “Coming out of the economic downturn, it may have provided a wake-up call to our industry in reassessing their efforts for growth, effectiveness and efficiency in the marketplace.”
A recent GMA study shows that many branded food, beverage and consumer product manufacturers are leveraging innovation such as digital technologies to optimize service to consumers and trading partners. In addition, consistency across trusted brands helps reaffirm consumer loyalty.
Creating excitement and growing categories are among the core strengths of national brands. While Belcastro sees more GMA members engaged in strategic planning and business development with retailers, industry observers say some retailers remain hesitant to invest the necessary time or money in collaborative efforts, thus placing the onus on manufacturers.
“National brands have the responsibility to lead in their category,” says Evan Eckman, chief marketing officer, Beech-Nut Nutrition Corp., based in Amsterdam, N.Y. “There has to be a commitment by the national brands to constantly remain relevant to a contemporary audience. This helps the national brand companies, it helps the retailers, but ultimately it helps keep the consumers coming back again and again.”
When it comes right down to it, most retailers are focused on the bottom line and want category or department growth, total store sales and/or profit increases. They are less focused on whether or not those sales increases come from a national brand or a private brand. “I think what retailers are hoping to see is the national brands continue to come up with new products, because they essentially pave the way, from a retailers’ point-of-view, in terms of where the puck is headed from a new product and innovation standpoint,” says Jim Hertel, managing partner for Willard Bishop, a Barrington, Ill.-based consulting firm. “The retailer is interested in general growth. When national brands are growing that creates excitement and that’s good for overall business.”
While generating excitement is certainly helpful, ultimately retailers do want to sell national brand products. Fortunately, that seems to be happening more frequently than in past years. According to SymphonyIRI Group’s inaugural MarketPulse survey, consumers are shifting back to many of their favorite brands. Results from the survey revealed that 36% of consumers are actively seeking out private label to save money versus 44% in 2010, 38% of consumers are giving up their favorite brands to save money versus 46% in 2010 and 64% state that price has become a more important consideration than convenience in brand purchases, a decline of 6% versus last year.
“An economy in transition to recovery is as tricky to navigate for CPG and retailer leaders as an economy moving into recession,” says John Freeland, president and CEO of Chicago-based SymphonyIRI Group. “Some shoppers are retaining their frugal ways while others are spending more freely across the board and others still are spending more on some types of products, but remaining tight fisted about others. They are also re-evaluating where they purchase their products and updating their definition of value.”
It appears that increasingly national brands are providing consumers with that value, as well as a sense of comfort. Results from the 2011 Harris Poll EquiTrend show that overall consumer sentiment toward brands increased for the second straight year after falling in 2009. “As consumers continue to look for ways to reduce their budgets, having a brand that consumers trust and respect plays a large roll in keeping consumers loyal,” says Jeni Lee Chapman, executive vice president for brand research for New York-based Harris Interactive. “Consumers continue to be more selective about what they purchase, but those companies with high brand equity are able to avoid switching behaviors.”
A matter of trust
While national brands are vital to a retailer’s success, there are some categories and departments in which top national brands generate stronger consumer trust and thus provide a greater value to retailers. For example, Harris Poll results show that the sweet treat category boasts several top brands, including M&M’s and Hershey’s, and overall features 16 brands that were at or above industry average equity scores.
The strength of the brands in the category has translated into strong sales, particularly in the grocery channel. According to Tim Quinn, vice president of trade development, Mars Chocolate North America, sales in the candy category are up 5.2% in the past year. In order to keep these brands on top of mind for consumers, Quinn says the Hackettstown, N.J.-based company has created several consumer programs that allow retailers to leverage its national promotional events. As the official chocolate of NASCAR, the M&M’s Brand has partnered with NASCAR in the “5 Characters, 5 Cars… Pick the Car You Want” promotion running through the end of the year. Five winners will win five different Toyota vehicles. Consumers can also win a his and her’s Hawaiian vacation and tickets to the 2012 NFL Pro Bowl in the Dove Chocolate get Pampered at the 2012 Pro Bowl promotion, running through December.
Beer is another large retail category that enjoys high consumer trust. This trust allows for manufacturers to develop new and innovative products that appeal to consumers. For example, St. Louis-based Anheuser-Busch has been able to extend the reach of its top-selling brands, Budweiser and Bud Light, with the recent introductions of Bud Light Lime and SELECT 55. Consumer trust also means the beer category, perhaps more so than any other, is dominated by national brands.
“Consumers buy brands, not companies,” says Mike Potthoff, vice president large format for Anheuser-Busch. “Retailers want to provide alternatives for consumers during hard economic times. While you might see successful private label brands in other types of products, beer consumers are more brand loyal and private label beers have been less successful.”
It was national brand innovation that reinvigorated a declining frozen meals category. When the recession hit, household penetration of frozen meals declined. As a category leader in frozen meals, ConAgra Foods and its thought leadership team returned old users and brought new users into the category with its steaming technology. Used in Healthy Choice Café Steamers, Healthy Choice Steaming entrées and Marie Callender’s Fresh Flavor Steamers, John Kastenholz, vice president, category leadership for Omaha, Neb.-based ConAgra Foods, says this innovation provides the fresh taste, added value and convenience consumers are looking for. More importantly for retailers, he says that since 2008 ConAgra Foods has helped bring nine million new consumers and $640 million in incremental sales to the frozen meal category.
ConAgra continues to innovate with recent product introductions in the frozen multi-serve category with its Marie Callender’s Bakes line, which Kastenholz says has brought 12% more buyers to the category and increased the buy rate by 18% since its introduction. Another innovation from the company is the Orville Redenbacher’s Pop Up Bowl, a bag-to-bowl design that, in home tests, was preferred by 71% of consumers over the industry’s current bag.
A point of differentiation
This type of innovation is vital for national brands, especially in the current economy. Most observers say that national brands develop personal relationships with consumers by providing consistent quality, value and innovations. Store brands deliver value by striving to provide equivalent quality at a lower price than the national brands. However, store brands can be put in a position of playing catch-up, if national brands continue to evolve their products. Ultimately, both are very important to a retailer’s optimal mix on shelf. Store brands perform best in categories when there is little consumer-perceived difference between branded products. Therefore, categories are affected by store brands when the national brands stop innovating or reduce their investment in marketing.
“Basically, national brands need to have a meaningful point of difference versus store brands and they need to effectively communicate this point of difference to shoppers,” says ConAgra’s Kastenholz. “During the recession, some national brands have cut back on their innovation and/or marketing support which might have hurt them in the marketplace.”
Not every category can be like candy and beer. Some national brands continue to promote, innovate and advertise yet still struggle.
One example is the cereal category, which is as competitive as ever with private label. Yet the top cereal companies, specifically Battle Creek, Mich.-based Kellogg Co. and Minneapolis-based General Mills, remain determined and dedicated to capturing as much market share as possible.
“While economic conditions affected our results in 2010 and we’ve still got some challenges in the marketplace, we continue to believe in the strength of our brands,” says Brad Davidson, president, Kellogg North America. “We remain committed to strong innovation, brand building and nutrition–that’s what has always driven our business and will take us into the future. We are focused on doing everything needed to further build our brands and customers and consumers are responding.”
For example, Kellogg is building closer ties with consumers through digital communications and more engaging CRM programs. They are also strengthening relationships with Hispanic consumers who Davidson says make up an increasingly important part of the company’s consumer base. On the product side, Kellogg launched Crunchy Nut and Special K Oats and Honey. The second half of the year will see introductions of Rice Krispies Gluten Free and FiberPlus Caramel Pecan Crunch cereal.
General Mills is introducing its Fiber One 80 calories cereal and has increased its U.S. retail media investment by 70% since 2007. Part of General Mills’ strategy includes its continued commitment to offset input cost inflation through productivity. They do so with the productivity initiative call Holistic Margin Management (HMM), which is driven by consumer and customer needs.
“We have hundreds of initiatives underway to drive value by focusing on the things that matter to our consumers and reducing waste across our operations,” says General Mills’ spokesperson Maerenn Jepsen. “Due to our HMM initiatives we have been able to offset much of the inflation we’re experiencing, keeping our brands affordable for consumers.”
These initiatives include reducing cost to transport rice for General Mills’ Rice Chex brand cereal and saving the Yoplait yogurt brand $2 million annually by simply changing the lid cover, which used to coordinate with the variety of yogurt, to one color, silver. Jepsen anticipates that the ongoing development and expansion of HMM could amount to the equivalent of more than $4 billion in productivity over the next decade.
Another challenging aisle for national brands is one of the most popular in the store—produce. Areas that national produce brands can capitalize on are consumers’ growing interest in food safety, sustainability and social responsibility. In an aisle that doesn’t have the brand presence the majority of the rest of the store has, a national brand’s ability to promote can also go a long way.
“It remains dependant on all of us to continually demonstrate to consumers and retailers the added value that comes from a national brand,” says Bil Goldfield, communications manager for Westlake Village, Calif.-based Dole Fresh Fruit. “This is a major ongoing goal for Dole Fresh Fruit, which we reinforce through branded programs like our ‘Go Bananas After Dark.’”
Goldfield says that the promotion was so successful last year that it is expanding to include a first-time partnership with Six Flags media network and a tie-in with Six Flags’ “Coasters After Dark” promotion. On the Dole Fresh Vegetable side, much of the emphasis has been placed on Dole Salads. In addition to promotions such as the “Find Your Inspiration” campaign, Chris Mayhew, director of marketing and new product strategy for Dole Fresh Vegetables, says “national brands like Dole Salads can use compelling product introductions to compete with private label.”
Earlier this year Dole Salads launched Spinach Almond Blue and Endless Summer all-natural salad kits and a new Arugula blend. Mayhew says both have been well received.
Strong in nonfoods
While brands dominate the center store, some of a supermarket’s strongest national brands can be found in the nonfoods aisles. Some of the top brands in these aisles include Gillette, Crest and Tide, which are all manufactured by Cincinnati-based Procter & Gamble. Company spokesman Steve Sholtes says that according to IRI Pacesetters, P&G has delivered more of the top 25 new products each year for the last decade than any other consumer goods company.
“Consumers have different value propositions,” says Sholtes. “Some are driven by product performance while for others price is a critical factor. That is why we have been working on a portfolio strategy to meet all consumer needs. You see that in our laundry offering with Tide at the premium end with Gain, Cheer and Era covering the other value segments. I think what is interesting is that high performance products like Gillette Fusion ProGlide and Crest Pro-Health are outstanding successes that drive repeat purchasing behavior in store and that underlines the importance of these types of innovation even during tough economic times.”
In the pet aisle, launching a product under the banner of a powerful national brand can be invaluable to both the manufacturer and the retailer. The oneCARE Co., based in Alpharetta, Ga., under the Purina license, has launched its Purina Pet Gear line of cleaning and training products.
“Purina is so powerful that even retailers look to them for the expertise in how to promote, merchandise and just speak to consumers,” says Jennifer MacLean, marketing director for oneCARE. “Partnering with Purina, their value transcends even the brand. They bring an expertise and consumers trust them. You have that trust equity and it is hard to beat that.”