Retailers and manufacturers need to collaborate and innovate to take private label to the next level.
By John Karolefski
Private label has clearly been on a roll. Its share of dollar sales advanced to a record 19.1% in supermarkets and unit market share was 23.5%, according to the Private Label Manufacturers Association’s 2011 Private Label Yearbook, which tracks sales and market share trends based on Nielsen data. Much of this growth can be attributed to the sagging economy, which prompts shoppers to opt for typically lower-priced private label instead of national brands. Another important factor is the improved quality of store brands.
But once the economy improves—and it will at some point—the real test for private label will begin. Can store brands maintain the pace? Does private label have a real chance to advance in dollar sales and unit market share in supermarkets? In other words, what’s next?
Nobody knows for sure, but the speculation has already begun in earnest.
“Yes, private label sales will remain strong so long as they offer a comparative value to national brands,” predicts Maria Brous, director of media and community relations for Lakeland, Fla.-based Publix Super Markets. “Private label will perform at least equal to the national brand and be available at a lower price. Increased share in private label products have come from two areas: first, more customers trying and liking existing private label products that are available, and second, from retailers expanding their private label offering.”
Store brands definitely have a real chance to advance in supermarkets once the economy improves, says Mark Singleton, vice president of sales and marketing for Rudolph Foods, a Lima, Ohio-based maker of pork rind snacks.
“Consumers no longer view private label products as generic, but as another real option for snacks,” he says. “As long as private label brands keep the quality up and manage the shelf correctly by keeping the right offerings in the right flavors in front of the right consumers, they’re going to do great.”
Steve Beckman, vice president of creative services for Vertis Communications, a New York-based marketing and communications company, agrees. He adds that private label brands must continue to play to their natural advantages and divert from the strategy of mimicking national brands.
“Supermarkets can create a completely custom interaction that is tailored to create a stronger bond between their customers and their private label brand,” he says. “They can use specific consumer knowledge—collected through social media interactions, loyalty programs, in store promotions, etc.—to field products and develop graphics that resonate, creating better differentiation from the national brands and giving their consumers something that feels custom-made just for them. Grocers can build on the success that private label brands have experienced in recent years and create something special that advances both sales and share.”
The good news is that all segments of retail have committed to store brands and are looking for growth. The retail marketplace has segmented, explains Brian Sharoff, president of the New York-based Private Label Manufacturers Association (PLMA). The upscale segment includes Trader Joe’s, Whole Foods, Wegmans and H-E-B, retailers with the benefit of well-off consumers who shop in those stores which are fully committed to private label. The second segment includes retailers in the lower end such as Aldi and Save-a-Lot. These companies are also determined to be private label retailers. These retailers, their supplier partners, consultants and analysts point to three steps to growth for private label brands. Collectively, they provide a solid blueprint to follow.
Experts say niche categories often are beneath the radar of national brands. Retailers can put their brand in these categories and buckle up for more growth.
“Promoting niche categories is a logical next step in the continuing growth of the private label world,” says Beckman of Vertis. “Since the retailer has the ability to truly know its customers, private label brand owners should be able to create the most impactful niche categories. Imagine product lines that not only speak well to a certain consumer segment, like young male Hispanics, but they speak especially well to the certain young male Hispanic consumers that shop at a particular store. The retailer can more deeply understand these customers using geographic as well as sociographic data coupled with purchase history.
“Essentially, the retailer holds more specific data and can thereby better understand particular customers,” he says. “The ability of a specific grocer to understand its consumers will continue to help it select products within fast-growing categories (like organic, gluten free and vegan product lines) that fulfill the needs of certain customers and ultimately create a deeper bond.”
Promote like the brands
Annie Owens, director of marketing for Plant City, Fla.-based Mario Camacho Foods, recommends that private label brands do many of the same promotional type activities that brands do. One of the major ways companies can promote private labels is through campaigns that simultaneously increase brand exposure and generate positive feelings surrounding the brand.
“For example, in the private label sector with a Hispanic focus, a retailer could partake in community events such as offering scholarships to Hispanic students, surrounded by a strong PR campaign to create positive feelings within the community, and at the same time expose potential buyers to the products who may not have previously considered them,” she explains. “This can also work for other niches such as gluten free or organic foods. Retailers can hold free events such as cooking classes for meals within the niche, resulting in increased brand exposure, product trial and consumers feeling like the organization actually cares.”
Within niche markets, she says private labels can promote a lifestyle rather than the products themselves. In other words, expose potential buyers through what’s called inbound marketing, which she defines as “a New Age spin on traditional content marketing.” The real advantage of inbound marketing, she explains, is bringing consumers to the brand when they are ready to buy, rather than pushing messaging on consumers whether they want it or not.
“An example of this could be a retailer creating a website dedicated to vegan recipes, or other valuable content to consumers,” she says. “Through search engine optimization and social sharing, consumers searching exactly for information on that topic will come find the site for its content and become exposed to the retailer’s private brand as a result. Results like these can be amplified when coupled with tactics such as social media campaigns, print, and other offline campaigns to connect the digital and traditional world.”
Publix convinced shoppers that it cared about the all things organic and eco-friendly by creating its GreenWise store brand, says David Garfield, managing director of the consumer products practice at AlixPartners. Promoting niche categories can help a retailer benefit from growth trends and can avoid competitive friction with key producers.
Pork rinds are certainly a niche snack. The increasing size of the Hispanic population is continuing to drive sales growth of pork rinds for Rudolph Foods, but this growth is no longer solely dependent on its links to Mexico. Examples of new influence include the Caribbean. In many snack categories, the Caribbean/Hispanic consumer is far different than the Mexican/Hispanic consumer in product base, product uses and flavor profile.
Partner with manufacturers
Experts say sales growth in more mainstream grocery categories can result from collaboration between trading partners. That has been the case with Clearwater Paper Corp., a Spokane, Wash.-based provider of private-label tissue to retail grocery chains.
“Innovation has been a driving theme with many of our customers over the past year,” reports Bruce Woodlief, director of marketing. “Many are looking for new and unique products that they can offer to their customers. Exclusive, new ideas have proven to be a volume builder for several categories within private label—particularly food products. Even with tissue, we have customers who we are working with to develop new marketing concepts.”
Beckman of Vertis Communications believes that private label brand owners have the advantage of easier and more natural collaboration.
“Quite often, the national brand owner is tied to their own innovation pipeline and their own manufacturing processes in order to create and market their products,” Beckman explains. “The private label brand owners are unique here. They have flexibility and adaptability not shared by their national brand competitors. More often, they have the ability to seek out unique manufacturers doing best-in-class work, and use that manufacturer’s expertise in order to put the highest possible quality product on shelf. Even when this achieves parity rather than superiority, their natural price advantage over national brands comes into play as a differentiator. And as grocers continue to expand their private label brand lines, seeking out partnerships with manufacturers that offer new and differentiated products may give the private label brand owner the ability to field boutique product lines that capture attention.”
Such collaboration is a two-way street, according to Beckman. That’s because the savvy manufacturers rely on the best consumer feedback to refine and shape their innovation process and deliver the most relevant products to market.
“Again, it is here where the grocer possesses the advantage,” he says. “The grocer may be able to offer the manufacturer a unique perspective on what works and what doesn’t for its consumers, as well as what sells and what customers are asking for. The partnership between manufacturer and retailer is a two-way street that when optimized can and will continue to see the most innovative, impactful products come to market and drive sales.”
As a result of the evolution of private label, says Sharoff of PLMA, there are a handful of large private label manufacturers that have the ability to work collaboratively with retailers. “Many of them are doing so, based on the way they bring products to market and the way in which they acquire subsidiaries.”
Shoppers respond to what’s new and what looks new. In too many cases, private label brands still lag far behind the national brands in the quality of their brand design.
“If store brand packaging is unappealing in categories where image conveys trust, consumers reach for the national brands,” says Beckman of Vertis. “Rather than a weakness, this actually presents what I’d consider low-hanging fruit for the private label brand owner—it’s a lot easier to change your design than your product quality. As more store brands recognize that one of the best advantages their national brand competitors have traditionally held is the quality of their brand design, more private label brands will step up their game and sales will grow exponentially higher.”
Vertis Communications is beginning to include QR codes on packaging for one particular grocer for whom it is doing private label brand redesign. Such packaging innovation gives grocers an opportunity to further the emotional bond between their consumers and their stores. “What brand owner wouldn’t want their consumers to be part of their innovation process? Or to be able to collect true focus group-like data without the formal process?” he asks.
Clearwater Paper has found that “package bursts” that communicate product improvements or new technology are well received because consumers are used to such stimuli from branded products. This brand steward believes that new products, new packaging ideas and relevant product improvements will always be the lifeblood of category growth.
Another way to promote growth is to create private brands that consumers are not even aware are private brands. Great examples of this are Walmart’s World Table brand and Target’s Archer Farms.
“Both of these brands feature upscale, eye-catching packaging, placed on high quality, high-value products. By positioning these products as a non-private brand, Walmart, and Target are fighting the consumer perception that private label products are often inferior,” says Owens of Mario Camacho Foods.
Stefano Foods participates primarily in the partnering step, seeking retailers who want to develop private label as a means of differentiation. “Typically, the major product trends observed in branded items are incorporated, so item development is attuned to consumer preferences without mimicry of the national brand,” explains Alan Hamer, vice president of sales and marketing for Stefano Foods, the Charlotte, N.C.-based maker of ready-to-heat foods. Important influences include nutritional attributes, package size/price point, key attribute communication and functional criteria such as heating platform flexibility, portability and culinary style.
“Frozen food quality and variety have advanced significantly in the past few years,” he says. “Our challenge is to develop great items that consumers will relate to through the glass without the investment of advertising dollars.”
One way to promote private brands is through initiatives to increase categories as a whole. A great example of this was the Goodby Silverstein & Partners famous campaign “Got Milk?”
“It is rare that anyone knows the exact brand of milk they buy, so the category itself was promoted.,” says Owens of Mario Comacho Foods. “The campaign touted the health benefits of milk through the use of professional athletes sporting milk moustaches, as well as its taste through depicting people suffering from ailments such as a mouth full of peanut butter, followed by their simple, yet impossible to forget slogan.”
She also recommends increasing the trial of private label products. For example, Publix has been giving away a free store brand product for each comparable branded product sold in its stores. This allows consumers to easily compare the quality and flavor of its private brand with that of the national brand.
Ahold’s Stop & Shop banner recently recognized customers who buy a private label product at various in-store events. The “Our Brands Patrol” stopped in all of the chain’s supermarkets recently and picked out shoppers randomly to receive a $5 gift card for every Stop & Shop private label item in their cart up to $50. Customers could also get coupon booklets for other private-label items.
Woodlief of Clearwater Paper sums up: “At the end, of the day private label brands need to be managed and nurtured like successful national brands. This includes providing fair share promotion, adequate advertising, shelf space, display activity and delivering on relevant consumer expectations for the product. Manufacturers need to look for opportunities beyond brand comparability that add uniqueness to the product sell of private label.”
Growth strategies aside, the proverbial elephant in the room will always be national brands. Private label boosters cannot ignore them.
“National brand manufacturers took a hit in the recession when shoppers traded to private label. Since then, these manufacturers have been aggressively creating new products, and promoting their existing products to regain share. Market share is highly flexible, and without ongoing support from retailers to promote their own brands, gains will erode as shoppers return to national brands,” warns Jeff Weidauer, vice president of marketing & strategy for Vestcom, a Little Rock, Ark.-based provider of integrated shopper marketing solutions for retailers and brands.
Finally, don’t “poke tigers with sticks,” adds Garfield of AlixPartners. “Private labels need very clear strategies and positioning vis-à-vis the national brands. Leading producers of branded products can do a lot to put pressure on private labels, including value pack sizes and tailored promotions. Private labels need to fit broader category strategies.”
Private label makes dollars and sense
In recent years, consumers have been forced to make sacrifices because of tough times. In light of the economic crunch, people have been more cost conscious than ever before. As a result, retailers have been forced to figure out new ways to get consumers in the store and spending money.
The obvious way is to promote store brands because these goods are typically lower in price than national brands —while being equal to or better than them in quality. But there are other financial implications of private label that benefit retail more directly.
“A benefit of the private label is the reduced advertising costs related to marketing of the product,” says Steve Gagnon, director of audit and assurance of McGladrey, the brand under which Minneapolis-based RSM McGladrey, Inc. and McGladrey & Pullen, LLP operate.
“Typically, marketing is done in store or in the aisle itself. National brands require large ad campaigns, often consisting of television, print ads in supermarket circulars or blow-in advertising in magazines and other direct mail methods. Private label has none of these, with the exception of a spot in the local supermarket flier.”
Gagnon says the high cost of store brand marketing is not incurred and therefore does not need to be passed on to the consumer, which translates into savings. Typically the store that sells those brands does not pass on all those savings to the consumer, he says, which results in higher profits.
Another compelling factor of private-label products is the ease in making them, according to Gagnon. Many companies will make both the name brand and a private label. In addition, numerous private companies can and will manufacture private-label products to a company’s specifications.
“This is an important consideration when dealing in regions where people prefer a product to taste a particular way,” he explains. “You can tailor the product to the needs and wants of your customer. Typically, such private labels are local in the community, or significantly closer than the major manufacturing plants of the national brands, which allows for reduced transportation costs. With a tailored product, this means more demand, more sales and greater profits.”
Sales of private label goods have a ways to go before catching up to Europe, where store brands account for over 25% of the products being sold.
“So, in addition to making a product that is cheaper, more customizable and more desirable, there is huge potential for growth in this segment of the industry that should not be ignored,” says Gagnon. “Obviously, private label should no longer be viewed as generics or cheap knockoffs of name brands. They should be seen as profit centers that should continue to grow into the next decade and beyond.”
Private label has an above average and growing presence in 30 of the top 100 CPG categories, according SymphonyIRI Group’s latest Times & Trends Report, Private Label: Brand Positioning in the New World Order.
The most sizeable private label share increase came in the refrigerated salad/coleslaw category, which has jumped more than 20 points during the past three years, according to research from the Chicago-based firm. Private label offerings of gastrointestinal tablets, cold/allergy/sinus tablets, internal analgesics and pastry/doughnuts are also doing well.
“At nearly 23% of CPG unit sales across retail channels today, private label products certainly have momentum and command a sizeable share of consumers’ CPG spending,” says John McIndoe, senior vice president of marketing for SymphonyIRI. “However, this momentum is not demonstrated equally across channels, retailers, departments or categories. This means there is room for private label and national brand manufacturers to capitalize on opportunities. The key for both camps is to center their efforts on the shopper. Those that effectively identify and deliver against critical shopper needs will win share of wallet and shopper loyalty.”
According to the report, retailers seeking to grow private label share should consider the following strategies:
Identify and assess store brand opportunities and threats: Tailor store brand offerings at the market level; support private label lines with consumer-centric and highly integrated marketing campaigns, including in-store display and feature ad support.
Refine private label development strategies: Evaluate feasibility of multi-tier offerings across key categories/product lines, either alone or in partnership with national brand manufacturer partners.
Measure and monitor actual versus planned impact of private label initiatives: Test market product, pricing and promotion changes prior to and immediately following roll-out; track and benchmark store-level store brand share shifts relative to national brands.