Grocers can use private label products as a springboard to enhancing general merchandise and health and beauty care sales.
The opportunity is there. Grocers just have to reach out and grab it. As the economy continues to flounder, more and more consumers are turning to private label products, especially in several high-margin segments of the general merchandise and health and beauty care categories.
According to the Private Label: Brand Positioning in the New World Order report, released by Chicago-based SymphonyIRI Group in September, in the past year private label has made sizable dollar share gains in beauty categories such as skin care and hair accessories. Gains have been even more impressive in health care, as dollar share for the private label cold/allergy/sinus segment is up 8% and the internal analgesics segment has seen nearly 5% growth in dollar share.
While it may be easy to associate the growth of these and other nonfoods private label categories with the lagging economy, industry observers say there are many more underlying reasons for success: higher quality products, innovation and packaging improvements, to name just a few.
“The downturn economy has certainly affected consumers’ shopping habits and many turn to private label to save money,” says Dan Murphy, vice president, sales and marketing for Great Neck, N.Y.-based First Quality. “What’s more, private label sales have grown in those categories/segments/products where improved quality at a value price is apparent to shoppers.”
Of course, quality and value are tangible things to which consumers can relate. There are also issues driving private label sales that most consumers do not typically think about, such as retail consolidation.
“Retail consolidation has driven private label and will continue to do so,” says Jim Wisner, president of the Libertyville, Ill.-based Wisner Marketing Group. “If you take a $1-billion chain and they are purchased by a $30-billion chain, then all of a sudden there is a great number more items to get involved in, more resources that can be devoted to marketing private label.”
One of the reasons private label health care products—more so than general merchandise—continue to gain traction is because today’s consumer is much more savvy and they understand that the national brand and the private brand are essentially the same product.
“It is made on the same equipment, made with the same active ingredients, there may be some cosmetic differences, but that has nothing to do with how the product performs,” says Wisner.
Wisner credits the drug chains with growing private label OTC across all channels. “The drug chains invested a ton of money convincing consumers that private label OTC products are just as good as the national brands,” he says. “That kind of helps everybody in terms of private label regardless of channel.”
National product recalls have also provided a boost for private label OTC, say industry observers. When a national product is recalled, many consumers are forced to try private brands. When that private label product works just as well as the national brand—at a fraction of the cost—consumers take notice. Trust is also an issue. As Wisner says, “Consumers are asking ‘Why is it we hear about these problems with national brands and not private label?’”
Pharmacists are also getting involved and more and more consumers are equating the level of trust that they have with their pharmacists to that of their doctors. As shoppers take health care into their own hands, they are asking more questions and listening to what their pharmacist recommends. Since most pharmacists are dedicated to providing their patients with the best care at the cheapest cost, if a private brand is scientifically the same as a national brand, they have the obligation to directing consumers to that private label option.
While these categories are doing well overall, for the most part nonfoods private label continues to underperform at grocery. The argument many supermarkets make is that “consumers don’t buy nonfoods in the grocery channel, so why should we pay much attention?” Most industry observers disagree with this assessment. Past research conducted by the Wisner Marketing Group bares out that retailers, no matter the channel, that did a better job of marketing and merchandising got more business.
Grocers that want to improve upon nonfoods private label sales must stay on top of their game. “This means developing new products that better satisfy consumer needs,” says a spokesperson for U.S. Nonwovens Corp., based in Brentwood, N.Y. “At first, with private label choices, the consumer is dealing with an unknown. The only way to pull a consumer away from the brand is to offer a comparable performing product at a substantial savings. The lower price, combined with the fact that the shopper knows and probably likes the store they are shopping in will help get the product off the shelf and into the shopping cart.”
Looking for repeat business
Chances are consumers have already tried at least one private label product somewhere else in the store. If they had a good experience, it is much easier to branch out to other departments because trust has already been established.
“Today consumers are pretty much willing to buy anything anywhere,” says Wisner. “Supermarkets can do as well in many of the same categories mass merchants do, what does come into play is that channels cast themselves into roles, and supermarkets are notorious for this. ‘We are a food store so we don’t worry so much about that category.’”
Not all grocery chains adopt that philosophy. According to observers, grocers such as Kroger and Wegmans view private label, both food and nonfood products, as playing a key role in their growth process. Many observers emphasize that grocers have the ability to convert private label food success into private label nonfoods success. To do so, however, they have to be consistent in how they purchase and position products and their brand. For example, observers say Costco does this well with its Kirkland brand.
“If one assumes that growth in private label food sales indicates a retailer is selling good quality at a fair price, consumers will come to believe that ‘if these products are so good, I want to try other products in this store brand,’” says First Quality’s Murphy. “This halo effect is the best scenario and trust travels with word of mouth.”
The challenge, say some private label manufacturers, is that while there has been a lot of innovation and development for private label food brands, it seems most retailers do not have the same commitment to product development for many of their private label nonfood offerings.
“Retailers are really letting the national brands drive growth in these categories,” says Erin Crum, director of marketing for Portland, Ore.-based Clean Ones, maker of private label gloves. “This speaks to the opportunity that retailers do have to develop these nonfood lines.”
Crum says that it is important for grocers to include private label as part of a multi-tiered nonfoods strategy. “Most categories need to have a mix of value, quality and premium products to satisfy all the consumer segments within a category,” adds Crum. “Private label often fills this value and quality segment quite well, but traditionally has not been innovative enough to really deliver excitement to the category the way traditional brands have. Therefore, an optimized category set that has both private label and branded products increases the total revenue and profits.”
Perhaps that optimization effort is no more prevalent than in the disposable diapers category. Traditionally this category has had a difficult time getting parents to switch from national brands to private label because of the high emotional connection moms have with purchasing a product for her child. However, as the economy struggles, Eric Smith, director of consumer insights for Duluth, Ga.-based Associated Hygienic Products (AHP), maker of private label disposable diapers, says there is a shift toward private brands, especially for retailers that have won consumer confidence with their other store brand products.
“Private label diapers have some of the highest loyalty rates once moms try the diapers,” says Smith. “Once she realizes the quality and can trust them, she is willing to purchase, but getting mom down the aisle is critical. There are many marketing strategies that we are designing with our retail partners to help them build this trial and loyalty.”
Forming a partnership
Smith says since the retailer is putting their own label on the products, AHP views the relationship as a partnership. Thus AHP provides objective insights that can help retailers grow their private label, profits and the overall category.
AHP analyzes the shopper pool for both national brand loyalists and private label loyalists. They track their shopping patterns, usage and demographic profile and can alert a retailer if they are leaking volume in the market.
“It is amazing to see the difference between these two buying pools,” says Smith. “Diapers has one of the lowest groups of consumers who purchase both private label and national brands equally. Therefore understanding the differences and how to effectively market to each shopper pool is critical to grow the entire category.”
Understanding the private label shopper can go a long way toward increasing private label sales. Observers say the one thing that defines private label buyers more than anything else is household size. The larger the family the more likely they are to be private label shoppers. The advent of premium private label—products that consumers perceive to be unique, different or better rather than mimicking what the national brands do—is also bring new private label buyers into the market.
“I read an interesting stat from Nielsen not too long ago,” says Wisner, “Only one in six people responded to private label as being for people on tight budgets. That is 83% of people who are now open to buying private label products. There is a bigger audience and any negative cache is going away as long as quality and packaging keep improving.”