Private (label) practices

Trust and value have become cornerstones on which retailers can build store brand success.

It is easy to say that the reason store brands have thrived in recent years is due to the seemingly never-ending recession. However, consumer acceptance for private label cuts across so many different economic and cultural demographics that citing the economy as the reason for their success does not provide store brands with the proper credit they deserve, say industry observers.

“I don’t think private label is always driven by economy, I would argue that there are many different motivations,” says Brian Sharoff, president of New York-based Private Label Manufacturers Association (PLMA).

He uses Trader Joe’s as an example. “I don’t think many people would say they go to Trader Joe’s because of the economy. They go because they want to buy, at whatever price they feel reasonable, the macadamia nut fudge that they can buy at no other store. So I don’t think the economy drives those consumers. I think private label at that level is driven by the exclusivity the retailer brings to it.”

Factors such as the consumers’ level of trust in the retailer and greater product quality are also playing a larger role than ever in the success of store brands. While most would agree the onset of the recession forced more consumers to experiment with private label products than normally would, those same consumers discovered that many store brand products were worthy, in and of themselves. Then, after each successful product trial, consumers would extend those trials across multiple categories. Now, a lot of private label sales are driven solely by the products’ quality.

The findings from a recent consumer survey conducted by Accenture, a consulting, outsourcing and technology company, further point to the greater consumer acceptance of store brands. The survey reported that while price was the leading reason for private label purchases—more than 66% said they buy because store brands are cheaper—nearly 42% of consumers said one of the reasons they made private label purchases was because they trusted the store brand. More than half said the quality of the store brand was just as good as the national brand, and that is only part of the story.

Perhaps two of the more telling findings were that 65% to 70% of consumers said their basket is at least half full with store brands and that a significant number of private label shoppers—about 77%—claimed they would not buy fewer private label products if their economic situation improved.

“Money is a driver, but more and more consumers trust store brands than ever before,” says Bob Berkey, director of consumer goods and services for Accenture. “Stores are putting an effort into private label products.”

One of the reasons more consumers are giving private label a second and third look is because often times they are not 100% sure if what they see on the shelf is a store brand or national brand. Simply put, as store brands’ quality has improved so has the packaging. Generic black and white labels are long gone. So are the days of store brands trying to mimic national brand packaging. Today, many of the successful store brand packages convey a message of quality, and that resonates well with consumers.

“For the retailers that really want strong programs, they need to make sure the packaging is relevant and sends the right message,” says Edward Salzano, executive vice president and COO of Lidestri Food and Beverage, based in Fairport, N.Y. “What they can’t do, and this is where retailers get themselves into trouble, don’t try to dress something up. Don’t try to present something as a premium product if you don’t have a premium product in the package. If you do that you can lose the customers’ trust, not only for that product but other products throughout the store with your name on it.”

Observers say that even as strong as private label sales are now; there is room for improvement. They say that while store brands are often as good if not better than the national brand equivalent, there has been some lag time in retailers getting these products on shelf. There has also been a delay in following national brand innovation. However, that seems to be changing according to Susie Frausto, vice president of The Jel Sert Co., based in West Chicago, Ill.

“Jel Sert has found that private brands are quicker to follow national brand innovation than in the past,” she says. “Private label suppliers are challenged to quickly become fast followers and the companies that meet these tight deadlines are the ones that are successful.”

In some cases the more progressive and aggressive retailers are driving innovation with their store brands. Many observers point to Target as a retailer willing to take risks with its store brands.

“Target has partnered with private label manufacturers to develop unique items to the Archer Farms label,” says Brian Fox, vice president of category management for St. Louis-based Ralcorp Food Group. “Certain other retailers have started using private label as a part of a differentiation strategy. Innovating here is no different than innovating with brands in that some products will win, and some will not, but you have to be willing to take the risk in order to win.”

Fox says part of the risk includes an agreement with the supplier regarding how to proceed if an item succeeds or fails. For example, what are the restrictions for sharing a successful idea with other retailers? Who bears the cost of innovating and the cost of failure? “Both sides have to be willing to think differently than the traditional bid/supply arrangement to win in innovation.”

Observers say that as private label products have matured and improved, suppliers have also become savvier in helping retailers develop relevant items that appeal to a wider range of shoppers than in the past. “Today’s private label manufacturers are expected to be experts in their field and add value by proactively bringing opportunities to their suppliers,” says Jel Sert’s Frausto.

Berner Food & Beverage did exactly that with a pumpkin spice tea it developed for the retailer Aldi. “Nobody had pumpkin spice,” says Steve Fay, executive vice president of sales and team leader for Berner, based in Dakota, Ill. “It was never on anybody’s radar screen. Now the national brand Starbucks has copied it because they saw how successful we were in the fall months.”

For many suppliers the expertise goes well beyond just developing new products for retailers. For example, Fay says Berner Food & Beverage is actively involved with a number of organizations, including serving on the Board of Directors of PLMA, as well as on the advisory board of several major retailers.

Despite the efforts of suppliers, Jeff Gehres, director of sales and product development for Request Foods, based in Holland, Mich., says there will always be private brands following the national brands. “But we are always striving with our R&D to find those items that have not been introduced into the market that can be successful.”

Like consumers, many retailers and suppliers are pressed for both time and resources. For those looking to further along their private label message, enlisting the help of a distribution company can be very beneficial. One such company is Daymon Worldwide. According to Andres Siefken chief marketing officer for Daymon, the Stamford, Conn.-based company helps suppliers develop products and get them on shelf while also helping retailers develop private label programs and sell them to consumers.

Much of Daymon’s work with retailers consists of defining strategies with senior management and putting together a brand and portfolio strategy to create store brands. Daymon also does a lot with package design, and since the recession and this latest private label surge, it has also invested more and more into these marketing resources.

“With packaging, for store brands, it is good to start with a push strategy,” says Siefken. “But now that consumers are accepting of private label, retailers need a pull strategy. They need to ask what are the marketing plans for the brand and treat the store brand as more of a CPG company.”

Siefken says that because Daymon has a presence in 26 countries and works with more than 100 retailers it is able to provide retailers with “window to world” practices. That includes addressing changes in private brands globally, how to get ahead of the competition and innovation from a product perspective.

“These days we are really pushing innovative items,” says Siefken. “We are trying to help suppliers and get retailers to take private label to the next level. That means driving a lot of understanding of the consumer and how they are evolving and not just treating private brands as a three-tier system, which is the way it is now.”

For example, Siefken says there are a lot of opportunities in developing fancy brands or adjusting a sub brand that is geared to a very specific consumer need.

“That is where it is going to become very interesting,” says Siefken.

Marketing muscle
Private label also has a lot to offer retailers beyond just building store brand sales. Publix, for example, has a very aggressive approach to its private label program. The retailer focuses on using it to increase overall sales in a category and store versus maximizing private label sales.

“We offer temporary price reductions, feature items in a special Store Brand Monthly insert and of course our Publix Brand Challenge promotion has been very successful,” says Maria Brous, director of media and community relations, for the Lakeland, Fla.-based retailer. The Publix Store Brand Challenge occurs several times a year and offers customers the opportunity to purchase select national brand items and receive the store brand counterpart for free.

As brand owners, retailers also have access to more consumer insights and understand their shoppers better than anybody else. Joe McKie, vice president, private brands at Arlington, Va.-based Food Marketing Institute, says retailers have worked to leverage these insights to develop private brand products that are relevant to their customers.

“Many retailers today are not just offering an alternative product for their customers to consider, they are building brands, brands that support and reflect the values and expectations of their overall company and the shopping experience,” says McKie.

PLMA’s Sharoff says some retailers are able to figure out a niche for themselves in certain categories to better target their shoppers. For example he says that while pet food is generally dominated by the national brands, by using organic and natural premium store brand products, retailers can attract consumers in ways the national brands cannot.

“National brands are mass marketers, but the minute you define target markets, that’s not something they do well,” says Sharoff. “When you start to talk about organic pet food, that is something a retailer can make a lot of money on, but may not be as easy for a national brand to do.”

Retailers do not have to lock in on an entire category to be successful. Lidestri’s Salzano says instead of creating destination categories smart retailers are creating destination items. “Wegmans has a basting oil that they have created,” he says. “It is unique and they really support it. They support it in their menu magazine; they place it around the store and try to teach consumers how to use it. Once that customer gets hooked, they are going to come back and buy that basting oil.”

It is this type of differentiation that nearly all observers say is the single biggest benefit a strong private label program can provide a retailer as a means of separating itself from its competition. Some go as far as to say it is the only way a retailer can standout today. However, there is a fine line retailers must walk when figuring out a private label strategy. If a retailer pays too much attention to private label it runs the risk of alienating the national brands.

“The smart retailers want to have the right mix between branded products and their own brand,” says Lidestri’s Salzano. “They realize that if they destroy their relationship with the CPG companies it is going to affect the bottom line.”

Private brands, public knowledge
Wondering what consumers are thinking about when they buy store brands?

Interested in the latest federal food label regulations? Or curious as to what hot topics are flooding the industry? Ask officials at the Private Label Manufacturers Association (PLMA).

More specifically, go to The website was launched in June with an eye toward improving the link between retailers and PLMA, according to Brian Sharoff, president of the New York-based organization.

“We realized there was no one single place to go to get this kind of information,” he says. “It’s meant to be fun more than anything else. Sooner or later you start looking things up you would never dream of looking up.”

Currently the site is only available on a limited basis, with PLMA contacting retailers via email, inviting them to sign up. Sharoff says the big launch will follow the PLMA show this month with the big push early next year.

In anticipation, PLMA is in the process of consolidating all the site information.

“We add historical pieces, and it just gets bigger and bigger,” says Sharoff. “Our job is to target retailers, and non retailers, so they become so familiar with PLMA that it becomes second nature to go to the website, pick the oval that matches their need, and there is the information.”


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