Keeping an eye on private label
By Molly Zimnoch
Through sustained efforts and innovation, retailers have found meaning and purpose with private label programs. Now consumers are looking to them for meaningful answers—not to mention savings. Can private label continue to come to the rescue of harried consumers looking to make ends meet? More importantly, can the category help grocery retailers build sales, profits and even consumer loyalty? This month, at the annual Private Label Manufacturers Association’s (PLMA) show, the industry will gather in Chicago to discuss the future prospects for private label and what needs to be done to continue to move the category forward. There is no doubt that these are heady times for private label and store brands. These products have made a big impression with consumers in recent years, with quality of the merchandise improving dramatically and the assortment of the products improving exponentially. Combine these factors with the basic fact that private label products are normally 20% to 30% less expensive than national brand equivalents and the ingredients for success, especially during tough economic times, are in place. Most retailers also appear happy with the direction of their private label programs. Many say that private label equals about 20% to 25% of their total unit sales and upwards of 30% of their profits. They also say that their own store brands are gaining loyal consumers who cannot go anywhere else to purchase these products. “It’s a perfect storm for the industry,” says one consultant. “Private label is less expensive for the consumer, better quality than in the past and means more profit for the retailer. Everyone is a winner.” For now at least. Some are concerned that as the country continues to emerge from the recession and national brand manufacturers get more aggressive, consumers may retreat to old practices—which mean less private label sales. The recent government shutdown may have shaken consumer confidence a bit, but many still feel that good times are ahead and that may mean more competition from national brands as consumers feel better about their financial situations and start spending again. The numbers do look good for private label. The PLMA’s 2013 Private Label Yearbook reports that in 2012 store brand sales across all retail outlets increased by about 2.9%, pushing revenues up $3 billion to a total north of $108 billion, an all-time high. Private label sales account for 23.1% of all units sold in U.S. supermarkets and 19.1% of all dollar sales come from private brands. Across all retail outlets private label unit market share came to 21.0% and dollar share was 17.3%. Todd Hale, vice president for consumer and shopper insights at New York-based Nielsen, told The New York Times in October that, “We expect private brands will continue to grab share year over year because of investments they’ve made in enhancing quality, innovation and hiring more people with brand experience to help them with marketing and promotion.” In supermarkets, store brand sales set a new high last year despite slow growth overall for all brands. Private label sales volume edged up 0.1% over the prior year, generating an additional $73 million in volume and achieving an all-time high of $59 billion in sales. Since 2009 store brand sales at grocery have increased at an average annual rate of 2.6%, compared to an average gain of 0.9% annually for national brands. About 40% of all sales gains in supermarkets during that period have been attributable to store brands. “There’s a level of interest, intent, branding, effort, innovation and marketing that private brand has never seen in its history in the U.S.,” says Jim Wisner, president of the Libertyville, Ill.-based Wisner Marketing Group. It does not hurt that the quality of store brands has never been better. In September, Consumer Reports published taste tests comparing store brands to national brands. The organization found that 33 of the 57 private label products sampled were as good as or better than the national brand. The magazine said such brands accounted on average for about one-quarter of the products in a supermarket and could save consumers as much as 30%. A recent report on PLMALive credits store brands with the economic recovery of a few national chains. Roy White, financial analyst for PLMALive, addressed the fact that a few retailers have been seeing evidence of an economic recovery thanks to their store brands. White, using figures from Census Bureau data gathered over a 12-month period ending in April, reports a 3.7% increase in total retail and food service sales, but only a 2.7% increase for grocery store sales. However, chains like Kroger and Stop & Shop have seen more success. White adds that Cincinnati-based Kroger saw a 7% jump in sales over the last fiscal year and has climbed 150% since its lowest point in 2011. Aiding Kroger in this success is its extensive private label program, which features 10,000 to 12,000 items and growing. According to the report Kroger introduced 1,000 additional items last year, which they say outperformed internal goals by 33%. Stop & Shop, a division of Ahold’s U.S. operations, helped the company increase total sales 3.4% during the first quarter. Industry observers say private label plays a huge part, as there are more than 4,000 of these items in Stop & Shop alone. Based on the recent data, White says that there is still sluggish consumer spending around the country, but some grocery store chains are coping with it via successful private label programs. He adds that while traditional supermarkets as a whole have struggled, specialty stores like Whole Foods Market and Trader Joe’s are performing much better. In a recent study from Consumer Edge Insight, based in Stamford, Conn., 60% of buyers said they are more likely to visit Whole Foods Market as a result of the store brands sold there—which ranked highest. Costco came in second with 57% of Kirkland buyers saying that the brand makes them more likely to shop at Costco. The membership club earned the highest average satisfaction for its store brand, with 63% of buyers saying they were “very satisfied” with their purchase. “Ten years ago, 90% of all grocery shopping took place in a traditional supermarket and today it’s 46%,” says Brian Sharoff, president of the New York-based PLMA. “The traditional supermarket’s hold on grocery shopping has been declining and will continue to decline. Where’s the other 54%? Superstores, specialty chains, warehouse clubs, box stores.” The current retail landscape is dominated by retailers that are committed to their own brands, whether they are warehouse clubs like Costco or specialty chains like Trader Joe’s and Whole Foods, say observers. The landscape is extremely favorable to the continued growth of store brands because the retailers who are driving the marketplace are store brand drivers. “Different retailers have different needs in terms of how they use their store brands. Retailers like Trader Joe’s and Whole Foods use the uniqueness of the products they sell in order to leverage their store brands,” adds Sharoff. “Then you have retailers like Aldi and Save-A-Lot whose goal is to provide, not unique products, but normal, everyday products in a manner that relies on their store brands and not on national brands. For them to successfully leverage they have to maintain assortment.” Observers say retailers should partner with manufacturers to create something that works for both parties, and ensure that they are both making the necessary commitments to create a successful private label program. Some say there is not enough collaborative buying occurring as there should be. “For a manufacturer to invest, the retailer needs to be willing to make a multi-year commitment and invest the marketing resources and dollars needed to make it profitable,” Wisner says. This collaboration goes beyond developing new products. “The most successful innovations are those that are jointly developed by the supplier and the retailer to best meet the needs of or create new needs for the consumer,” says Paul Huckins, vice president of retail for De Soto, Kan.-based Huhtamaki. “It’s important that the retailer and manufacturer jointly manage the category by analyzing performance and actively selecting and monitoring the assortment.” As retailers seek success, many are targeting the Millennial generation through their private label marketing efforts. These consumers, born as early as 1979 and through the new millennium, are looking for retailers to catch their attention and court them to private label. “A number of new brands, products and even market categories have been created recently, as result of the right product positioning to respond to specific needs of the new consumer,” says Suley Muratoglu, vice president of marketing and product development for Vernon Hills, Ill.-based Tetra Pak. “As younger consumers are less brand-loyal than their parents, who were less brand-focused than their parents, the end result is a huge group of shoppers milling the aisles reading labels and choosing based on what is attractive and offers high value rather than making decisions based on television advertising or habit. That’s the opportunity for private label.” Packaging for private label products is every bit as important as it is for national brands. “Packaging can position a product as unique; it can add value; it can communicate features and benefits. Most importantly for private label, though, it can help validate the offering versus national brand products. This is why we try to work with our retail brand customers on custom, high-quality package design that works to strategically position their product offering for maximum impact at the shelf,” says Huckins. When launching new products, retailers have the tendency to often replicate the package of the incumbent brands in the category. That may not be the best strategy as it can be difficult to get noticed on shelf, say observers. “To really provide shelf differentiation and get noticed by shoppers on shelf, alternative packaging is often a better option,” says Muratoglu. As smaller footprint stores gain popularity, grocers are looking for more compact packaging that is a better fit for these smaller stores. With the limited shelf space, retailers are trying to ensure they optimize space to squeeze out as much sales and profit as possible. Square-shaped carton packages, like Tetra Pak’s aseptic cartons, enable retailers to maximize shelf space, while also delivering packaging that appeals to Millennial consumers, says Muratoglu. Retailers should also be harnessing the power of space and imagery when designing their private label packaging, say observers. Packaging that creates eye-catching shelf impact can help revitalize a brand image and create a unique product concept. Digital marketing & the Millenial John Zogby, founder and senior analyst of the Zogby Poll, has coined a new term for Millenials: The First Globals. He believes that people born between 1979 and 1994 want to be engaged and want to build a better world, and mobile and social media can make that happen. “Answers have always been at their fingertips and they have little patience for outmoded structures,” he says. Commercially, the solution to reaching these First Globals is the new wave of “murketing”—which markets lifestyles, rather than a specific product—with its focus on new media, viral videos, chat rooms and the establishment of promotional blogs or mysterious treasure hunts across the Internet, Zogby says. While many private brands are taking the lead with innovative products, innovation no longer only means bringing new product to market. “Many retailers are turning to innovations that improve the shopping experience and build customer loyalty, says Carla Cooper, CEO of Daymon Worldwide, based in Stamford, Conn. “These changes benefit shoppers and are critical to differentiation in the marketplace; they don’t create new items on the shelf.” It is now a common practice for retailers to promote digital engagement and interaction by consumers with their company and brands. However, there is a big difference between creating an app and getting consumers to use it. Retailers have to go above-and-beyond typical marketing practices to gain consumers’ digital attention. “If you look at the Millenial generation and their families, 91% of moms have smartphones and close to that number participate in social media on a regular basis and close to that number participate or seek out the stores that they look to frequent or shop and engage with those stores in a digital world, not a print world. That’s a change retailers need to adapt to,” says Jim Wisner. He cites Target’s new personalized savings app, Cartwheel, for its innovation. Consumers can search their favorite brands, add the savings that interest them and share with friends. At checkout, they simply show their personalized Cartwheel barcode on their smartphone or as a printout to receive their savings. Cartwheel deals work on top of coupons, sales and Target REDcard discounts. “They have it completely integrated through the digital ecosystem,” he adds. Consumers can access Cartwheel on Target’s website, Facebook page or mobile app. Target’s various private brands, including the Archer Farms, Up & Up, Market Pantry and Simply Balanced grocery labels, are all highly integrated into the program. “I think the most important thing retailers can do is find ways to generate trial and in an environment of social and digital media, get the customers to sell the product for you by talking to other people about it,” says Wisner. “What we see going on with social and digital media is going to be the primary means of communicating with customers going forward.” Private showings Last month, the Private Label Manufacturing Association’s (PLMA) Annual Washington Conference examined the issues facing store brands today, including FDA and FTC policies, congressional legislation and judicial decisions. Scheduled seven days into the federal government shutdown, presentations on budget updates and taxes were scheduled for Capitol Hill but had to be moved to Washington D.C.’s L’Enfant Plaza Hotel. Furloughs, continuing resolutions, the debt ceiling and Obamacare dominated the conversations of attendees and speakers, including the presentations of Senator John Boozman (R-AR), Congressman Richard Hanna (R-NY), Linda Wertheimer, senior national correspondent at National Public Radio and George Wills, Fox News commentator and senior political correspondent for The Washington Post. John Zogby, founder and senior analyst for The Zogby Poll, launched Tuesday’s seminars with a discussion on “The New American Consumer.” “Since 2009, 37% of Americans have a job that pays less than a previous job. They’re trading down and buying generic and bulk so they can save and occasionally trade up,” Zogby said. To navigate these shifts in spending, Zogby advised attendees to reengage Millenials as consumers. “Anyone advertising to them needs to understand the use of multiculturalism and themes, peer endorsements, mobility, technology and problem-solving.” The discussion of private brand growth and success will continue this month in Chicago at PLMA’s 2013 Private Label Trade Show. The event will return to the Rosemont Convention Center from November 17 to 19. This year’s show features two speakers responsible for some of retail’s most successful private label programs. John Shields, Trader Joe’s chairman and CEO from 1988 to 2001 will deliver the keynote address on November 18 and Robyn Waters, Target’s vice president of trend, design and product development from 1993 to 2003, will speak the following day. Maintaining momentum it is estimated that in the past five years private brand sales are up 21%, and 50% of consumers say they are more aware of private brands today than they were a year ago. The Food Marketing Institute (FMI) is poised to help its members harness this momentum and inspire innovation as it hosts its Private Brands Business Conference just before the 2013 Private Label Trade Show, on November 16 and 17, at the Embassy Suites Chicago in Rosemont, Ill. FMI will provide its members with a forum for confidential, strategic discussions, bestowing an understanding of a retailer’s goals and aspirations and the relevant supplier’s capabilities, expertise and knowledge to maximize opportunities in private brands. FMI officials say that by participating in high level, one-on-one discussions, companies can move from transactional discussions to shaping strategic relationships, defining mutual goals and establishing long-term alliances. “Now in FMI’s fourth year coordinating these strategic meetings among FMI private brand manufacturer and retailer partners, we have a record number of FMI members coming together in Chicago to share aspirations for their brands and to leverage the capabilities of suppliers and trading partners,” says Mark Baum, senior vice president of industry relations and chief collaboration officer for Arlington, Va.-based FMI. “In addition to the strategic business meetings at the FMI Private Brands event, we’ll host an inaugural networking dinner on Saturday evening,” he adds. “Doug Rauch the former president of Trader Joe’s will share his insights on brand-building and connecting with consumers. Catching up with… Paul Huckins Grocery Headquarters sat down with Paul Huckins, vice president of retail for De Soto, Kan.-based Huhtamaki. What is the current state of private label? Paul Huckins: Consumer trends toward acceptance and even preference for retail brands demonstrate ongoing growth opportunity. For several years it has been fairly common for retailers to want to develop their private label programs in the image of a national brand. Now, many retailers have their own view of consumer needs and wants and are building unique brand propositions that offer superior product features and innovation beyond those of a national brand. What are the most important aspects in building a private label program? It is very important for the retailer to understand who their core shopper and/or their target shopper is and what their needs are in order to tailor their offering to gain a larger share of wallet and loyalty from those customers. At Huhtamaki we do not use the term private label, we say, “retail brand.” There is a reason for that—the retailers that treat their “private label” as a consumer brand and manage its equity, generate more consumer awareness, trial and loyalty. What do you think is the best price-point or tiered-approach for private brands to flourish? There is no “one size fits all” to any aspect of brand and category management. Each retailer should work with its suppliers to optimize assortment, to determine the best mix between national brand and retail brand products and to create a pricing and promotional strategy that will maximize sales and profits. What lies ahead for private label? Consumer lifestyles will continue to drive demand for high quality products that are a great value and make it easier to spend time with family and friends. Retailers will continue to look for ways to build their brands by creating an exceptional shopping experience for their customers.