Taking private label into the crossover realm of proprietary brands is a strategy paying big dividends to mass merchandisers.
This is where the excitement resides in nonfood private label development. Celebrity endorsed labels and brand name exclusives are capturing consumers' attention and dollars within the mass discount channel. At the same time, it has bolstered overall nonfood private label sales off set by last year's somewhat lackluster performance turned in by the food and drug channels.
Some of the big recognized names and brands found at the discounters' stores today include Kathie Lee, Springmaid and Rimmel cosmetic line from Coty (Wal-Mart); Martha Stewart, Jaclyn Smith, Kathy Ireland and White Westinghouse (Kmart); Michael Graves, Niki Taylor, Martex, Essential from Calphalon, Philips and Sonia Kashuk Professional Makeup (Target).
Certainly the most successful and publicized celebrity brand to date has been Kmart's Martha Stewart. Launched as a bed and bath line in 1997, the Martha Stewart Everyday collection has spilled into outdoor garden and this fall into housewares with just over 4,000 stockkeeping units. Martha Stewart is credited with boosting Kmart's sliding revenues. The brand is expected to top the $1 billion level this year.
"Our strategy has moved us beyond a turnaround company to a growth company," said Cecil Kearse, executive vice president of merchandising, Kmart, Troy, Mich. "We're investing in those merchandise categories that differentiate us from our competitors," he added.
Differentiation is a key component in taking nonfood private label to the next level. Some industry observers like Wendy Liebmann, president of marketing and retail consulting for WSL Strategic Retail, New York, refer to it as "mass customization."
"It is increasingly important as fewer larger companies compete against each other," said Liebmann. "It gets harder and harder to distinguish themselves from the guy across the road. The ability to have exclusive brands is dramatically important today to retailers more so than in the last decade."
Mass customization is one way for retailers to target their customers. Chris Hoyt, president, Hoyt & Co., Stamford, Conn., calls it channel specific marketing and says some in the manufacturing community have long talked about channel exclusive brands where the manufacturer will develop a brand and offer it exclusively to several big merchants instead of just one. These proprietary brands are being used to reinforce the retailer's merchandising philosophy and image. They are also being developed and positioned to coincide with the retailer's consumer thrust, said Hoyt. "Wal-Mart is low prices, Target is high end."
Next year, Wal-Mart will launch an exclusive General Electric small appliance line. Target already has its Philips line of kitchen appliances. "Wal-Mart is going to benefit from the GE name, and GE is certainly going to benefit from Wal-Mart's distribution, especially given the (average) Wal-Mart shopper is making $40,000 a year," commented Hoyt.
Such exclusive merchandise partnerships give consumers a reason to shop a particular chain, said Liebmann. "Kitchen Essentials at Calphalon is a prestige name not available at other mass chains. It gives the customer a reason to go there. The same with Martha Stewart at Kmart. Retailers are asking themselves, 'How do I give the customer a reason to come back to me?"'
As trade channels continue to overlap, so is the distinction between the national brand and the private label. "There's a very fine line between an exclusive brand or a private label. I think the retailer has to think of it as a private label and have the same commitment to it. It's more of a distinction to the consumer than it is an internal thing," said Vicki Williams, president, Signature Sales & Marketing, Toronto, Canada, a private label consultant.
Brian Sharoff, president of the Private Label Manufacturers Association, New York, says retailers' brands such as Loblaw's President's Choice, Kroger's Private Selections and Safeway Select are no longer perceived as private label but national brands. "They all have achieved the status of a brand. They are supported by television, deliver a quality statement and bring people into the store," he added.
Sharoff pointed to PLMA's latest Gallup report indicating that 75% of consumers polled consider the retailer's store brands to be a brand like anybody else's brand.
While the current strategies being employed by the discounters are not new, it does signal a refocus on their private label business.
This renewed emphasis is reflected in the 1999 numbers published in PLMA's 2000 Private Label Yearbook, complied by Information Resources, Chicago. Statistics show that total private label dollars ($46.1 billion) and units (29.5 billion) are growing by double digits in the discount channel, 15.7% and 17.7%, respectively. In contrast, supermarkets are up 5.1% in dollars and flat, 0.2%, in units. Drug stores are struggling. Drug dollars are ahead a slight 0.4%. Units are down 4.8%.
Sharoff explained that discounters are consolidating their shelves and choosing to focus on several leading national brands while at the same time they are backing their private label. "The growth comes from what you put on the shelf and the retailer's philosophy toward marketing and promoting these products," he said.
He noted a difference in mass merchant (distribution) dynamics in comparison to drug chains and supermarkets. "Whatever product Wal-Mart chooses to put up for sale in a category and back it, it becomes one of the two or three leading national brands by definition. That's the market reach of Wal-Mart. A supermarket or drug chains can't accomplish that," said Sharoff.
Hoyt says that the sheer size and leverage power of the mass merchandiser may preclude the food channel from developing similar programs with branded suppliers. While individual supermarket chains represent a high number of units, most food chains, like Kroger, are not centralized despite consolidation among supermarkets. Such proprietary programs require a national chain presence.
Basically, the big mass market retailers like Wal-Mart, Kmart and Target are taking a "leading brand approach," said Sharoff. "They want to have on their shelves the two leading brands in any category. They want one of those two leading brands to be their brand." These retailers come out of the department store philosophy where celebrity branding and sub-branding are very well entrenched, Sharoff added.
While retailers are pursuing first, best and exclusive-only private label programs, a delicate balance of power often comes into play in the buyer/supplier relationship. "It's often a relentless, rapacious, extraction process, but it's just business," said Chip Hoyt, vice president of trade marketing, promotional planning, DVC Group, Morristown, N.J. He is Chris Hoyt's son.
A case in point is Wal-Mart's exclusive deal to market White Cloud bath tissue and diapers, a brand that was discontinued eight years ago by Procter & Gamble. Wal-Mart has resurrected the brand as its own premium offer and it competes with P&G's Charmin. The mass merchandiser came out with Sam's detergent that looks similar to Tide, and is selling it 40 points below P&G's national mega brand.
"They (Wal-Mart) are beginning to cannibalize on their own national brand lead, but it doesn't matter because they enjoy national financial advantages of cost structure," explained Chip Hoyt.
Whether they maintain a national presence or not, supermarket retailers may be too entrenched in food retailing to be as aggressive as the discounter in private label nonfood. "We have private label, but the grocery business is very competitive and you have to stay focused on food to stay in the game," said Wendy Melton, a spokesperson for Food Lion, Salisbury, N.C.
"I think unique products can fit in supermarkets, but it depends on what it is. If it's a signature (under Hannaford label) cake or dessert line in bakery... That's what fits more than nonfood items," said Kenneth Johnson, vice president, nonfood/specialty foods, Hannaford Bros., Co., Scarborough, Maine. When asked if he could conceive of an exclusive line of Emeril Lagasse kitchenware sold exclusively at Hannaford, Johnson said, "That's fine. I would do that, but it depends on what your strategy is for kitchen gadgets or frying pans. You could have a two-tier offering with the chef line as the upscale one."
Industry observers say the patterns being set by mass merchandisers are bound to rub off on the other channels. "I think we'll see a lot more of these exclusive brands where image does make a difference," said Williams.
"As consolidation takes hold, supermarkets have to find ways to differentiate themselves on a basis other than just price or their never going to get their profits up, " said Chris Hoyt. He recommends that a Safeway could benefit by developing an exclusive line with the likes of a Tiger Woods. "It's a big name and draws a lot of people."