CARLSBAD, Calif. -- Better forecasting and fewer last-minute orders are what's needed at the retail level in the private-label business.
These were two of the findings of a new private-label study, which was the subject of a retailer/broker/manufacturer panel discussion.
"No one ever wants to be late with an order or out of stock," said panel member Nick Hahn, grocery procurement coordinator at Kroger Co., Cincinnati.
"The preferred-customer cards we use now have had a dramatic impact," said Ron Carlson, vice president of corporate brands at American Stores Co., Salt Lake City. "We are tying private-label sales to these cards. In one program, we sold six months worth of frozen spinach in four weeks. There was no way to estimate that. So, we have to re-examine all the history and information and try to make projections based on these new marketing programs."
The panel, convened at the Private Label Manufacturers Association's Annual Meeting and Leadership Conference here, discussed results of "A Blueprint for Private Label Growth," a study conducted for PLMA by Kurt Salmon Associates, Atlanta. As reported in SN, one of the most exciting results of the report is the level of retailer commitment to the growth of private label, said Stephen Berman, principal at Kurt Salmon Associates. Of about 155 suppliers and 50 retailers polled, two out of three retailers said they are very strongly committed to the growth of private label, while nine of 10 are strongly or moderately committed.
More good news from the study is the performance of private label for companies over the last two to three years. Retailers predict unit sales of private label will grow at a rate of 24% over the next three years. This optimism reflects their commitment to store brands, which 90% of retailers surveyed characterized as "very strong" or "moderately strong." When asked to comment on the obstacles to private-label growth, 67% of respondents cited reaction by national brands. The national brands are increasing direct advertising, introducing new products and packaging, and running more price promotions, couponing and co-op advertising, respondents noted.
"National brands are not going to sit still and watch their market share be eroded," Berman said. "They are going to get more active and more price sensitive, and we have to stay ahead of that."
As for other barriers to private-label growth, two-thirds of suppliers said their company understands the everyday problems of retailers. In contrast, though, eight of 10 said they believe retailers do not understand theirs. Two-thirds of suppliers have changed their views of retailers over the past several years for the worst.
Suppliers also feel that retailers need to play a bigger role in the business. Four in 10 suppliers said the growth of private label is hindered because of insufficient lead time from retailers placing orders, multiple stockkeeping unit of the same product to multiple retailers, and poor communication from retailers.
Along with Hahn and Carlson, Bill Lancaster participated in the panel discussion. Lancaster is vice president of corporate sales at Associated Wholesale Grocers.
Manufacturers and brokers also took part. They included: Terry Kershner, president of Kershner Associates; Dan Mazur, senior vice president of procurement at Topco Associates; Peter Pappas, president of Clement Pappas & Co.; Beth Richman, vice president of Hospital Specialty Co.; Edward Salzano, executive vice president at Cantisano Foods; and Michael Zeher, president and chief executive officer at Lander Co.
Following are excerpts from the panel discussion:
Question: Improving the flow of products from plant to shelf, and better communication on the part of retailers, will help suppliers solve some of their most pressing problems. To accomplish this, how can retailers do a better job forecasting and projecting future orders and minimizing last-minute ordering?
Hahn: Unfortunately, from a retailer's perspective, often times this is a week-to-week business. So, every seven days, you get a new report card. And depending on what that report card tells you the competition did that week, you need to react pretty swiftly. Then the question becomes, "How do we get product where it needs to be?"
No one in the industry today is sitting on large piles of inventory, from a store-brand and national-brand perspective. Last-minute changes are difficult for everyone.
It's going to take some learning and changes in culture to get it completely where it needs to be. But I would encourage all suppliers to be open and responsive to new ways to get their product to the shelf.
We've been very proactive as a company. We've made many logistics changes that have helped us get the product to the store in a more efficient and effective manner. Unquestionably, forecasting from a promotional standpoint continues to be a problem for, I think, all of us.
Question: Are manufacturers improving in this area?
Hahn: I think they're improving, but it's hard when they receive an order Monday afternoon for 14 truckloads of product that the retailer wants delivered Thursday morning because there's been a change in a promotional opportunity.
Because of Efficient Consumer Response, those kinds of changes are difficult to implement in today's environment. But it's getting better.
Lancaster: A contributing factor to forecasting accurately is that history is flawed. You look at the number of the stores and the number of distribution of brands. We have some stores that do an excellent job and do distribution on every item carried. But others may be 350 short out of 1,800 stockkeeping units, so we have to do a better job with our supplier in helping retailers to improve all of this.
Kershner: There's still a lack of sharing of point-of-sale data between retailers and private-label suppliers. Some retailers keep the information like it's a family secret, while others share it.
It's very difficult to make long-term projections without getting this basic information.
Question: Low on the [Kurt Salmon] list was innovative ideas for private label. Why is this so?
Lancaster: We ran a test of new-product introductions in one division. We checked items and followed up with how products get on the shelf. Sales were up 300% over other divisions.
Carlson: I'm surprised it ranked so low; in my group it rates as high as quality and service.
Hahn: Consistent quality has to be the basis of any store-brand program. It must be equivalent or better than the national brand. Timely delivery is important. It doesn't matter how good it is if it's not on the shelf.
Lancaster: Trust the is key issue, and it's usually built by experience. We must develop clear objectives with any supplier. We have a real interest in getting our retailers to increase distribution of store brands.
Question: If you wanted one thing accomplished, what would it be?
Carlson: One of the key points brought up today is communication and what we can do to improve it. I would like to use information from the [Kurt Salmon] study to create a source that can be used as a point of dialogue.
Hahn: We need to continue to improve emphasis on quality. That's what will drive the growth of store brands.
Question: Store-brand suppliers need to be more like product marketers and less like suppliers of commodities. How can manufacturers improve their corporate culture and organizational structure to achieve this?
Carlson: I would suggest that more branded people be hired into the private-label area. Hahn: Too often, retailers are the main culprit. We tell private-label suppliers, "Bring us the product as cheaply as you can and we'll worry about selling it."
It's a whole different ball game today. We're asking manufacturers of store-brand products to come to us with ideas, marketing programs and so forth to help move the product through the system and to the consumer.
Kershner: Yes, price has been a driving force for so long. But it's an issue that's getting better. Retailers are beginning to understand that they need to be partners. There's been improvement over the last three to four years.
Lancaster: A basis for optimism that I see is that we have great growth for store brands in our stores. Yet at the same time, we're not doing a great job in those stores. I think we need to work with suppliers in planning every step of the market. About 20% of our cases sold, and 15% of sales are store brand.
Mazur: Retailers have the information; the question is whether they have the commitment to utilize the information they have. That's where the real payoff is. Some are and some aren't.
Lancaster: Another area where we can see great improvement is the education program. We need to work jointly with suppliers and retailer wholesalers to develop a new report card as to what to measure, because if you measure the wrong thing, no one learns anything.