At the start of yet another grocery retailing year, industry sources are once again pointing to the development of a strong private-label brand as being crucial to the success of a retailer. While most admit it is not always easy to commit seemingly non-existent dollars to the arduous task of developing a quality store brand, those same people stress the long-term benefits of doing just that.
In this article, SN asked some of those industry sources -- including a retailer, a manufacturer, a consultant and an analyst -- what their opinions were regarding private label in terms of the role it plays in U.S. supermarkets and how that role could change due to a variety of factors, such as scattered levels of commitment from retailers and overall industry trends. There views are as follows:
SN: What role is private label expected to play within the operating strategies of supermarket retailers this year? How should private label be worked into these strategies?
STEPHENS: Private label will continue to grow as an increasingly important operating strategy for retailers as they continue to wrestle with competition from several quarters. Some retailers will, of course, do more with their programs than others. Private label is an incredibly powerful tool to build loyalty with customers, improve profitability and develop exclusive products to draw and retain consumers. Retailers who grasp this will improve their situation. Those that don't will continue to wither and face a bleak future.
PECK: Private-label assortments are pivotal to build more consumer loyalties and brand equity. It's a simple case of economies and product selectivity to determine what fits. WHITMER: Private label continues to be a top priority for food retailers, not only driven by better margins but also by differentiation. The best private-label programs truly enhance loyalty and prompt customers to increase repeat visits due to unique store brands [primarily items that cannot be found anywhere else].
HOUSER: Conventional supermarket retailers need to find ways to differentiate themselves from competition, especially from big-box retailers. A strong private-label program, which combines quality, value and product innovation, can create both clear differentiation and consumer loyalty. The soft economy as well as intense competition has created unprecedented pressure on margins. A strategy of increasing private-label share through aggressively promoting private-label programs can create additional margin. While this strategy can negatively impact overall revenue, it has the potential to positively impact the retailer's bottom line.
SN: What should grocers be thinking more (or less) about when it comes to private label?
PECK: Better packaging, more product diversity and comparative or better quality standards. The consumer needs to feel they are getting a better value to support private-label initiatives.
HOUSER: Grocers should strategize to build private-label brands through unconventional means and treat the private label 'like a brand.' Building shopper loyalty to the brand is key to building the program, as well as strategic merchandising in key categories. Grocers need to think less of private label simply as a 'generic alternative' limited to well-established, high-volume grocery categories, and think more of private label as an opportunity to offer customers an exclusive 'promise' of better quality and value across ALL categories, including deli/bakery, produce, fresh meats, dairy, frozen, HBC and GM.
STEPHENS: More about promotion, more about shielding the effect of higher-priced and lower-profit national brands. More about consumer loyalty and marketing. Less about continuing to attempt to drive private-label costs down, threatening private-label suppliers with losing the business, and switching to other suppliers to gain short-term cost benefits. More about sitting down with private-label suppliers and building confidence in product development, program development and re-designed private-label programs. Less about 'business as usual' and less about continuing to cut private-label personnel and increase workload and expect suppliers to shoulder the costs while the retailer gets no real, sustainable, business-building benefit.
WHITMER: Follow Wal-Mart's private-label model: Create product lines that fill customer needs. The trend toward high-quality private label has also proven to be value-added for the consumer.
SN: What areas within the entire process of development for a private-label product, from idea to product on-shelf, could use improving?
STEPHENS: Retailers generally utilize the path of least resistance in developing private label. The personnel involved are usually overstretched and under experienced. This is brand development. This is marketing. This is understanding consumer choice. Retailers must utilize personnel and suppliers with the expertise to develop products and marketing programs. The job cannot be left to the lowest price route, both in product development, label and package design, personnel and marketing execution. Retailers must think faster than brands, better than brands and smarter than brands. In any case, product development, per se, is barely practiced by the majority of retailers. Most private label is a brand-match program, and the supplier is asked to match the spec and then get beaten to death on the pricing. That is not product development.
WHITMER: Branding could continue to improve. The best retailers use the store banner/image as the brand rather than individual products.
HOUSER: Identifying potential categories -- don't limit to categories and 'me-too' products, which may be introduced too late to establish share within a growing product segment. Product innovation and 'speed to market' are key to improving share.
SN: Are retailers reaping all that they can from private label? If so, what are some good examples? If not, what needs to be done?
WHITMER: Private label is most definitely better than in the past, but retailers can often get so wrapped up in pushing private label that the customer gets overwhelmed with shelf-space allocation and promotional visibility. The incremental margin gain has been useful in offsetting pricing pressures; however, lower price points continue to be a challenge throughout the total industry [further driven by the effects of trading down and deflation].
PECK: Some retailers have considered or are trying to implement slotting. This mind-set needs to go away. Manufacturers are digging into the trenches as it is to provide the most aggressive price points to improve retailer turns and profitability. How can a supplier be proactive while facing even more diminishing margins?
HOUSER: In my opinion, retailers need to become more creative when marketing and promoting private label. Fresh Brands uses its card marketing program and in-store contests and events to enhance our store brand. An example of Fresh Brands' promotions and marketing include the Food Club Challenge -- an in-store blind taste test vs. leading brand to create excitement at store level.
STEPHENS: No. With private label at 15% penetration in the United States and 25% in Canada, that proves that most retailers do not get the real benefit from private label. Look north of the border for good examples. And look to the really good U.S. operators for good and excellent development of private-label programs as integrated programs within the whole store. Private label needs to be in the weekly ad, in the loyalty card program, and in the recipes provided to the consumer. Look at Wegmans, H-E-B, Harris Teeter, Ukrops, Kroger and Safeway. But, sadly, most of our retailers are under such pressure from all around them that they cannot find the time, the energy or the expertise to develop their private-label programs. This is the reality. If private label was a character on the TV show 'Survivor,' in most retailers it would be voted off in the early stages. Why? Because it's not dynamic. It's not sexy, and it's not 'attractive.' If private label was 'The Bachelor' in your store, would you pick it as the partner for the rest of your life?
SN: What trends of today will have an impact on private label of the future?
HOUSER: The soft economy has a tremendous effect on consumer trends. People are more willing to try first- and second-tier private-label products to save money. Families are looking for convenient ways to prepare meals, so ready-to-go hot items are popular. Categories with great growth potential, which we currently have in store brands like Full Circle or Dining In, include natural and organic, prepared entrees, produce, deli and fresh meat.
PECK: This is a difficult question because the national brands are continually searching for the next hoola hoop. Trends change by category and market conditions.
STEPHENS: Dollar stores, Wal-Mart and its Community Stores, Target. Upscale retailers developing their private-label programs more and more. Trader Joe's, Whole Foods, Ukrops, H-E-B, Wegmans, etc. Private-label manufacturers that have invested considerably in plant and equipment and personnel to make themselves better than the brands. Retailers that grasp the concept and are strategizing to build their private-label programs to unheard-of heights. The economy: down, level or up. Time-starved consumers. Supermarket product confusion and clutter. Wall Street's continued approval of retailers with strong private-label programs. Less security in the CEO's office. Consumer demand for better price, whether for low-end goods, medium-tier or premium product. Savvy retailers building their private-label programs. Supermarkets in certain areas and segments going out of business.
WHITMER: The most recent trends of tiered private labels [such as Kroger's program] or department branding [Wegman's organic line or Giant Eagle's produce] will carry a greater degree of interest going forward.
