Considering the hearty state of today's private label industry, SN asked retailers to discuss their thoughts on the historical evolution of a market that has come this far. We also asked our panelists to reflect on the future potential of the private label industry and express what factors they believe will continue to influence its progress.
he penetration level of a particular category is at 10%, we want to establish a plan bringing that penetration level up to 12% or 13%, and we have to hold ourselves to it. Establishing mutual goals goes a long way toward achieving the desired result."
Wilkin: "We need to offer a wider range of products. People like a choice. At my store, we're limited because Supervalu doesn't carry all the IGA products. But Supervalu does supply a lot of IGA stores, and as more retailers come on board, I think we we will see more private label products."
Watkins: "The quality of private label has to improve -- both the quality of the product and the quality of packaging -- before private label can really grow. Some have focused on low prices and have gone so far to the price side that they have neglected the quality of their private labels. But, others, like Publix, have done a really good job at offering great prices and good quality."
Somerset: "I see two things that will help the growth of private label. First of all, new entries into categories, but new innovative items and not just additions that will simply add more products for the consumer to choose from. And, improved marketing strategies should also be used to really enable the consumer to understand the value of private label in comparison to national brands -- both the quality of private label and the price."
Mayes: "Both manufacturers and retailers need to arrive at some new plateau of marketing expertise. At present, what most people in private label think of as 'marketing' is really merchandising. It's good, and it has improved over the years, on in-store displays, pricing, shelf-talkers, all the nitty-gritty that goes with making an effective in-store presentation. But very little has gone into the development of consumer awareness of a private label brand, as a brand, in the same way they would look at a brand of Procter & Gamble, or whoever. At Topco, most of my career was in product management. Coffee was one. There was a brand at the time that was consistently taking its coffee down, and we followed them right down. Later I had a chance to ask the man who ran that division why he permitted the company to take its quality down. He said his research indicated that the customers didn't know the difference. And now we have Starbuck's. Obviously, people do know the difference."
SN: Is category management helping or hindering the growth of private label?
Dragan: "Category management is helping the growth of private label by bringing fact-based detail to the discussion. Problems can arise down the road when category management plans are not executed properly. Without promotional funding at the level that national brands generally maintain, we are usually the first to suffer when good plans go wrong."
Wilkin: "I think in the long run it will help, but we're really just starting off with category management. Ideally, we'll be cutting out the slow movers and will be able to allot more facings to the private label."
Watkins: "From an industry standpoint, category management is really hurting a lot of people because the industry doesn't have the resources to effectively do the job. Category management is tremendously cumbersome and most don't follow through with the process enough to get results. But, for private label, this isn't as much of an issue because most manufacturers have exempted their private label brands from category management altogether. They don't want them to even be part of it."
Somerset: "I feel that category management is helping the growth of private label. Private label is a profitable piece of the category mix and category management gives retailers the room and opportunity to see that their brands will help them profit."
Jacobson: "There are fewer than 10% of grocers nationwide of over $200 million in revenue, that truly use category management at all, let alone in private label. They are saying they've got it but they have no hard policy. Are we arranging our planogram by velocity, by margin, or what? I am still seeing a 3-shelf set in RTE cereals, which really went out in the 1960s and which does not give the customer a chance to really see what's there. Ready-to-eat cereal is such a high-volume, fast-moving category that retailers should spread out the appearance and make the newer items more visible. Other than the Krogers, Winn-Dixie, Vons and Ralphs, who do a good job with category management of private label. They are way at the top. Others are almost as big but they don't touch it at all. They try to mirror and bounce off the national brands. In the majority of stores, they do it well in HBC but do not transfer over to Center Store. Category management could help enormously if they truly utilize it. Buyers are not trained. I am not sure that utilization is any more than 20%. They are not taking advantage of the information that is out there, through IRI or ACNielsen or anybody."
Mayes: "It has neither helped nor hurt. In the first place, there isn't any common understanding of what category management means; it's different things to different chains. Many chains have turned their category management over to the national branded people or to a broker or whatever, so I am not sure how effective category management has been for either national brands or private label. I think it's probably been a positive attitude shift, though."
SN: Can retailers and national brand manufacturers ever truly cooperate and mutually benefit from the improvement of the chain's store brand?
Watkins: "Like anything else, the role of the manufacturer is to keep their plants busy and if their national brands aren't keeping it busy to capacity, it helps to take on some private label, which also helps the retailer. This is as close as it gets to cooperation, but the manufacturers know that if they don't make the private labels for the retailers, someone else will and they might as well have some control over the quality that goes into the product. That way, they can make sure their national brands are still a step or two above the stores' brands."
Somerset: "Retailers and national brands can definitely cooperate and both benefit from the partnership. There's the possibility that more national brand manufacturers will start to produce private brands that will benefit all of us. As more and more national brand manufacturers look into producing private labels for individual stores, they will be helping the retailers generate store loyalty and sales while gaining profit for themselves."
Jacobson: "Everybody wants something for nothing. The retailers don't want to pay for anything. I am not sure if there is a lot of private label manufacturing going on by the national brands. Scott Paper used to do a lot of paper towels and tissues, but I don't know how much they do any longer."
Mayes: "The answer is 'probably not,' in the pure sense of the question. As long as manufacturers' profit margins remain substantially higher than retailers' there will remain some competition between them for selling product to consumers. Many manufacturers and retailers have come to a common ground on this by virtue of the manufacturer becoming a supplier of private label, but that does not universally exist and probably will never. I can't imagine Gillette or somebody like that ever getting into private label. It may not be the out-and-out warfare that it was at one time, but there will never be total harmony between the private label retailers and the national brands, nor should there ever be."
