There's something about private label that needs to be made public: It's not a zero-risk path to profits.
tential without ample focus on the risk-reward balance or the need for a robust marketing strategy. It's a good time to adjust thinking as the industry converges on Chicago for the Private Label Trade Show sponsored by the Private Label Manufacturers Association Nov. 13 to 15.
With all the successful expansion of store labels by retailers, it's easy to forget there are hurdles in taking on the sourcing and merchandising of private-label products. For an excellent example of the risk, look no further than the story on Page 31 of this issue. This article details how the cough and cold category is reeling from the impact of the methamphetamine crisis. State laws are pushing medicines containing the decongestant pseudo-ephedrine (PSE), an ingredient in meth production, behind pharmacy counters. The result is that retailers are scrambling to substitute these products with those containing phenylephrine (PE), which can be placed in self-service areas of the stores. This impacts private label because many retailers are pursuing their own programs on these products. In those cases, major decisions -- such as whether to switch formulations or how to make the transition -- are left to retailers, not national-brand suppliers. The evidence is that retailers are making smart decisions but not without a lot of angst.
Even seemingly no-brainer private-label programs carry their share of risk. The growing holiday business in gift baskets enables retailer brands to bask in the glow of an upscale image based on local marketing. However, as a story on Page 49 indicates, retailers need to examine the logistics to ensure enough staff to assemble the products and adequate space to display them.
The challenges are even greater for retailers attempting to position their entire store around a meaningful branding strategy. A newly released report of an industry roundtable sponsored by the PLMA stresses that retailers need to learn how to succeed as marketers at a time when store brands are playing a bigger role.
"Early adopters of the merchant-to-marketer transformation are thriving," the report states. It points out that many of these companies are strong, family-held retailers with fully integrated marketing. In contrast, "...some of the largest U.S. chains have only 'taken what they always did and dropped some fancy marketing on top,"' the report adds.
It's true that private label has had an excellent run in recent years and is likely to continue to find new growth opportunities. But those retailers that fail to grasp the risks up front will not be able to enjoy the benefits later on. Programs are more likely to be sustainable when retailers embrace the dual role of merchant and marketer, to borrow language from the PLMA roundtable.
Speaking of PLMA, I have been asked to give a presentation during a seminar segment on Sunday, Nov. 13. My role is to address Whole Foods Market's secrets of success and future outlook. I suspect that almost anyone connected to the food industry can learn a thing or two about marketing from that fast-growing phenomenon.