NEW ORLEANS -- Most U.S. supermarket chains sorely lack the skills and mind-set needed to propel their store-brand penetration over the 30% mark in total store distribution by the end of the decade.
So says a top executive at Loblaw International Merchants, the Toronto-based retailer whose very successful store-brand strategy is considered by many a bellwether of things to come on this side of the 49th Parallel.
What's more, if U.S. retailers are looking to be catapulted to new store-brand heights by adding new premium private-label lines like Loblaw's President's Choice, they may well be hallucinating. This statement also comes from Tom Stephens, a Loblaw executive vice president, whose duty, among other things, is to develop and market the President's Choice program in the United States.
"I want to sound a wake-up call to retailers, private-label manufacturers and national-brand manufacturers," said Stephens, the keynote speaker at a conference about private label here conducted by the Institute for International Research. "You must recognize that Loblaw's success with President's Choice will not become industrywide in the U.S. without real changes in the collective industry mentality."
Stephens argument is that, save for perhaps a handful of "visionary" retailers, U.S. super-market chains are operating their private label with attitudes based on what was happening five years ago.
"That is the tragedy of retailers here. Most don't have their heads around what private label will be five years from now," he said. "Private-label penetration in the region of 30% or more is achievable quickly, but you have to want it to be so."
Judging from the makeup of conference registrants, however, Stephens said he was concerned about the level of real interest in private-label progress. The meeting of about 100 delegates was attended by only a handful of retailers, and one was a scheduled speaker.
"The dominant presence of national-brand manufacturers at this meeting worries me," he said. "The cynical might think that the retailers who are not here don't care about private label, and that the private-label manufacturers who are not here don't care."
His larger point was that, in his experience trying to develop the U.S. market for the premium President's Choice program, he continues to encounter outmoded or counterproductive attitudes among retailers.
The industry needs "boundaryless thinking" and greater speed to achieve increased private-label penetration. "It will not be achieved by traditional private-label cough syrup and cigarettes," he said, referring to two currently fast growing categories, "but only through a retail controlled brand program with sustainable points of difference from national brands. Traditional private labels have rarely shown evidence of sustaining consumer loyalty or brand switching."
Stephens went on to contrast what he said was the Loblaw or European take on private label, "giving the consumer a clear message that my brand is always your best value in my store . . . a very clear vision of the role and importance of private label, of being first to the market with innovative products, of not wanting to allow national-brand suppliers to dictate consumer purchasing patterns," with a typical U.S. attitude, which he called TGT, or terminal grocery thinking.
"What you get from a typical U.S. retailer: 'We want to increase private-label penetration because of the profit opportunities. The program has to be deal-driven like the rest of the vendor programs, or we cannot afford to promote it. If it is not identical in appearance, package format and even ingredients to the leading national brands, it will not succeed because it will confuse our customers. We don't have space on the shelf for more private label.' "
Stephens said that retailers must gain greater control of their shelf space. That statement raised a comment from the audience, from a "medium-sized private-label manufacturer" who said virtually all U.S. retailers do not exercise such control, allowing direct-store suppliers to run important grocery category merchandising for them. Stephens agreed, and suggested more vigorous use of brokers to work with private-label programs at the store level.
He also said supermarkets and private-label manufacturers have a unique opportunity for true partnering, one that law and industry practice otherwise prevents national branded companies from taking full advantage of.
However, he added that the concept of partnering is currently poorly executed, and again faulted retail attitudes. "Far too many retailers are forcing manufacturers to shorten their lead times" with no reciprocal commitment to sharing data or to forward planning.
"Partnering needs to be put into intensive care before it dies," he said. "If ECR to retailers means only moving cost up the supply chain, then we might just as well remember what happened from moving the deck chairs around on the Titanic.
"Corporate brand will be the driver of profits only by retailers who are prepared to change the very core of their operating profits quickly. Gone will be the days of rewarding buyers based on ad money, slotting fees or baseball tickets," Stephens said.
The first tier should offer a "real value" with a wide range of commodities. The second is a premium program that "offers something unique and special," but in addition is backed by brand management and marketing techniques in partnership with private-label suppliers.