Ahold USA is sometimes known for taking a carrot-and-stick approach in dealing with brands. It holds out the promise of growth to suppliers who meet its needs, but makes clear the penalties for those who don't.
That style of communication was displayed a year ago by Larry Benjamin, who is chief operating officer of Ahold USA. He was explaining the company's pricing and SKU reduction efforts under its Value Improvement Program (VIP).
“The threat of discontinuing SKUs is an enormously powerful point of leverage with vendors,” he said in March 2008. “Our negotiations with them involve telling them that if they remain with us, we will give them growth. But somebody has got to go, and so we have our own sort of reality show where somebody has to get off the island.”
Jump forward a year. Ahold USA is currently growing its private-label business and seeking new kinds of collaboration from brands in this effort. Jeff Martin, executive vice president of merchandising and supply chain for Ahold's Stop & Shop and Giant-Landover chains, recently made remarks at a conference urging suppliers of brands to collaborate on brand/private-label strategies. (See SN, March 30, "Ahold Seeks Brand Collaboration.") He presented a warning to those who don't fall into line.
“Private label is here to stay, and it's going to grow,” he said at an Information Resources Inc. conference in Las Vegas. “You can either fight your way through it, or figure out how to live and promote and go to the consumer together. So either stay with us, or private label will probably take your place.”
What is Ahold seeking from suppliers in this case? It wants to develop strategies that help boost sales of both brands and store labels. Too often, it seems, marketers of each work at cross-purposes by battling for the same customer, a conflict that leads to confusing pricing and messages for consumers.
A number of solutions were raised by speakers during the IRI conference — including the need for private label and brands to avoid battling for the same customer, and instead to target consumers more likely to be loyal to their separate products.
There are no easy answers here, but Ahold has made one thing clear: Retailers are experiencing so much private-label success that they need to better coordinate overall strategies to keep that momentum going.
Ahold's rhetoric may appear overly harsh toward brands, but many of its marketing strategies, particularly lower everyday prices, appear to be working at Stop & Shop and Giant-Landover, based on recent financial results.
Ahold deserves points for speaking candidly and encouraging a trading partner dialogue. At the same time, the company should be careful to avoid alienating brands even as it attempts to make them into allies.
All trading partners need to realize that the time has come for a more comprehensive discussion about the roles of private label and brands, and how the two can enhance each other's businesses.
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