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How to Strengthen Private Label Perishable Offerings
Investments in the category freshen trust, quality, loyalty bonds with shoppers. Retailers' investments in the category continue to freshen trust, quality and loyalty bonds with shoppers.
6 Min Read
As retailers continue to improve the quality and penetration of their proprietary brands, consumers are increasingly opting for private label over national brands. Once deemed to be of lesser quality or “generic,” store brands have steadily earned a reputation as not only a great value, but also often a preferred choice over national brands, according to the New York City-based Private Label Manufacturers Association (PLMA). Retailers are upping the competition by increasing investments in house brands to offer innovative products, appealing packaging and featured promotions, raising the value of private label beyond price alone.
Though predominant in center store food and beverage categories, private label products are certainly not limited to packaged goods. “Private label allows retailers to offer consistent quality at less expensive price tags, even within the fresh department,” says Matt Lally, associate director of New York City-based Nielsen. “In fact, as of November 2017, fresh private label products represented a significant dollar share of total fresh departments,” including 44.9% dollar share of bakery, 31.5% of deli, 26.5% of seafood, 21.8% of meat and 11.8% of produce, comparing favorably to that of unbranded produce, which has seen declines across the total category. “In some departments, like the meat department, private label is leading growth (3.8%).”
According to the first-ever Private Brand Intelligence Report by Daymon, based in Stamford, Conn., 81% of U.S. consumers buy private brands on every or almost every shopping trip. Additionally, 85% of consumers said that they trust these brands at least as much as national brands.
Millennials, who are typically well-informed about brands and where their food comes from, are among the key drivers of this shift. According to PLMA’s consumer study How America’s Eating Habits Are Changing, 30.9% of millennials are very aware of retailers’ store brands, and 52.8% are somewhat aware.
Retailers can appeal to this demographic with differentiated, engaging and high-quality private label products, as millennials are known to be less loyal to traditional brands and more willing to try emerging brands compared to other consumer demographics. And with 60% of overall consumers saying they would like to see a stronger presence of private label in fresh departments, according to the Daymon report, retailers with a strong private brand strategy are positioned to disrupt the industry as the segment continues to grow.
Differentiating Brands in Fresh Departments
At the forefront of private label are discounters Aldi and Lidl—which have built their business models around private label—and notably Trader Joe’s, which sources over 80% of its products directly from suppliers to sell under its house brand. But major players such as Albertsons Cos. and The Kroger Co. are also making waves with recent expansions and promotions of their private label lines, including fresh offerings.
Albertsons’ USDA-certified O Organics line hit a $1 billion milestone earlier this year, featuring more than 1,000 products, including fresh fruits and vegetables, dairy, meats and snacks. The retailer added about 200 new products to the line in the last year, and grew sales more than 15%, according to company officials. Albertsons first launched the brand in 2005; it manufactures several O Organics products, such as yogurt, salsa, milk and sandwich bread. This year, the company plans to continue satisfying consumer demand for private label perishables by introducing 500 or more new products, from produce and meats to dairy and deli items.
“As we build brand loyalty in our stores’ own brand, we’re seeing a very good following and a very good takeaway from customers as we expand these items into our fresh departments,” says John Colgrove, president of Albertsons’ Intermountain Division. The Boise-based retailer also offers private label packaged meats and seafood, as well as 150 to 175 different fresh-cut fruits and vegetables in an assortment of packages and containers.
“Customers have known those [store] brands and trusted them over the years, and … people continue to want to migrate to fresh ingredients,” says Colgrove. “When they see those brands in fresh departments that they’ve come to trust in packaged, it’s just a natural opportunity for them to pick those up. It forms a trust.”
Indeed, high-quality private label offerings build trust between the consumer and the brand, and help to eliminate guesswork from the shopping experience across all departments. Differentiating between brands on store shelves requires time and effort. By offering a reliable private label, retailers can set themselves apart from national brands and ensure a returning customer. A national brand can be purchased anywhere, but a house brand can be found only at a particular store.
“As different industries begin to realize the cost benefits of this go-to market strategy, adoption of private labeling will continue to grow,” says Tony Uphoff, president and CEO of data company Thomas, based in New York City. “We don’t expect the trend to end anytime soon.”
In January, Kroger announced its Simple Truth brand had reached $2 billion in annual sales following the line’s product expansion and its largest private label sales promotion to date. Since its launch in 2012, Kroger’s Simple Truth line now offers 1,400 products across multiple categories including meat, produce, deli and bakery. Utilizing insights from its data analytics unit 84.51 to tap into consumer trends, the retailer also offers more Fair Trade Certified products than any other private label grocery brand in the U.S., which are free from more than 101 artificial preservatives and ingredients.
Tackling Traceability
Consumer appeal for inexpensive, high-quality private label perishable products may be obvious, but even retailers have more to gain than loyal shoppers. “[Private label] reduces the number of SKUs in the system and makes the jobs of everyone, from inventory to personnel to cashiers, much easier,” says Harold Paivarinta, senior director of sales and business development at Red Sun Farms, based in Kingsville, Ontario. “The opportunity for retailers is to create a series of private label products across the fresh produce spectrum, which then can be supplied by different partners, and at the end of the day there is no confusion to the customer.”
However, private label in fresh departments can also present challenges with consistency, quality and taste when retailers partner with multiple suppliers for the same product under a store brand. Consumers may purchase private label grape tomatoes, for instance, and have a positive experience. But if they return for the same purchase on a new occasion, there’s risk that the flavor and quality of the product is different, which may hinder repeat purchases in the future.
“It comes down to traceability,” says Paivarinta. “If there’s a quality issue, [retailers] need to be able to determine precisely where the product came from and from what partner. Multiple suppliers using the same packaging and UPC code can make segregation challenging once the product has been removed from the shipping unit.”
Personalization in Private Label Perishables
Private brand sales have increased by 4%, or eight times more than national brands, according to Daymon’s Private Brand Intelligence Report. To capitalize on this consumer interest and craft store brand loyalty, retailers must consider utilizing coupons and in-store sampling events, both of which were consumers’ top two motivators for making purchases, according to the study. Plus, Daymon’s year-end review of 2017 found that there was a 180-degree shift from brand imitation to differentiation, driven by unique products, price checking, customized promotion and consistent placement across stores.
Earlier this year, Scarborough, Maine-based Hannaford Supermarkets, for instance, launched its My Hannaford Rewards program chainwide, calling it a “reinvention of grocery store loyalty programs” built around store-brand purchases and personalized offers. The new program offers participating shoppers a 2% reward on every store brand product, including 5,200 fresh and center store items. But what differentiates this program from traditional supermarket loyalty programs is that in-store prices will remain the same for all customers whether they enroll in the program or not, according to company officials.
