Talking shop with... Gerry Gersovitz

Grocery Headquarters: Tell us about the issues facing retailers in this environment, particularly as private label is involved.
Gerry Gersovitz: Private brands have been growing as a result of improved products, inflation and the economy. Their value proposition vs. national brands has improved significantly in the past decade. Many retailers have hired marketing personnel with CPG experience who will continue to drive growth.

However, because retailers do not typically have the marketing budgets necessary to generate trial and increase household penetration, they are limited in how fast they can gain shopper acceptance across their private brand portfolios. Since most retailers are not willing to narrow the price differential between private brands and national brands, they need to find a funding source. National brands could potentially fill this need.

Tell us about the paradigm shift in the industry.
I think there are two shifts. First, national CPGs need to accept the growth of private label brands and learn how to co-promote with them toward mutual benefit.

Second, on the retailer side of the equation, merchandising executives and category managers need to take a different approach with private brands than they have historically. Private brands have received limited ad and display support because their volumes are low and they do not provide trade promotion allowances.

Merchandising managers, when making their display decisions, need to take into account not only the short-term gains from a one-week promotion, but the long-term annual gains from building their private brand franchises. The residual effect of adding new private brand users (in the context of a one-week promotion) can represent a much bigger volume and profit gain to the retailer.

What is the idea behind your program?
With the continued growth of private label brands, it only makes sense for CPG manufacturers to partner their national brands with complementary, non-competitive re­tail­er brands in a joint display and merchandising program.

The ICS program includes ‘Buy A, Get B’ electronic offers that are focused on driving trial of the private brand items. There is also a bonus offer that encourages the shopper to take advantage of multiple offers in the same program. The program runs across a network of food and drug retailers (other than Wal-Mart) once every four weeks. The programs are announced in the retailer’s weekly ad, on its website and in an FSI.  We call this the next generation of shopper marketing partnership programs.

So why should retailers get behind this program? Are there incremental sales gains to be had?
Our initial pilot tests showed impressive results, literally a win-win for both the retailer and the CPG. One-week volume lift exceeded 400% for both the private brands and national brands. It is also estimated the annual gain for each participating private brand is between 20% and 30%. The ICS program also drives store traffic through the 50% savings the program offers shoppers.  And, on average, the ICS shopping basket is over 35% less than the same basket at Wal-Mart. Most importantly, the CPG funds this program with incremental national marketing dollars in return for the guaranteed combo display support. The CPG achieves a strong ROI and significant volume lift without heavily discounting their product.

What do you do to help retailers in regards to the program?
Our primary focus is to make this as turnkey as possible for the retailer. We plan, execute and evaluate the program with each retailer and CPG. Even though this is a national program, from the CPG’s perspective, it is customized to meet the needs of each retailer in the network. Each retailer’s program is exclusive by design based on their merchandising practices, pricing, category focus, etc.

By including a third party like ICS, a retailer can run nine to 12 programs each year with six to nine combo offers per program. In other words, they can generate trial in 100 private brand categories without much effort.

The final point is the entire program is sourced from incremental national CPG marketing budgets.