IRI: Private Labels Are Challenge, Opportunity

JULIE GALLAGHER

CHICAGO — Supermarkets should maximize their private-label investment in high-growth categories including soup, cereal, bottled water, snacks, shortening and oil, according to “Understanding Emerging Trends and Key Success Factors in Private Label,” a study by Information Resources Inc. here. Grocers should also address declining sales of sugar, carbonated beverages, ice cream, frozen juice and diapers, it advises.

“Private-label share has been pretty stable over the past three years, at about 16% of dollar and 21% of unit sales,” explained Brent Baarda, director of the Center for Retail Innovation, IRI. “Consumers and brand manufacturers are telling us, ‘We're closing the quality gap,’ yet penetration is relatively low. Retailers have an enormous opportunity.”

The study's findings suggest that it's becoming harder for shoppers to distinguish between the quality of company and national-brand products. Still, retailers need to find ways to get consumers' “feet to match what is already going on in their minds,” according to the report.

Eighty-three percent of consumer respondents believe that private-label baking ingredients are comparable in quality to their national-brand counterparts, 8% said that private-label ingredients are better and 4% said they're worse than the national brand.

Consumers are far more skeptical of company-brand versions of carbonated soft drinks. Thirty-five percent related that private-label and national-brand versions are comparable when it comes to quality, 3% believe private-label soft drinks are better and a sizeable 48% said that these private-label beverages are worse.

Consumers have more confidence in the quality of private-label bottled water and canned fruits and vegetables than they do in items like cereal, canned soup and salty snacks, the study found.

Lower-than-neccesary price points often contribute to subpar perceptions of company-brand products.

“Private-label pricing is a key part of the overall message,” Baarda said. “Retailers are saying that effective price points not only determine how fast a product is going to sell, but it determines how well they're communicating value, and not cheapness or inferiority.”

During “The Retailer Brand Challenge” presentation at last month's Private Label Manufacturers Trade Show, former vice president of corporate brands for Albertsons and industry consultant Terry Lee cited the example of 2-liter bottles of Pepsi that were merchandised beside 2-liter bottles of Albertsons' private-label Max Cola. Four bottles of Pepsi were sold for $5, while the Max Cola was sold four for $1.

“There might as well be a sign that reads ‘low-quality ahead,’” Lee said. “Too cheap reinforces the image of poor quality. There is [price optimization] technology out there to help us with this.”

Sean Seitzinger, head of IRI's Center for Retail Innovation, echoed the sentiment during a presentation of the IRI study's results.

“One of the things that screamed out in the report is that a more sophisticated approach to price strategy is still required by private-label manufacturers and retailers,” he said.

During his presentation, Lee encouraged retailer attendees to dedicate in-store real estate to their private-label products.

“You control the ads, the shelf space and displays, so wouldn't you expect to see more of a private-label focus in the store?” he asked. “Business today is so structured around trade promotion allowances and slotting fees. It's very difficult to balance those short-term gains with long-term investments.”

Loblaw Cos. has made the most of its store space by dedicating an entire section to its private-label President's Choice meats, complete with signage that reads PC Meat Shop, Lee explained.

He noted that packaging should also be a key component of retailer's store-brand messaging strategies.

“People buy packages and then they'll return for what's inside of them,” Lee said. “Albertsons' ‘yogurt to go’ packaging was bad and ugly, it featured dancing strawberries. Creative packaging sells.”

Lee said that Albertsons' Essensia brand olive oil, packaged in a sleek vessel, is a good example of premium packaging.

“I'm not sure why retailers think that the cheapest printer is going to produce the highest quality,” he said. “Why do we refresh our packaging once every ten years when national brands do it much more frequently?”

The IRI report found that private-label packaging initiatives are closely linked to the pricing tiers that retailer's products fall into.

“In our premium tier, we have an approach that we want the packaging to be unique to the category,” said an anonymous supermarket respondent who merchandises premium private-label products. “It has to be innovative — just like the product itself is innovative.”

“For our value tier, we have a common look for all products,” a value-tier respondent said. “This look is consistent across categories and helps the value shopper easily find these items.”

Retailers should explore innovative packaging like those that are safe for the environment or incorporate pleasant scents, Lee said.