RETAILERS CALLED UPON TO PILOT PRIVATE-LABEL CATEGORY

ROBERT VOSBURGH

The concept of category management was built around brands, and a reliance on a leading brand manufacturer in each category to steer the program toward profit. Under that scheme, private label was considered a maintenance item, which captured some sales -- but only at the expense of second- or third-tier brands.

These days, the emergence of high-profile, upscale private-label products has presented new challenges to the time-tested formula -- who should captain the retailer's own brand to success?

"The retailer has to take charge," said Ken Wyker, president, Wyker Marketing, Charlotte, N.C., a management firm. "Because, within the [traditional] category-management structure, private label doesn't fit that well."

Wyker and other industry experts said the dynamics of today's private-label business require a fresh set of rules governing category management, involving the retailer, manufacturers and any sales support, such as brokers.

There's a lot of catching up to do. Industry analysts say there are few private-label producers who currently sell directly to retailers, and who possess the sophisticated tools that allow them to provide comprehensive, brand-like sales support. As it now stands, private label's category-management structure still challenges typical programs, according to Ken Harris, partner, Cannondale Associates, Evanston, Ill.

"One fundamental issue is that many private-label manufacturers are not represented directly by representatives of their company to the retailer," he said. "In these cases it's usually the broker who is handling the product, and they end up playing the role of category captain."

The absence of a definitive category captain in private label doesn't have to remain a handicap, however. The opportunity exists for proactive retailers to take the lead, in conjunction with strong manufacturer and broker partnerships. The blueprint calls for them to build a management structure around the consumer, rather than manufacturer deals that offer a product at a particular price.

"The retailer needs to take charge and create a coalition of support across categories, managing all private label as the store's brand," said Wyker. "And, they're in a perfect position to manage it because they also benefit disproportionately from its growth, so why not take charge?"

For the retailer interested in taking on the role of category captain, leadership lies in coordinating the efforts of the various manufacturers to promote private label, providing the central, strategic focus on what is executed, he said. At the same time, the retailer assumes the additional responsibility of driving efficiencies for the manufacturers who are bringing product to market. On the selling end, it includes advertising the store brand in circulars and throughout the store.

"Execution is the challenge," agreed Mike Brouillard, president of MBC, a consulting firm based in Orchard Park, N.Y. He noted that the retailer's role in private-label category management requires a shift in focus throughout the company, from the top management on down, because buyers and category managers at store level are more focused on what needs to be done on a weekly or quarterly basis to drive sales.

"There's such a focus on short-term results it's hard to focus on long-term image-building and put the proper resources against a program, whether people or dollars," Brouillard said.

This "big picture" point of view, along with comprehensive, retailer-led management controls, creates a cohesive strategy that can move private label across the board. According to one set of industry statistics, private label can capture top honors overall, capturing up to 30% of sales, when treated as a single megacategory -- even though it might be listed as No. 2 or 3 in 75% of individual categories.

"The focus is not on any one private-label category," said Wyker of the difference. "It's on all of private label as one category."

The integration of strategy to build on private label's total-store presence -- and potential -- reflects the unique position store brands hold in the supermarket, Brouillard agreed.

"A successful category-management program requires a mutual investment by the retailer and the manufacturer to educate the consumer that these products are special and they should be trying them," he said.

This approach to merchandising raises another difference between traditional category management and private-label management, say observers. One opinion notes that category management manages the category, while private label -- with its focus on the consumer -- seeks to manage the customer.

"Within category management, you monitor each category individually, and determine how best to manage each one," said Wyker. "From a consumer-centric standpoint, the focus is on promoting each category to all customers who demonstrate purchase activity in private label."

Both retailers and manufacturers themselves possess a certain amount of sales-activity data pertaining to a particular item. Combining forces to reach a mutual goal can only benefit private label, experts told SN.

"Category marketing has evolved to a point where now would be a very worthwhile time for private-label manufacturers to step up and say, 'We have this capability, or, are going to build it, but we're not going to do it if you [retailers] don't provide us with the direction that tells us this is going to be of value to you,"' said Harris of Cannondale Associates.

Private-label manufacturers often support retail incentive programs, but do not run their own advertisements in the conventional sense, as branded manufacturers do. The retailer's desire for highest quality/lowest cost has a tremendous impact on margins, and creates a squeeze on funds that otherwise might be used for promotion, observers said. There is a growing consensus for all parties to begin sharing information to build a database for analyzing categories based on purchase trends, sales activity, pricing and margins.

"That's where the private-label manufacturer needs to step in, whether of their own initiative or using some of the brand data that makes its way into the marketplace -- to demonstrate they're moving forward in providing some creativity and fresh ideas in the category," said Brouillard.

While private label is evolving from a generation of lower-priced brand "knock-offs" to products with a separate, higher-end identity, there are still many retailers who merely want private label to mimic the top-selling brand at a better price, according to the consultant.

"So, the majority of business becomes an emulation of established name brands, with a minor amount of innovation to create some excitement for the retailer, and potentially differentiate the retailer in the marketplace," Brouillard said.

Harris described the situation as a gap between strategy and execution.

"The problem is that until the retailer determines that the manufacturer can provide them with the information they need, and they in turn can execute that information at retail, a gap is going to continue to exist," he said.