RETAILERS, VENDORS SEE DIFFERENT SIDES OF PRIVATE LABEL: STUDY

CAROL ANGRISANI

CHICAGO -- Retailers and suppliers have different expectations of private label, according to preliminary results of a study commissioned by the Private Label Manufacturers Association.

These differences can have an effect on private-label growth, states the study, which is being conducted by Kurt Salmon Associates, Atlanta.

"While retailers and suppliers are equally committed to the growth of private label, they don't appear to be working together to achieve that growth," Steve Berman, principal at KSA, said at the New York-based PLMA's annual trade show, held here last month. "In fact, the research suggests there's still a lot of work that needs to be done on both sides of the equation for private label to achieve the growth that it is due."

KSA declined to comment when SN asked it to elaborate on several aspects of the preliminary results, referring questions to the PLMA.

Brian Sharoff, president of the PLMA, said he isn't surprised that the initial data found that retailers and suppliers have different positions.

"Generally speaking, retailers and suppliers see their industry from a different point of view," Sharoff told SN. "The key issue is whether they can resolve these different points of view. I think it's doable if both sides are willing to face each other's shortcomings."

One such shortcoming could be private label's ability to match the "big suppliers" in terms of electronic data interchange and other technological changes, Sharoff said. Similarly, he said some retailers view private label as a secondary part of their strategy, in terms of product mix.

One of the areas Sharoff believes will surface in the study is the lack of agreement about what role private label should play in category management.

"Manufacturers need to have data to participate in category management," he said.

While the study shows private label is on the right track, there are still hurdles that need to be overcome. For instance, many of the retail respondents said they feel suppliers are unable to meet their needs to support the business technologically, such as with programs like electronic data interchange, category management, product packaging and product development/innovation. The majority of suppliers, on the other hand, do not feel there is a major technology gap.

The study is based on a 60-page questionnaire sent to retailers and wholesalers, whom KSA defined as senior decision makers in the supermarket, drug and mass channels. The final report is expected to be completed by February and submitted to the PLMA, which will discuss it at its February leadership conference.

Along with having varying expectations, retailers and suppliers have other private-label differences, the initial data has revealed. In many respects, the retail community has a different view of suppliers than suppliers do of themselves. Suppliers feel retailers don't give them enough credit for their capabilities. "Many suppliers feel they're as well equipped to deliver kinds of products and support the business for the retailers as the national brand [manufacturers] are," said Berman.

"One of the key things we'll spend a lot of time looking at in the data is whether retailers and suppliers are working on the same page," Berman added.

While a number of suppliers are frustrated with their business dealings with the retail community, nearly half of the supplier respondents said they still view retailers as their business partners.

Along with retailer-supplier relations, another private-label concern is20company consolidation. "The continued impact of consolidation on the retailer and supplier side can hinder growth opportunities," Berman said.

Market saturation also poses problems. Since consumers identify with brands they're familiar with, "they're not too receptive to new brands unless they provide a true differentiation from product being offered," Berman said.

The report is aimed at evaluating potential growth opportunities in private-label sales. The goal is to identify what needs to happen, or change, in the marketplace to support private-label growth.

"We set out to research the drivers and impediments of private-label growth. We looked at supplier/retailer relationships and the interaction between private label and national brands," Berman said.

The final report will address the positioning of private label, premium private label, the effect of consolidation, how retailers and suppliers need to respond to national brands, and how well equipped suppliers are to meet retailer demands.

While there are negatives, the initial results are encouraging, showing retailers and wholesalers have a strong commitment to private label, according to Berman. The majority of suppliers and retailers responded that they have experienced significant growth in private-label dollar and unit sales.

Both suppliers and retailers expect strong private-label growth over the next two to three years. "Interestingly, retailers appear to be more optimistic about growth opportunities than suppliers do themselves," he added.

From where will private-label growth come? At the expense of national brands, according to the results. "Most respondents said the growth rate of private label will far surpass the growth rate of national brands." However, none of the respondents expect national brands will just watch their business dissipate.

In other areas of the report, the single biggest factor responsible for supporting the growth of private label is said to be increased consumer interest in value for the money -- not just lower prices, but also quality, value and performance.

In addition to providing consumers with a low price and greater value for the dollar, retailers are looking to private label to improve their margins and strengthen their store's identity.

Sharoff said the PLMA will use the study to identify the impediments to the growth of private label and create a dialogue among retailers, wholesalers and manufacturers.

"If the impediments are simply misunderstandings, then maybe PLMA can help. If the impediments are structural, then maybe our trade show can reflect that," he said. "We see [the study] as a blueprint, not only for individual manufacturers and retailers, but for what role PLMA should play."