April 14, 2009
CPG Brands Pay the Freight…Usually
Virtually every retailer in the grocery business
today is talking about the need to push private label as a means to keep
prices down for consumers while building sales and profits for themselves.
Retailers are looking to be less dependent on national brands and not have
to go through the back-and-forth with suppliers to roll back prices as
fuel costs have moderated.
The truth of the matter is that for private
label to really gain the types of market share that retailers are talking
about will require a much greater investment in advertising and merchandising
than many have been willing to make.
As an exec
at a top 10 grocery chain recently told us in a moment of candor, "It’s
the national brands that pay for the flyers. We’re going to try and get
more of our store labels in there to promote a price image right now but
we wouldn’t be putting the flyer out if it wasn’t being paid for by the
brands. We may not like needing them, but we do."
It was with this statement in mind that we
did a quick and completely unscientific survey of flyers put out by supermarket
chain operating stores in Northern New Jersey for the period of April 12 – 18.
Much to our surprise, Wegmans’ flyer had only
five national brands listed in eight pages. It did have 83 store brand
items under the Wegmans or TopCare labels.
As a point of comparison, Pathmark, ShopRite
and Stop & Shop all had more national brands on the first two pages
of their flyers than Wegmans’ total.
Discussion Questions: Are retailer
complaints about national brand pricing not taking into account the contributions
vendors make in areas such as advertising? Can retailers that say they
want to build private label do it without a substantial investment in
advertising like Wegmans did with its flyer?
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It’s not as simple an issue of how or who is going to pay for flyers. The unfortunate growth of building revenue through slotting, ads, incentive programs, golf outings, sponsorships and so forth represent a culture of building revenue without keeping the cashiers busy. Private Label will and can help differentiate a store from competitors, and this is or seems to be the goal and objective of a Wegmans where the private label promotion and education is a tactic in their successful growth
Many times private label does not need to advertise. It only needs to sit side by side with a national brand and have a significant price advantage. If consumers who buy the private label brand find that its quality measures up, they will buy it again. The question seems to be one of quality and price differential, rather than advertising.
I devote a lot of my own professional and personal time being a ‘marriage counselor’ – often explaining “Venus” to “Mars” and vice versa to retailers and branded suppliers. Neither side of the table truly understands the comprehensive challenges that the other side entertains to retain and grow market share, make a profit and keep people employed. Building brands is an expensive and often painfully disciplined process. Retailers are not able to build and maintain their own brand, in other words, the name of the store, and suppliers are not able to build their products brand names, without substantial investments in advertising, promotion, packaging, and ongoing marketing and public relations.
The choice is simple: If you want margin, you need to invest in PL and the advertising needed to make turns. If you want a free flyer, go with the national brands. Private label is exploding (the Top 100 report is coming out soon from PLBuyer Magazine) and we can’t ignore the profit generated by the house brand.
Shoppers Drug Mart usually does a 2 or 4 page insert with just Life Brand products and Loblaws comes out with the quarterly Insider’s Report which is just a showcase for new President’s Choice brands. So this is not unheard of. It just requires some balance and optimization. National brands should not fear competing side by side with the house. Or should they….?
As sophisticated as many private label brands are (Wegmans, Safeway’s O, et al), by and large national brands are still the trendsetters in terms of new products, brand image, edgy or fun advertising and traffic-driving promotions.
I agree, it’s a deeper issue than flyers. It has to do with identity and building brand franchises. As time goes by, I believe private label will continue to improve its game. Who knows what the landscape may look like in 10 years?
The scales seem to have tipped in favor of ignoring the substantial costs that CPG brands must bear in innovation, research, marketing communications and advertising. I think it’s a pendulum swing that should shift back to recognize the key role many brands play in the landscape of the consumer mindset. Without strong brands and the emotional context they occupy, we’re left with a jumble of products that have very little meaning beyond price point.
I do appreciate strong retail private brands and the price point options they offers consumers, but the investment in seeding a brand’s emotional pulse point in the consumer’s mind and soul is steep and is indeed the heart of the CPG industry. It should not be taken as lightly as it seems to be in our industry today.
To paraphrase George — “the truth of the matter” is that there is a huge difference between traditional private label and a retailer committed to developing a proprietary brand or own label. The example George uses of the northeast market fliers could not be more stark. One retailer is working to build an own label franchise. The others are using private label as an opportunistic alternative to national brands.
In our analysis of dozens of categories for clients over the years, it is extremely rare to find the private label that actually builds a category for a retailer. Even the promotional volume generated as retailers begin to apply traditional Hi/Lo tactics to their private label offerings is largely cannibalization or “subsidized base”. Used in its traditional sense, private label is essentially an EDLP purchase by consumers — they already are buying it because it is the lowest priced alternative on the shelf. Dropping the price even further does not attract very many otherwise uninterested consumers to give it a try.
U.S. retailers speak of “achieving European market penetration” with their private label. To do so, they need to copy the entire model — including the part about acting like brand builders and marketers. Otherwise they are better off to simply maximize the “me too brand” strategy and the attendant margins they enjoy.
I do agree that private labels get “advertised” simply by being in proximity to national brands and offering a clear price advantage; however, that only holds true for traditional private label models in which the private brand represents the opening price point. When you get into “better” and “best” private label positioning (ala Costco’s Kirkland and Babies R Us Koala Club), that’s where marketing, and long-term strategy, come into play. Trusted value-added private labels don’t get that way overnight; they must be continually tweaked, upgraded and advertised in order to articulate the value proposition and justify the price. The highest compliment is paid when consumers perceive these brands to either be national brands or to be preferable to them.
If retailers are going to maximize their private label opportunity they have to look at the program as part of their overall business objectives and build a comprehensive strategy. National brands develop tactics appropriate for the categories in which they compete.
Retailers must recognize that private label is not the category, but rather a competitive alternative category by category.
Suggesting that “price” is the strategy regardless of product is naive. A consumer’s needs and wants in the dairy aisle are extremely different from what they search for among pet food brands, snacks, soups, condiments, etc.
Indeed, there has to be an overall brand positioning for the private label, but individual product lines require planning that will identify their competitive advantage. In some categories price is not enough and the smart retailer will recognize this fact. Hence the effective strategy will include pricing, promotion, packaging, positioning, etc.
Years ago Clorox was the only brand of bleach many consumers would even consider. They would go to another store if their brand wasn’t on the shelf. At the same time, private label cranberry sauce would do just fine…….except for Thanksgiving and Christmas.
It takes a wise retailer to accept that there are nuances of marketing that the national brands have been fine tuning. Jumping in with price as the answer for all products will undermine the full potential for private label.
This economy provides a unique opportunity for private label. But it still requires understanding and effective strategic planning.
Watch Wegmans. For over 40 years they have been leaders. They know what they are doing.
There is a difference in the retailer mindset that has clearly surfaced in the top 10 grocery chain executive who says, “It’s the national brands that pay for the flyers.” This mindset is counter-productive to the mission of the retailer. Unfortunately, it truly exists. These retailers are focused on taking money from the national marketers and everyone else who dares sell anything in their stores. They are so focused on getting funds for flyers, displays, new item listings, RPFs, etc…that they forget their business is moving merchandise. The results have been clear over the years. They go out of business.
Those retailers who focus on moving merchandise first do not hold their vendors hostage. All they ask from the vendors is that if they put the products in, the products move.
Over the years, private label has been a price alternative to national brands. While there have been efforts to say that the private labels are the same as national brands, they were halfhearted and insincere. What we are seeing now is that some private label products are even better than the national brands. Retailers are supporting them with increasing advertising investment. They are treating them not as weak copies of national brands but stand alone BRANDS within the store. Imagine the value to the retailer of a national brand quality (or better) store brand. What leverage Stop & Shop has versus competition with a shopper who is dedicated to the Nature’s Promise brand! No longer does private label become a price alternative, it becomes a brand with a preferred level of quality and a consumer following.
Trader Joe’s takes the branding of its flyer to an extreme. From start to finish, it 100% encapsulates the quirky, value-conscious, healthy-but-fun branding that is so integral to the chain’s success.
At the other end of the spectrum, it is commonly understood among traditional grocers that the flyer is a profit center: page 1 is what gets people into the stores, and pages 2-8 pay for postage and bring in extra cash from the manufacturers. As distribution costs rise and manufacturers increasingly demand measurable ROI from their marketing and trade promotion spend, I think it remains an open question as to how long the traditional flyer will survive.
The fundamentals of brand marketing are changing. The long-term perspective and related brand building strategies have been severely compromised by consolidation and corporate financial pressures. Increases in private-label will put pressure on CPGs to innovate and provide greater value. There will be winners and losers on both sides, and consumers will be better off as a result.
Killing the goose that lays the golden egg comes to mind. Show me the innovation in Private Label that drives category development? PL has a place, but typically will erode branded sales in developed SKUs. There is not a heavy R&D budget in PL. PL is the generic drug in pharmaceuticals. In the extreme, what will happen to new items? As brands decline, who will pay the fare?
There is a “friendly war” afoot in the brand supplier/retailer space. The reality is that 100 years ago the retailers moved to self-service, and ceded any true “shopper marketing” to the shoppers themselves (SHOPPER marketing,) and to the brand suppliers. P&G joined mass communication, radio at first, to assume the push side of marketing. Their “soap operas” provided the means of selling that the retailers had abandoned.
Since the explosive retail growth of the 50’s, retailers have been stumbling about, trying to escape their self-imposed chains of passivity in terms of actually SELLING consumers who become the shoppers in their stores. With the fragmentation of mass media, the whole world is racing into the store in an attempt to recreate some semblance of the true personal selling that went on more than 100 years ago.
Retailers obviously have an upper hand EXCEPT they are very late to the game in knowing how to build and manage brands. However, “there is nothing one branch of the human race knows, that another branch can’t learn.” Hiring members of the other branch will not transform the essential culture of the branch or organization all by itself.
It’s a complex problem, not only fraught by consumer/shopper inertial brains, retailer knowledge and culture, but by the obvious fact that retailers forgot how to sell 100 years ago, and now a massive brand world industry encompasses what could have been retailers’ birthrights. Moreover, no major retailer is free enough of other retailer competitors, to abandon their brand suppliers. Suppliers, on the other hand, have not only their brand expertise, but the fact that they will work with all of any given retailers, competitors.
We often say, “The retailers have all the power; and the brands have all the money.” There is a grain of truth in that (and only a grain. 🙂 Bear in mind that Ol’ Roy is the number one selling dog food in America, but this private label Walmart dog food is certainly not the only dog food Walmart sells. For the foreseeable future, brand suppliers will continue to be the cultural and brain trust for the very valuable expertise of brand building. Retailers have plenty of room for growth of profits through increasing total market share (and margin.)
Consumers will continue to decide the fate of national brands and their ‘evil twins’ with their pocket books. Bottom line is that in most cases consumers want (and demand) both so that they have a choice. Does that mean that PL can sit back and rest on its laurels and win just by being placed next to the national brand? Not long term. Winners look at store brand as a “brand” that requires product quality and performance consistency, marketing, merchandising and sales support.
The other panelists are right – watch the leaders in store brand and you’ll see very integrated and thoughtful plans flawlessly executed. And that’s what consumers are responding favorably to.
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It’s not as simple an issue of how or who is going to pay for flyers. The unfortunate growth of building revenue through slotting, ads, incentive programs, golf outings, sponsorships and so forth represent a culture of building revenue without keeping the cashiers busy. Private Label will and can help differentiate a store from competitors, and this is or seems to be the goal and objective of a Wegmans where the private label promotion and education is a tactic in their successful growth
Many times private label does not need to advertise. It only needs to sit side by side with a national brand and have a significant price advantage. If consumers who buy the private label brand find that its quality measures up, they will buy it again. The question seems to be one of quality and price differential, rather than advertising.
I devote a lot of my own professional and personal time being a ‘marriage counselor’ – often explaining “Venus” to “Mars” and vice versa to retailers and branded suppliers. Neither side of the table truly understands the comprehensive challenges that the other side entertains to retain and grow market share, make a profit and keep people employed. Building brands is an expensive and often painfully disciplined process. Retailers are not able to build and maintain their own brand, in other words, the name of the store, and suppliers are not able to build their products brand names, without substantial investments in advertising, promotion, packaging, and ongoing marketing and public relations.
The choice is simple: If you want margin, you need to invest in PL and the advertising needed to make turns. If you want a free flyer, go with the national brands. Private label is exploding (the Top 100 report is coming out soon from PLBuyer Magazine) and we can’t ignore the profit generated by the house brand.
Shoppers Drug Mart usually does a 2 or 4 page insert with just Life Brand products and Loblaws comes out with the quarterly Insider’s Report which is just a showcase for new President’s Choice brands. So this is not unheard of. It just requires some balance and optimization. National brands should not fear competing side by side with the house. Or should they….?
As sophisticated as many private label brands are (Wegmans, Safeway’s O, et al), by and large national brands are still the trendsetters in terms of new products, brand image, edgy or fun advertising and traffic-driving promotions.
I agree, it’s a deeper issue than flyers. It has to do with identity and building brand franchises. As time goes by, I believe private label will continue to improve its game. Who knows what the landscape may look like in 10 years?
The scales seem to have tipped in favor of ignoring the substantial costs that CPG brands must bear in innovation, research, marketing communications and advertising. I think it’s a pendulum swing that should shift back to recognize the key role many brands play in the landscape of the consumer mindset. Without strong brands and the emotional context they occupy, we’re left with a jumble of products that have very little meaning beyond price point.
I do appreciate strong retail private brands and the price point options they offers consumers, but the investment in seeding a brand’s emotional pulse point in the consumer’s mind and soul is steep and is indeed the heart of the CPG industry. It should not be taken as lightly as it seems to be in our industry today.
To paraphrase George — “the truth of the matter” is that there is a huge difference between traditional private label and a retailer committed to developing a proprietary brand or own label. The example George uses of the northeast market fliers could not be more stark. One retailer is working to build an own label franchise. The others are using private label as an opportunistic alternative to national brands.
In our analysis of dozens of categories for clients over the years, it is extremely rare to find the private label that actually builds a category for a retailer. Even the promotional volume generated as retailers begin to apply traditional Hi/Lo tactics to their private label offerings is largely cannibalization or “subsidized base”. Used in its traditional sense, private label is essentially an EDLP purchase by consumers — they already are buying it because it is the lowest priced alternative on the shelf. Dropping the price even further does not attract very many otherwise uninterested consumers to give it a try.
U.S. retailers speak of “achieving European market penetration” with their private label. To do so, they need to copy the entire model — including the part about acting like brand builders and marketers. Otherwise they are better off to simply maximize the “me too brand” strategy and the attendant margins they enjoy.
I do agree that private labels get “advertised” simply by being in proximity to national brands and offering a clear price advantage; however, that only holds true for traditional private label models in which the private brand represents the opening price point. When you get into “better” and “best” private label positioning (ala Costco’s Kirkland and Babies R Us Koala Club), that’s where marketing, and long-term strategy, come into play. Trusted value-added private labels don’t get that way overnight; they must be continually tweaked, upgraded and advertised in order to articulate the value proposition and justify the price. The highest compliment is paid when consumers perceive these brands to either be national brands or to be preferable to them.
If retailers are going to maximize their private label opportunity they have to look at the program as part of their overall business objectives and build a comprehensive strategy. National brands develop tactics appropriate for the categories in which they compete.
Retailers must recognize that private label is not the category, but rather a competitive alternative category by category.
Suggesting that “price” is the strategy regardless of product is naive. A consumer’s needs and wants in the dairy aisle are extremely different from what they search for among pet food brands, snacks, soups, condiments, etc.
Indeed, there has to be an overall brand positioning for the private label, but individual product lines require planning that will identify their competitive advantage. In some categories price is not enough and the smart retailer will recognize this fact. Hence the effective strategy will include pricing, promotion, packaging, positioning, etc.
Years ago Clorox was the only brand of bleach many consumers would even consider. They would go to another store if their brand wasn’t on the shelf. At the same time, private label cranberry sauce would do just fine…….except for Thanksgiving and Christmas.
It takes a wise retailer to accept that there are nuances of marketing that the national brands have been fine tuning. Jumping in with price as the answer for all products will undermine the full potential for private label.
This economy provides a unique opportunity for private label. But it still requires understanding and effective strategic planning.
Watch Wegmans. For over 40 years they have been leaders. They know what they are doing.
There is a difference in the retailer mindset that has clearly surfaced in the top 10 grocery chain executive who says, “It’s the national brands that pay for the flyers.” This mindset is counter-productive to the mission of the retailer. Unfortunately, it truly exists. These retailers are focused on taking money from the national marketers and everyone else who dares sell anything in their stores. They are so focused on getting funds for flyers, displays, new item listings, RPFs, etc…that they forget their business is moving merchandise. The results have been clear over the years. They go out of business.
Those retailers who focus on moving merchandise first do not hold their vendors hostage. All they ask from the vendors is that if they put the products in, the products move.
Over the years, private label has been a price alternative to national brands. While there have been efforts to say that the private labels are the same as national brands, they were halfhearted and insincere. What we are seeing now is that some private label products are even better than the national brands. Retailers are supporting them with increasing advertising investment. They are treating them not as weak copies of national brands but stand alone BRANDS within the store. Imagine the value to the retailer of a national brand quality (or better) store brand. What leverage Stop & Shop has versus competition with a shopper who is dedicated to the Nature’s Promise brand! No longer does private label become a price alternative, it becomes a brand with a preferred level of quality and a consumer following.
Trader Joe’s takes the branding of its flyer to an extreme. From start to finish, it 100% encapsulates the quirky, value-conscious, healthy-but-fun branding that is so integral to the chain’s success.
At the other end of the spectrum, it is commonly understood among traditional grocers that the flyer is a profit center: page 1 is what gets people into the stores, and pages 2-8 pay for postage and bring in extra cash from the manufacturers. As distribution costs rise and manufacturers increasingly demand measurable ROI from their marketing and trade promotion spend, I think it remains an open question as to how long the traditional flyer will survive.
The fundamentals of brand marketing are changing. The long-term perspective and related brand building strategies have been severely compromised by consolidation and corporate financial pressures. Increases in private-label will put pressure on CPGs to innovate and provide greater value. There will be winners and losers on both sides, and consumers will be better off as a result.
Killing the goose that lays the golden egg comes to mind. Show me the innovation in Private Label that drives category development? PL has a place, but typically will erode branded sales in developed SKUs. There is not a heavy R&D budget in PL. PL is the generic drug in pharmaceuticals. In the extreme, what will happen to new items? As brands decline, who will pay the fare?
There is a “friendly war” afoot in the brand supplier/retailer space. The reality is that 100 years ago the retailers moved to self-service, and ceded any true “shopper marketing” to the shoppers themselves (SHOPPER marketing,) and to the brand suppliers. P&G joined mass communication, radio at first, to assume the push side of marketing. Their “soap operas” provided the means of selling that the retailers had abandoned.
Since the explosive retail growth of the 50’s, retailers have been stumbling about, trying to escape their self-imposed chains of passivity in terms of actually SELLING consumers who become the shoppers in their stores. With the fragmentation of mass media, the whole world is racing into the store in an attempt to recreate some semblance of the true personal selling that went on more than 100 years ago.
Retailers obviously have an upper hand EXCEPT they are very late to the game in knowing how to build and manage brands. However, “there is nothing one branch of the human race knows, that another branch can’t learn.” Hiring members of the other branch will not transform the essential culture of the branch or organization all by itself.
It’s a complex problem, not only fraught by consumer/shopper inertial brains, retailer knowledge and culture, but by the obvious fact that retailers forgot how to sell 100 years ago, and now a massive brand world industry encompasses what could have been retailers’ birthrights. Moreover, no major retailer is free enough of other retailer competitors, to abandon their brand suppliers. Suppliers, on the other hand, have not only their brand expertise, but the fact that they will work with all of any given retailers, competitors.
We often say, “The retailers have all the power; and the brands have all the money.” There is a grain of truth in that (and only a grain. 🙂 Bear in mind that Ol’ Roy is the number one selling dog food in America, but this private label Walmart dog food is certainly not the only dog food Walmart sells. For the foreseeable future, brand suppliers will continue to be the cultural and brain trust for the very valuable expertise of brand building. Retailers have plenty of room for growth of profits through increasing total market share (and margin.)
Consumers will continue to decide the fate of national brands and their ‘evil twins’ with their pocket books. Bottom line is that in most cases consumers want (and demand) both so that they have a choice. Does that mean that PL can sit back and rest on its laurels and win just by being placed next to the national brand? Not long term. Winners look at store brand as a “brand” that requires product quality and performance consistency, marketing, merchandising and sales support.
The other panelists are right – watch the leaders in store brand and you’ll see very integrated and thoughtful plans flawlessly executed. And that’s what consumers are responding favorably to.