May 7, 2008
CPGmatters: Trading Partners Call for Commitment to Best Practices
By Lynne Cooke
Through a special arrangement, what follows is an excerpt of a current article from the monthly e-zine, CPGmatters, presented here for discussion.
Are betters days ahead for store brands?
That depends on trading partners. Executives attending the 2008 Annual Meeting & Leadership Conference of the Private Label Manufacturers Association (PLMA) in Tucson, Ariz. recently called for manufacturers and retailers to affirm their commitment to best practices as a means to help propel the next surge of growth.
“It used to be that manufacturers were preoccupied with product quality, making sure that store brand products were at least equal to the leading national brand competitor. This goal has now been accomplished,” Brian Sharoff, president of the association, said in a presentation.
“But to realize the full potential of store brands, manufacturers and retailers must become more innovative and creative,” he said. “Some private label programs are already adopting this new approach. You can see it in Safeway’s O organics and Eating Well health-oriented ranges, as well as Kroger Co.’s licensing agreement with Disney for children’s products and the steady stream of creative new food products offered by Trader Joe’s.”
In a session titled “Worst Practices: What Not to Do and Why We Do It Anyway” a panel of experts identified three critical issues as practices that can stand in the way of private label growth:
- Over-reliance
on price, which subverts retailers’ efforts to create high quality private
label programs; - “National brand equivalency” as a fixation on “me-too” private label, even
after a number of retailers have demonstrated they have the capability to
do better than national brands; - Retailers subordinating private label to the
promotional strategies of the national brands, rather than building their
retail franchise by promoting private label first.
Attendees were especially cautioned against complacency amid projections of tough economic times ahead.
“It is a myth that consumers temporarily forsake national brands in the face of higher gasoline prices, inflation and eroding home equity,” said Bill Bond, vice president of Willert Home Products and Chairman of the Board of Directors of PLMA. “Just as soon as things improve, this myth implies, consumers will flock back and again be happy to pay a premium price for the national brands they love.”
“But private label’s success was never an effect of hard times and cheap prices,” continued Mr. Bond. “Rather, it has been a hard-won consequence of consumer confidence built up over years of high quality, consistency, product improvements, innovation, packaging and marketing commitment on the part of leading retailers to the development of their brands.”
Discussion Questions: What do you think are the worst practices in retailers’ private label programs? Do you agree that it’s a myth that consumers forsake national brands for private labels in tough times?
BrainTrust
Recent Discussions
Discussion Questions
Poll
The panel, and Brian Sharoff, nailed it so perfectly that it’s really hard to say more. On the other question, I do not see a mass migration away from national brands during hard times; I do see a mass migration toward whatever is cheaper at the moment–meaning a lower-end brand, whatever is on sale that week, or a private label. It’s certainly not a rush from brands to private label. Besides, private label quality/pricing is so far ahead of where it was years ago that no comparison is valid. The advice given at this PLMA session was spot-on. Now, it will all depend on how much people will listen….
Store brands, if managed well, will continue to be successful, since they offer greater profits per square inch of shelf space. To properly manage a good store brands initiative, the retailer must differentiate their product enough, yet still allow for the obvious visualization for their product, while keeping product quality at the same level of national brands. Quality, shelf presence and price are the key components to a successful store branding strategy.
Worst practice is to place margin ahead of quality. I can’t tell you how many times I have enjoyed a PL product only to be disappointed with the second purchase. This is due to a lack of commitment by the retailer to do the due diligence to insure that quality standards are maintained. Consistency is the backbone of the branded business and if the retailer is trying to build his brand, with HIS name on it, then HE had better pay a great deal of attention to QUALITY AND CONSISTENCY. One bad PL product brings all the retailers’ PL products down, and devalues the retailers’ business.
Very few mainstream supermarkets assign empowered, talented, creative executives to source unique private label foods. Trader Joe’s is so successful because it’s so unusual. The volume of me-too copycat foods and HBA is just enormous compared to the private label items of any special nature. What’s especially odd: mainstream supermarkets rarely copy Trader Joe’s. They just copy each other. Yet Trader Joe’s has done the “market research” to prove what can really move.
In these spaces I’ve ranted that much of PL’s growth is from retailers forcing the product onto their shelves while shouldering national brands off. This is not a response to consumer research demanding PL or to nonexistent PL marketing/advertising. Instead, the profit promise of PL with which we’re all familiar trumps customer preference. PL lowers the average ring but raises store profit percentage. Yes, PL is usually good quality at a reduced price, but masquerades as a way to offer more choices to shoppers while actually reducing overall choice.
Some clarification: Much PL is superb and much is bogus (“natural” and “organic” versions, for instance). Also, the strictest definition of PL includes most of the items from produce, meat, deli, seafood, and bakery departments. Here, however, the assumption is that we’re discussing center store.
I agree with Bill Bond of the PLMA that in difficult economic times consumers temporarily trade down to less expensive groceries but return to their preferences after they’ve made adjustments in other household expenses. This is not a myth, though, but a proven microeconomic truth based on consumers changing their most quickly adjustable expense (food) and then returning to previous food purchase levels after implementing less-quickly-made spending adjustments elsewhere. Plus, food comforts them. I must disagree with Bill, however, that the success of PL “has been a hard-won consequence of consumer confidence, etc., etc., etc.” PL succeeds through retailers’ Machiavellian merchandising strategies.
Over the years, private label brands have gone a long way towards establishing themselves as a fair equivalent to national brands. This is not just restricted to the US market but is visible in international markets too. Carrefour built a strong presence in foreign markets through its private label products and so has Tesco. The value of private labels is more pronounced in emerging markets like India, where consumers are less averse to choosing a private label brand over a national brand as the yardstick for measuring quality and price are different.
However, I still do believe that price is the key differentiator for a private label program. Consumers are more willing to purchase private labels as along as it makes economic sense in their purchasing decision.
The article has clearly articulated the worst practices in private label programs. Yes, it is a myth that consumers forsake national brands for private labels in tough times. A bad economy or not, the perceptions of quality and price of the product will always determine the success of a private label brand.
Thanks to Frank for sharing the entire list of worst practices. From a positive perspective, the list can be tied together as follows: successful retailers develop a strong brand that is clearly linked to the store and constantly educate employees and shoppers; they use marketing as an educational vehicle; they create excitement about new items, often by word of mouth.
Regarding the question of shoppers retreating from national brands in tough times, I offer that the prolonged focus on price has muted any noticeable shift–they are already there for the most part. In addition, one of the effects of the successful private label programs is a general confusion about which products are private label and which are national brands. I don’t think most regular consumers of the strong store brands care. It’s an artificial divide that the industry maintains and that is increasingly irrelevant to consumers.
Trader Joe’s led the charge into PL products that shoppers actually prefer to name brands. In the process, they solidified customer loyalty–you can get Pace salsa anywhere, but you can only find the red pepper eggplant spread at Trader Joe’s. Smart marketers are paying attention to this segment of the business because it speaks not just to value, but quality as well. I just switched from name-brand Earl Grey teabags to a Kroger Private Selection organic product that’s not only cheaper, it tastes better. What reason could I possibly find to switch back?
I had the pleasure of moderating the Worst Practices session at this gathering. Here are our top 10 Worst Practices:
- 1. Retailers – Excessive Price Gap
- 2. Retailers – Creating items, not brands
- 3. Retailers – Lack of real and effective Private Label promotions
- 4. Retailers – Failure to educate associates and customers on Private Label
- 5. Suppliers – Volume at any price
- 6. Suppliers – Failing to change the New Product process when everyone knows it’s broken
- 7. Suppliers – Lack of honest quality commitment
- 8. Suppliers – Short term focus on the numbers, not long term for the trends
- 9. Both – Americans know everything and we are always right, but we are now in a global economy
- 10. Both – Looking the wrong way–at each other, not at the consumer
The worst practice in my humble opinion is the copycat strategy that some house brands deviate to. That is having the exact bottle or package as the name brand but having the private label on it instead. PL needs to go above and beyond what is currently out there for sale.
President’s Choice by Loblaws is a perfect example. Many of their food SKUs have no peer on the shelf. It’s a 2 pronged assault on the consumer; the idea that it’s value because it is a house brand and is not available anywhere else, so it is exclusive. Safeway’s organic line also deserves mention.
The idea that having an exact copy of the name brand does not do the house brand justice…I disagree. I believe consumers do turn to private label as a way of saving money during a rough economic patch. This is when chains can build their brand and grow customer loyalty to their label.
Let’s be realistic here. Every consumer wants price and quality. Any private label brand that can accomplish this with even a few products can build on the momentum of strong brand recognition to deliver long-term success.
Since it seems that retailers have finally figured out how to do this, it begs the question of why they are not putting more effort into showcasing their products. Initially, my guess would be that they simply do not know how. After all most retailers specialize in marketing themselves rather than the products they sell. Another reason could be a little more political. The national brands may have an issue with their customers becoming their competitors. Just as Pepsi once exerted their influence on Wal-Mart, it’s very possible that other brand manufacturers may be doing the same with other retailers.
So what can, or should, retailers be doing? At the end of the day they are in business to make money. And I believe that any smart retailer will base their product strategies on that philosophy.
In regard to the apparel industry, and head of households in the age range 30-60 yrs, I do think branded labels verse private labels play a role in the mind of the retail consumer. But, I also think the retail consumer is more concerned about product quality, value, then price as the most important issues when they are making a purchasing decision.
I think whose name is on the product label has its place in department stores. But it is not the primary issue when consumers (listed above) are making a purchasing decision about what to buy and wear. I think this point will hold true whether economic times are good or bad.
More Discussions
Has Same-Day Delivery Become an Expectation Across Retail?
Are expectations around retail delivery speed in flux?OpenAI Names the Infrastructure Standard for Agentic Commerce
Will OpenAI or Google (or another entity) set the gold standard for agentic commerce?Is Five Below Poised For Even Greater Growth?
Five Below is hitting serious growth numbers. Can this trend continue?
The panel, and Brian Sharoff, nailed it so perfectly that it’s really hard to say more. On the other question, I do not see a mass migration away from national brands during hard times; I do see a mass migration toward whatever is cheaper at the moment–meaning a lower-end brand, whatever is on sale that week, or a private label. It’s certainly not a rush from brands to private label. Besides, private label quality/pricing is so far ahead of where it was years ago that no comparison is valid. The advice given at this PLMA session was spot-on. Now, it will all depend on how much people will listen….
Store brands, if managed well, will continue to be successful, since they offer greater profits per square inch of shelf space. To properly manage a good store brands initiative, the retailer must differentiate their product enough, yet still allow for the obvious visualization for their product, while keeping product quality at the same level of national brands. Quality, shelf presence and price are the key components to a successful store branding strategy.
Worst practice is to place margin ahead of quality. I can’t tell you how many times I have enjoyed a PL product only to be disappointed with the second purchase. This is due to a lack of commitment by the retailer to do the due diligence to insure that quality standards are maintained. Consistency is the backbone of the branded business and if the retailer is trying to build his brand, with HIS name on it, then HE had better pay a great deal of attention to QUALITY AND CONSISTENCY. One bad PL product brings all the retailers’ PL products down, and devalues the retailers’ business.
Very few mainstream supermarkets assign empowered, talented, creative executives to source unique private label foods. Trader Joe’s is so successful because it’s so unusual. The volume of me-too copycat foods and HBA is just enormous compared to the private label items of any special nature. What’s especially odd: mainstream supermarkets rarely copy Trader Joe’s. They just copy each other. Yet Trader Joe’s has done the “market research” to prove what can really move.
In these spaces I’ve ranted that much of PL’s growth is from retailers forcing the product onto their shelves while shouldering national brands off. This is not a response to consumer research demanding PL or to nonexistent PL marketing/advertising. Instead, the profit promise of PL with which we’re all familiar trumps customer preference. PL lowers the average ring but raises store profit percentage. Yes, PL is usually good quality at a reduced price, but masquerades as a way to offer more choices to shoppers while actually reducing overall choice.
Some clarification: Much PL is superb and much is bogus (“natural” and “organic” versions, for instance). Also, the strictest definition of PL includes most of the items from produce, meat, deli, seafood, and bakery departments. Here, however, the assumption is that we’re discussing center store.
I agree with Bill Bond of the PLMA that in difficult economic times consumers temporarily trade down to less expensive groceries but return to their preferences after they’ve made adjustments in other household expenses. This is not a myth, though, but a proven microeconomic truth based on consumers changing their most quickly adjustable expense (food) and then returning to previous food purchase levels after implementing less-quickly-made spending adjustments elsewhere. Plus, food comforts them. I must disagree with Bill, however, that the success of PL “has been a hard-won consequence of consumer confidence, etc., etc., etc.” PL succeeds through retailers’ Machiavellian merchandising strategies.
Over the years, private label brands have gone a long way towards establishing themselves as a fair equivalent to national brands. This is not just restricted to the US market but is visible in international markets too. Carrefour built a strong presence in foreign markets through its private label products and so has Tesco. The value of private labels is more pronounced in emerging markets like India, where consumers are less averse to choosing a private label brand over a national brand as the yardstick for measuring quality and price are different.
However, I still do believe that price is the key differentiator for a private label program. Consumers are more willing to purchase private labels as along as it makes economic sense in their purchasing decision.
The article has clearly articulated the worst practices in private label programs. Yes, it is a myth that consumers forsake national brands for private labels in tough times. A bad economy or not, the perceptions of quality and price of the product will always determine the success of a private label brand.
Thanks to Frank for sharing the entire list of worst practices. From a positive perspective, the list can be tied together as follows: successful retailers develop a strong brand that is clearly linked to the store and constantly educate employees and shoppers; they use marketing as an educational vehicle; they create excitement about new items, often by word of mouth.
Regarding the question of shoppers retreating from national brands in tough times, I offer that the prolonged focus on price has muted any noticeable shift–they are already there for the most part. In addition, one of the effects of the successful private label programs is a general confusion about which products are private label and which are national brands. I don’t think most regular consumers of the strong store brands care. It’s an artificial divide that the industry maintains and that is increasingly irrelevant to consumers.
Trader Joe’s led the charge into PL products that shoppers actually prefer to name brands. In the process, they solidified customer loyalty–you can get Pace salsa anywhere, but you can only find the red pepper eggplant spread at Trader Joe’s. Smart marketers are paying attention to this segment of the business because it speaks not just to value, but quality as well. I just switched from name-brand Earl Grey teabags to a Kroger Private Selection organic product that’s not only cheaper, it tastes better. What reason could I possibly find to switch back?
I had the pleasure of moderating the Worst Practices session at this gathering. Here are our top 10 Worst Practices:
The worst practice in my humble opinion is the copycat strategy that some house brands deviate to. That is having the exact bottle or package as the name brand but having the private label on it instead. PL needs to go above and beyond what is currently out there for sale.
President’s Choice by Loblaws is a perfect example. Many of their food SKUs have no peer on the shelf. It’s a 2 pronged assault on the consumer; the idea that it’s value because it is a house brand and is not available anywhere else, so it is exclusive. Safeway’s organic line also deserves mention.
The idea that having an exact copy of the name brand does not do the house brand justice…I disagree. I believe consumers do turn to private label as a way of saving money during a rough economic patch. This is when chains can build their brand and grow customer loyalty to their label.
Let’s be realistic here. Every consumer wants price and quality. Any private label brand that can accomplish this with even a few products can build on the momentum of strong brand recognition to deliver long-term success.
Since it seems that retailers have finally figured out how to do this, it begs the question of why they are not putting more effort into showcasing their products. Initially, my guess would be that they simply do not know how. After all most retailers specialize in marketing themselves rather than the products they sell. Another reason could be a little more political. The national brands may have an issue with their customers becoming their competitors. Just as Pepsi once exerted their influence on Wal-Mart, it’s very possible that other brand manufacturers may be doing the same with other retailers.
So what can, or should, retailers be doing? At the end of the day they are in business to make money. And I believe that any smart retailer will base their product strategies on that philosophy.
In regard to the apparel industry, and head of households in the age range 30-60 yrs, I do think branded labels verse private labels play a role in the mind of the retail consumer. But, I also think the retail consumer is more concerned about product quality, value, then price as the most important issues when they are making a purchasing decision.
I think whose name is on the product label has its place in department stores. But it is not the primary issue when consumers (listed above) are making a purchasing decision about what to buy and wear. I think this point will hold true whether economic times are good or bad.