February 25, 2009
R&FF Retailer: Wal-Mart’s Big Plans for Private Brands
By Warren Thayer, Editorial
Director, R&FF Retailer
Through
a special arrangement, presented here for discussion are excerpts of a
current article from Refrigerated & Frozen Foods Retailer magazine.
Hang onto your hat. Wal-Mart
has significant plans for its private label program, with the unveiling
of its redesigned Great Value line expected any day now.
According to Andrea Thomas,
the company’s senior VP of private brands, "We’re building from a
position of strength. Great Value is the largest brand at Wal-Mart. It
plays across more than 100 categories, making it the largest food brand
in the country. In this economically challenging environment, we have seen
our customers turn to us even more this year. We have plans to make this
brand even stronger with improved value and quality."
She adds,
"The packaging is being redesigned to improve our communication of the
brand. The new design has a much better brand billboard and much more appetizing
food photography. We aren’t just dressing up the outside, we have also worked
hard on what we are putting on the inside. We have tested over 5,500 products
against the national brands and we are in the process of reformulating 1,200
items."
Ms. Thomas notes that
the new packaging will have much more visible product guarantees, adding
that, "We’ll have a professionally staffed 1-800 number, along with
online product support. We’ve also recently staffed the team to focus on
gaining efficiency across the supply chain. They are looking at logistics,
raw ingredients, and packaging to find cost savings that will be invested
into price leadership and brand building."
According to Information
Resources, Inc., the Chicago-based market research firm, private label
accounts for 17.6 percent of dollars and 22.5 percent of units at Wal-Mart.
One securities analyst – Deborah Weinswig of Citigroup –
has been quoted as saying that private label might skyrocket to 40 percent
of dollars at Wal-Mart within the next three years. She figures that if Wal-Mart
carries the top three branded products in a given category, it could substitute
one of them with its own brand.
We think the 40 percent
number is too high. After all, Wal-Mart already follows this strategy in
many categories. And, beyond that, many shoppers go to Wal-Mart precisely
because it carries so many well-known national brands – at the lowest
price. We expect a surge in private label by Wal-Mart, but would expect
it to go no higher than 30 percent dollar penetration in three years. Beyond
that, and it risks damaging a perceived core competency.
Discussion Question:
What do you think of Wal-Mart’s Great Value private label brand? Which
feature
– quality, value or packaging – most needs to be improved to
further establish the brand? Secondly, what level should Wal-Mart’s private
labels ultimately represent as a percent of sales to maintain a healthy balance
with branded assortments?
BrainTrust
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Discussion Questions
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Great Value has had its challenges in the past. Compared to other PL programs, I would say GV is probably at the bottom of the list in terms of product depth and packaging. Revamping the line and giving it more of an upscale look will increase turns. Shelf real estate has always been an issue especially in health and beauty. You just don’t see the lines on the shelf. They are there but they seem so obscure.
Walmart’s positioning gives them great opportunities in private label. I always wondered why there was no real focus or promotion of GV. It’s good to see them revamping and upscaling the line and I am positive it will do very well, especially in HBA. As a store manager, I would shoot for 25% private label penetration. The margins are just that good and at 25%, I’m not sacrificing customer service by reducing name brand exposure. I can also use house brands to shield margins on promo displays. The key of course is having products that I can rightfully display with the national brand.
Wal-Mart is doing the same thing every other retailer does, pressure incremental dollars from brands who need to protect their shares from Private Label. Wal-Mart’s strength remains in brand value and I don’t believe their intent is to differentiate themselves outside of the lowest retail. They only need to make the PL products look better and keep the retail low and they have met their objective. If I were a brand I would be concerned on the demands they are about to encounter.
Price is #1. Walmart’s packaging matters least. Price matters most. Quality just needs to be reasonably good. Price is king at Walmart. Penetration doesn’t matter, just GMROI. Did I mention that Walmart customers shop on price?
Throwing in an observation that hasn’t yet been mentioned, Walmart’s decision to revamp Great Value comes at a time when Target is trying to remedy its food mistakes of the past. While Target was busy creating groovy designer alliances in discretionary categories, Walmart’s food advantage and clear non-discretionary value proposition made all the difference when gas prices hit all-time highs and when the recession hit harder than ever. Target is laser focused on getting food right, particularly on the perishable and private label side; Walmart is preemptively upgrading its offering to position for the pull-out and to gird against potential market share gains by Target!
Much agreement with most commentators on this one leaves me without much to add at this late hour. But I cannot let the fact that I so heartily agree with both Herb and Ryan go unposted.
Yes, Wal-Mart needs to make Great Values their Kirkland’s equivalent. And yes, it can go north of 40% share if they do.
Off strategy for Wal-Mart you say? Let’s think about that. Wal-Mart is lowest prices on great brands. Where is it written that the only “great brands” are “national brands”? Isn’t Kirkland’s the exception that proves the rule here?
Long term success will depend upon the quality of the products. Experienced brand execs may be able to build image and attract consumers but if the quality is not there, then the repeat purchases will not happen as soon as consumers can afford their favorites. That being said, private labels with good quality at all stores put pressure on the major brands to create value for which consumers are willing to pay.
There are enough lessons learned from PL strategies of all quality levels for WMT to make a successful effort with GV. There is really no limit as to the potential penetration of PL at WMT, especially considering the global economic crisis. Don’t forget, they are a global enterprise. Just look at (yes, on a much smaller scale) Trader Joe’s PL penetration, or has others have mentioned, Costco, Target, etc. And Target is actually, for the most part, upscale.
I am curious to see if retailers the size of WMT will start leaning more than they have in the past on branded CPG firms to make their PL, as opposed to the fragmented manufacturer industry that currently supports PL.
What looks like a fundamental switch in value propositions–from low prices on national brands to a retailer-controlled strategy, really isn’t much of a change at all. Wal-Mart is–and has been–the brand consumers trust. Therefore, the key to the success of their controlled label efforts rests in the quality of the product.
Ask any COSTCO shopper what they think of Kirkland-brand food products and most will tell you they are better than the brand alternative. That’s the key to success.
I would not like to see Walmart go too far or cross the line with private label control brands. It makes sense to add another 5% right now to weather out the economic storm, however, consumers trust Walmart as the retailer that sells brands on EDLP, and of course for every space given to private label, this means that another brand, niche, or destination item, needs to disappear.
I have been looking at very recent consumer research that indicates shoppers who are brand-loyal are using many strategies to be able to continue to buy national brands, among them taking more trips to Walmart, knowing they can find the brands they want at good prices. But other recent research also shows that some 60% of consumers are either willing or just have to trade down to the cheapest options, so you can’t fault Walmart for making a move to keep those shoppers happy.
The real issue is quality, as many comments from consumers indicate an immediate retreat from any private label products that don’t taste good. If the family won’t consume it, Mom will trade back up. What good is a pantry full of private label stuff nobody wants to eat???
I don’t think Wal-Mart’s business model will allow them to get 40% for private label. However, revamping the Great Value bargain brand is a good step. But all three elements–quality, value and packaging–have to be there.
They have to be careful they don’t make the same mistake that A&P did years ago–shoving private label down people’s throats at the expense of brands. You can’t let the tail wag the dog.
For the past few years Walmart and other retailers have been stocking up on brand manufacturer executives. Those executives look at the situation very differently than traditional retail executives. Someone has suggested that the recent layoff in Bentonville was to pave the way for further cherry picking of their brand suppliers for “brand” management talent.
The balance between retailers and their suppliers is precarious and fraught, in many ways. For a long time we have summarized this as “the retailers have all the power, but the brands have all the money!” This is, of course, an exaggerated truth. However, one of the real benefits of the current economic crisis–if government will stay out–is to allow major movement of the entire economic engine to more sane (competitive) ground. Once again, Walmart is in the van. Although Tesco has certainly plowed the way.
One more thing to consider is that a few years back when P&G stock was in the tank, there was genuine fear that Walmart might make a move on the company. Scuttlebutt, of course, but not entirely unreasonable, either.
Having said all this, the brands also have significant competitive power against any one retailer, in the sense that no retailer “owns” the entire field. However, if Walmart’s dominance in retail grows, that weakens THAT competitive hand for the brands.
BTW, I would have said that Walmart’s PL is heading north of 40%, but I don’t like to be thought of as an idiot. :>)
Anything WM does to bring into concrete reality its brand statement is valuable and worthwhile. Save More, Live Better is exactly the positioning just about everyone in retail wishes they had right now.
The challenge in branding has always been the real-world manifestation of the brand promise. From what the article provides, it appears as if WM has indeed made a concerted effort to bring that promise to life in the Great Value line. How products perform is equally as important as the price point for each product, and the underlying premise of Save More, Live Better isn’t that you have to buy the cheapest thing on the shelf. Instead, it’s a promise that each item there, regardless of it’s price point or feature-set, was selected to personify the brand promise. Private label programs, particularly the entry level ones, often have been allowed to simply personify “cheap.”
Cheap is fine, but it isn’t the brand promise. Let’s see if the research, upgrading and supply chain efforts have resulted in a GV brand that delivers.
Now is clearly the right time to re-introduce the new and improved Great Value brand as consumers look for low cost alternatives. I agree with the fact that the brand loyalists will still be looking for the best prices on their favorites. However, it may backfire on them as the economy improves in the next year or so–we’ll have to see.
Wal-Mart needs to use Costco (Kirkland), Target and other successful private labels who have distanced themselves from a value private label brand and move into a perceived premium position which compliments a national brand (and competes with it on price and product quality and packaging), rather than coming out with another value brand. With this type of approach, Wal-Mart could clearly go to 30-40% of their profits from private brands. This is especially true because of the higher profitability that private branding offers a store. In reality, Wal-Mart only needs to carry 1-2 national brands of any particular product to have their private label become successful.
I don’t think I can add anything after all these excellent posts but I AGREE that at Wal Mart, price IS #1.
Having said that, Walmart must concentrate on quality! As formerly noted, a pantry stocked with PLs is worthless if the family won’t eat it. And the GV packaging is fairly awful and uninspired and fixing this will potentially allow great gains among all shopper strata and types–not just those looking for the lowest price. And if the quality is there, as it should be–as seen with Costco’s Kirkland–then gains and return on the GV PL will continue far into recovery of this economy.
It is TRUE also that the PLs should not be shoved onto customers with loss of other choices. The fact remains that Walmart is known for EDLP on National “good” brands and a lot of people rely on Walmart for that attribute, and shoppers trading down may very well be relying on that prospect.
Walmart is perhaps the best at knowing what is moving off their shelves, both in terms of amount of product, and time of turnover. This can be useful to them when potentially considering allocation of precious shelf space to National brands, local brands and their PLs. I also agree that if they wanted, PLs could be 45% – 50%. I believe that PLs can easily become–yet should not be more than–30% to 35%.
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Great Value has had its challenges in the past. Compared to other PL programs, I would say GV is probably at the bottom of the list in terms of product depth and packaging. Revamping the line and giving it more of an upscale look will increase turns. Shelf real estate has always been an issue especially in health and beauty. You just don’t see the lines on the shelf. They are there but they seem so obscure.
Walmart’s positioning gives them great opportunities in private label. I always wondered why there was no real focus or promotion of GV. It’s good to see them revamping and upscaling the line and I am positive it will do very well, especially in HBA. As a store manager, I would shoot for 25% private label penetration. The margins are just that good and at 25%, I’m not sacrificing customer service by reducing name brand exposure. I can also use house brands to shield margins on promo displays. The key of course is having products that I can rightfully display with the national brand.
Wal-Mart is doing the same thing every other retailer does, pressure incremental dollars from brands who need to protect their shares from Private Label. Wal-Mart’s strength remains in brand value and I don’t believe their intent is to differentiate themselves outside of the lowest retail. They only need to make the PL products look better and keep the retail low and they have met their objective. If I were a brand I would be concerned on the demands they are about to encounter.
Price is #1. Walmart’s packaging matters least. Price matters most. Quality just needs to be reasonably good. Price is king at Walmart. Penetration doesn’t matter, just GMROI. Did I mention that Walmart customers shop on price?
Throwing in an observation that hasn’t yet been mentioned, Walmart’s decision to revamp Great Value comes at a time when Target is trying to remedy its food mistakes of the past. While Target was busy creating groovy designer alliances in discretionary categories, Walmart’s food advantage and clear non-discretionary value proposition made all the difference when gas prices hit all-time highs and when the recession hit harder than ever. Target is laser focused on getting food right, particularly on the perishable and private label side; Walmart is preemptively upgrading its offering to position for the pull-out and to gird against potential market share gains by Target!
Much agreement with most commentators on this one leaves me without much to add at this late hour. But I cannot let the fact that I so heartily agree with both Herb and Ryan go unposted.
Yes, Wal-Mart needs to make Great Values their Kirkland’s equivalent. And yes, it can go north of 40% share if they do.
Off strategy for Wal-Mart you say? Let’s think about that. Wal-Mart is lowest prices on great brands. Where is it written that the only “great brands” are “national brands”? Isn’t Kirkland’s the exception that proves the rule here?
Long term success will depend upon the quality of the products. Experienced brand execs may be able to build image and attract consumers but if the quality is not there, then the repeat purchases will not happen as soon as consumers can afford their favorites. That being said, private labels with good quality at all stores put pressure on the major brands to create value for which consumers are willing to pay.
There are enough lessons learned from PL strategies of all quality levels for WMT to make a successful effort with GV. There is really no limit as to the potential penetration of PL at WMT, especially considering the global economic crisis. Don’t forget, they are a global enterprise. Just look at (yes, on a much smaller scale) Trader Joe’s PL penetration, or has others have mentioned, Costco, Target, etc. And Target is actually, for the most part, upscale.
I am curious to see if retailers the size of WMT will start leaning more than they have in the past on branded CPG firms to make their PL, as opposed to the fragmented manufacturer industry that currently supports PL.
What looks like a fundamental switch in value propositions–from low prices on national brands to a retailer-controlled strategy, really isn’t much of a change at all. Wal-Mart is–and has been–the brand consumers trust. Therefore, the key to the success of their controlled label efforts rests in the quality of the product.
Ask any COSTCO shopper what they think of Kirkland-brand food products and most will tell you they are better than the brand alternative. That’s the key to success.
I would not like to see Walmart go too far or cross the line with private label control brands. It makes sense to add another 5% right now to weather out the economic storm, however, consumers trust Walmart as the retailer that sells brands on EDLP, and of course for every space given to private label, this means that another brand, niche, or destination item, needs to disappear.
I have been looking at very recent consumer research that indicates shoppers who are brand-loyal are using many strategies to be able to continue to buy national brands, among them taking more trips to Walmart, knowing they can find the brands they want at good prices. But other recent research also shows that some 60% of consumers are either willing or just have to trade down to the cheapest options, so you can’t fault Walmart for making a move to keep those shoppers happy.
The real issue is quality, as many comments from consumers indicate an immediate retreat from any private label products that don’t taste good. If the family won’t consume it, Mom will trade back up. What good is a pantry full of private label stuff nobody wants to eat???
I don’t think Wal-Mart’s business model will allow them to get 40% for private label. However, revamping the Great Value bargain brand is a good step. But all three elements–quality, value and packaging–have to be there.
They have to be careful they don’t make the same mistake that A&P did years ago–shoving private label down people’s throats at the expense of brands. You can’t let the tail wag the dog.
For the past few years Walmart and other retailers have been stocking up on brand manufacturer executives. Those executives look at the situation very differently than traditional retail executives. Someone has suggested that the recent layoff in Bentonville was to pave the way for further cherry picking of their brand suppliers for “brand” management talent.
The balance between retailers and their suppliers is precarious and fraught, in many ways. For a long time we have summarized this as “the retailers have all the power, but the brands have all the money!” This is, of course, an exaggerated truth. However, one of the real benefits of the current economic crisis–if government will stay out–is to allow major movement of the entire economic engine to more sane (competitive) ground. Once again, Walmart is in the van. Although Tesco has certainly plowed the way.
One more thing to consider is that a few years back when P&G stock was in the tank, there was genuine fear that Walmart might make a move on the company. Scuttlebutt, of course, but not entirely unreasonable, either.
Having said all this, the brands also have significant competitive power against any one retailer, in the sense that no retailer “owns” the entire field. However, if Walmart’s dominance in retail grows, that weakens THAT competitive hand for the brands.
BTW, I would have said that Walmart’s PL is heading north of 40%, but I don’t like to be thought of as an idiot. :>)
Anything WM does to bring into concrete reality its brand statement is valuable and worthwhile. Save More, Live Better is exactly the positioning just about everyone in retail wishes they had right now.
The challenge in branding has always been the real-world manifestation of the brand promise. From what the article provides, it appears as if WM has indeed made a concerted effort to bring that promise to life in the Great Value line. How products perform is equally as important as the price point for each product, and the underlying premise of Save More, Live Better isn’t that you have to buy the cheapest thing on the shelf. Instead, it’s a promise that each item there, regardless of it’s price point or feature-set, was selected to personify the brand promise. Private label programs, particularly the entry level ones, often have been allowed to simply personify “cheap.”
Cheap is fine, but it isn’t the brand promise. Let’s see if the research, upgrading and supply chain efforts have resulted in a GV brand that delivers.
Now is clearly the right time to re-introduce the new and improved Great Value brand as consumers look for low cost alternatives. I agree with the fact that the brand loyalists will still be looking for the best prices on their favorites. However, it may backfire on them as the economy improves in the next year or so–we’ll have to see.
Wal-Mart needs to use Costco (Kirkland), Target and other successful private labels who have distanced themselves from a value private label brand and move into a perceived premium position which compliments a national brand (and competes with it on price and product quality and packaging), rather than coming out with another value brand. With this type of approach, Wal-Mart could clearly go to 30-40% of their profits from private brands. This is especially true because of the higher profitability that private branding offers a store. In reality, Wal-Mart only needs to carry 1-2 national brands of any particular product to have their private label become successful.
I don’t think I can add anything after all these excellent posts but I AGREE that at Wal Mart, price IS #1.
Having said that, Walmart must concentrate on quality! As formerly noted, a pantry stocked with PLs is worthless if the family won’t eat it. And the GV packaging is fairly awful and uninspired and fixing this will potentially allow great gains among all shopper strata and types–not just those looking for the lowest price. And if the quality is there, as it should be–as seen with Costco’s Kirkland–then gains and return on the GV PL will continue far into recovery of this economy.
It is TRUE also that the PLs should not be shoved onto customers with loss of other choices. The fact remains that Walmart is known for EDLP on National “good” brands and a lot of people rely on Walmart for that attribute, and shoppers trading down may very well be relying on that prospect.
Walmart is perhaps the best at knowing what is moving off their shelves, both in terms of amount of product, and time of turnover. This can be useful to them when potentially considering allocation of precious shelf space to National brands, local brands and their PLs. I also agree that if they wanted, PLs could be 45% – 50%. I believe that PLs can easily become–yet should not be more than–30% to 35%.