February 11, 2008
RSR Report: Private Label Quality Suffers
By Tom Ryan
As retailers step up collaboration with suppliers on private label product design, two opposing consequences emerge: they can bring new products to market faster, but at a cost — control over the quality of that merchandise.
That’s the conclusion of a report from Retail Systems Research, PLM Squared: Product Lifecycle Management Powers Private Label Merchandise, sponsored by Eqos and Microsoft.
“On the one hand retailers create long term contracts with trusted suppliers and collaborate with those suppliers on product design to improve their speed to market,” said Paula Rosenblum, managing director and author of the report. “On the other hand, those same vendors cut corners to achieve that speed, resulting in inconsistent and sometimes fatal quality problems.”
The study found that keeping dependable partners, inconsistent product quality, and erratic conformance to specifications top the list of business challenges in a collaborative world. It also found a “huge gap between idealized transit times from factory to point of demand and actual times.”
RSR found that retailers don’t evaluate their suppliers frequently enough. Collaborating with factories requires post-production audits to insure product quality is acceptable, and these audits should be supplemented by regular supplier scorecarding to insure consistency over time.
“Whenever possible, use your own employees as inspectors, rather than outside agents,” the report states. “If you must use outside agents, score their results, much as you would scorecard any other vendor. Scorecard frequently to avoid any temptation to cut corners and review scorecard results regularly.”
Besides improved monitoring, the report also urges retailers to capitalize on PLM technology when expected results aren’t achieved. Thirty-seven percent of respondents reported a 10 to 25 percent improvement through the use of technology. However, the report also noted that the best technology isn’t often used. While RSA finds supply chain visibility, supplier management and supplier scorecards are most valuable, the most commonly used technologies by retailers are product specifications and requirements, sample management and sourcing applications.
“Outsourced manufacturing is a double-edged sword,” said Ms. Rosenblum. “Retailers are getting faster, but their products are not necessarily getting better. A comprehensive program of supplier management is critical to insure standards are met consistently.”
Discussion Questions: Have you also seen drop off in the quality of private label assortments by retailers with the push for speed to market? What are some best practices to ensure the quality of private label offerings remains consistent? Why aren’t more retailers making full use of the latest PLM technologies?
BrainTrust
Recent Discussions
Discussion Questions
Poll
Private label product used to stand only for price. Retailers used the venue to offer “knock off” merchandise at competitive prices. As times changed and the consumer became more accepting, or ignorant of the private label brands, stores moved the quality and pricing upward.
In today’s quick response market, stores like H&M and Zara replenish fashion at record speeds and price the product to move quickly, essentially creating disposable fashion.
Quality is not an issue on much of this merchandise as the consumer is aware of what they are buying and are happy to get the fashion statement at a competitive price.
Better quality stores offering private label as basic product and pricing the goods in alignment with branded product, owe the consumer a higher quality product. Stores need to patrol their suppliers, both domestic and international, and hold them to a quality standard. If the supplier is unable to produce acceptable goods they must be replaced. Poor quality private label is a reflection on the store and they have every responsibility to control the problem.
This report is not correct. We deal in private label product in 12 different categories and there hasn’t been a “rush to market” which impacts product quality. In fact, private label products, especially after the China toy and pet food scares of 2007, are even more demanding in their due diligence than before.
The pricing opportunities that these products represent as well as their tremendous profits is the goose which lays the golden egg. On top of this, the future product brand extensions that can be built from existing successful products offer tremendous profits for a smart retailer.
I haven’t observed a drop off in the quality of private label supermarket assortments for a very important reason: first there must be an increase in quality, and there hasn’t been one. You must see an “up” before you observe a “down.” I regularly test private label against national brands and have never observed that PLs are equal to or better than national brands. But that’s just me. Put my opinion in the same category as the always-questionable mother-in-law research.
Most PL supermarket products have no national brand equivalent or competitor. Nearly all fresh products fall into this category, including fresh bakery, meat, seafood, and produce–which generate about half the dollar transactions and the majority of profit in most stores. That narrows this discussion mostly to center-aisle, frozen, and refrigerated products, right?
Take a look around. The majority of recent supermarket PL “bully-products” (PLs that push national brands off the shelf) carry either “organic” or “natural” labels. Both concepts cater to illogical, unproven, politically-driven, scare-induced consumer concerns and must be rushed to market before we wise up. The benefits of “organic” and “natural” have never been proven – for either personal consumption or the environment – and retailers are pressing PL manufacturers to provide their goofy products before consumers catch on. That’s the “speed to market” that’s influencing shoppers’ perception of poorer quality, and nothing more. When shoppers finally discover that they’re paying more for flavorless-yet-equally-nutritional products with no redeeming ancillary environmental benefits, there will be a backlash. Then, on to the next hoax.
Speed to shelf has less to do with quality than the ongoing effort to cut costs in the system. As retailers get more powerful and suppliers struggle to keep their business in an environment that, in many cases, discourages investment, quality will suffer.
The number of companies being bought out or going out of business is testimony to the squeeze that exists in the private brand segment. A true commitment to quality means that both the retailer and supplier profit from an agreement.
As to the current quality of of private label, one sees what one wants to see and one evaluates as one needs to evaluate.
As private label continue to successfully penetrate the hearts and minds of more consumers, it can be expected that its quality would be challenged by those who potentially are most affected. Do a broad spectrum of product cuttings and see what’s what.
I find the results of this study contrary to our own research and another example of self-service research.
Three factors have been driving Private Label growth. First is updated and improved labeling. Second is significantly improved product quality. Third is the introduction of new–not just branded–knock off products.
Our Private Label Buyer Survey indicated the time from concept introduction to product delivery is one of the greatest opportunity improvement areas. So, to say quality is going down in order to speed products to market, when buyers say it is taking too long does not match.
As for testing product quality, all the Master Private Label brokers operate QC operations. Very few retailers operate their own quality control facility. Some outsource testing, but this is in limited areas. The solution is not to buy some software, but to have these brokers who are being paid to do testing actually do the work.
Although I’m sure many have picked up on this from the previous comments, we should probably distinguish between the different retail channels when referring to private label. “Fast fashion” is a world apart from private label trends in food, hence the polar opposite opinions above on quality levels.
I want to echo the points made above by Matthew Rinaldi. The competitive environment, typified by an ever contracting number of national retailers trying to achieve economies by pursuing volume at the expense of margins, can’t help but have had a corrosive impact on PL programs. These are the programs where national retailers have no choice but to try to prop up margins, and offset the ever tightening margins on nationally branded goods.
In this environment it’s certainly no surprise that the focus of PL programs would be on cost, and cost reduction. However, as I learned early in my retail career, if you’re willing to pay $10 for a $10 widget you’ll get a $10 widget, but if you insist on paying only $8 for that $10 widget the manufacturer will certainly find a way to make and ship you an $8 widget for your $8.
I agree with Mr. Livingston–for premier retailers, private label is thriving. Our work with Boots Pharmacy in the UK and other leading US retailers would certainly infer that PL business is strong. It is clear that those organizations that truly nurture PL as a “brand” are more effective. That’s where we see the future…not to mention the value and confidence it affords consumers.
The quality level of store brand products is likely at an all-time high thanks to the ever increasing sophistication of the suppliers of these products.
The focus of retailers on cost of goods, to the point where today the business goes to the lowest bidder, is responsible for bringing inferior low end manufacturers into the market. The reality is that very few retailers possess the technical skills to effectively monitor quality for thousands of items across a multitude of categories. But they all generally focus on cost when forming supplier partnerships. All the monitoring in the world will not turn a lower tier manufacturer into a strategic supply partner.
If retailers focused more on the quality, reputation, product development, and financial strength of potential suppliers in the selection process, quality would be a regular course of business in the culture of the store brand suppliers to those retailers. Continuous monitoring, which is neither effective nor even possible in 100% of items sold (while also being cost prohibitive), would have a far less important role than preventative processes. And the impact on speed-to-market would be a vast improvement since most retailers’ processes are usually ineffective at doing much other than slowing down product development and new item launches.
The emphasis on quality for private label food products has never been higher as retailers have more “brand equity” in their own-brand products. As the retailer community consolidates, they will create brands as large as “national brands” and cannot afford to have consumers lose confidence in their own-brand food products.
I have received more communications from retailers regarding Quality Audits of both random product checks and plant visits in the past 6 months than in recent years so it is apparent that quality is very high on retailer’s minds.
Yes, there is a definite decline in quality of products in a rush to market private label merchandise. Management changes so often that by the time the effect of lower quality catches up with the company, the executives/managers who did not pay attention to quality have moved somewhere else either within or outside of the company, so there is no one to hold accountable. Then, the company starts tightening up on quality and then management changes and again quality is sacrificed and the cycle goes on and on!
One thing we Americans can not do is stick with something for a long time, which our Asian competitors are able to do very well!
I’m going to disagree and say I have not seen a drop off in quality. In fact, it’s been improving.
So just who specifically are the retailers that are not employing the best practices? Locally where I live, Roundy’s is now featuring their CEO who touts the quality of their private label: http://www.meetchairmanbob.com/
I can’t tell you what some of the best practices are in insuring quality but I can sure bet some supermarket executives are having some concerns after reading this. The most successful supermarket operators take the quality of their private label very seriously–in some cases it is the key to their success.
Retail consolidation has left only a handful of national players in the mass and mid-tier arenas. Product differentiation has become a key strategy as these competitors try to establish their own brand identities. In addition, private brands become a margin play if these competitors don’t have to worry about each others’ prices on national labels.
But this is a double-edged sword even if you discount the “speed to market issue.” Secondary quality of private brands can undermine the store brand if there are chronic issues with sizing, fabric wearability and so on. There is still a role for national brands to play in terms of the halo effect on the rest of these stores’ assortments.
Sourcing for private-label fashion often has a different rhythm than food sourcing. My impression is that food sourcing is much better planned, with decision-makers respecting the suppliers’ timing requests. Private-label fashion decisions are often held up by executives who don’t delegate, so the bottlenecked decisions are often very late. Well-run factories plan their production schedule in advance. If retailers disrespect the production schedule, they’ll pay higher prices or get late shipments or suffer quality problems or all three. As it says on some restaurant menus: Good Food Takes Time To Prepare.
Having worked for two retailers with opposing Private Label strategies over the last five years, I can attest that their views are diametrically opposed. With one, there are plant visits which includes inspections but also a sharing of ideas for product improvement based upon on plant visits and information sharing of their market basket data as well as solving logistic issues.
The other has a yearly review and a bidding process to lower the cost of goods with little or no plant visits. They have upscale labels and rely on reduced prices to gain market share.
Also, I believe that the growth of private label is based less on quality and more on the economy, and the fact that other retailers are getting into the PL arena, i.e. Aldi’s and Dollar General.
Per our recent work within the Drug Channel, it is notable that the top three retailers feature upwards to 2,500 PL brands that now represent almost 20% of total front-end sales. Naturally, in order to further differentiate themselves from competition, each continues to drive PL sales through aggressive pricing/merchandising strategies.
The decision to purchase PL brands within this channel are reinforced as shoppers continue to have a more positive experience with the PL brands they buy. The categories most threatened by the growth of PL are those where the consumer benefits are perceived to be easily replicated and the emotional attachment to brands are relatively low. These represent low involvement categories where purchase decisions require limited cognition.
The best defense any National brand can mount in the face of a PL threat can be summed up in two words: collaboration and innovation.
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?
Private label product used to stand only for price. Retailers used the venue to offer “knock off” merchandise at competitive prices. As times changed and the consumer became more accepting, or ignorant of the private label brands, stores moved the quality and pricing upward.
In today’s quick response market, stores like H&M and Zara replenish fashion at record speeds and price the product to move quickly, essentially creating disposable fashion.
Quality is not an issue on much of this merchandise as the consumer is aware of what they are buying and are happy to get the fashion statement at a competitive price.
Better quality stores offering private label as basic product and pricing the goods in alignment with branded product, owe the consumer a higher quality product. Stores need to patrol their suppliers, both domestic and international, and hold them to a quality standard. If the supplier is unable to produce acceptable goods they must be replaced. Poor quality private label is a reflection on the store and they have every responsibility to control the problem.
This report is not correct. We deal in private label product in 12 different categories and there hasn’t been a “rush to market” which impacts product quality. In fact, private label products, especially after the China toy and pet food scares of 2007, are even more demanding in their due diligence than before.
The pricing opportunities that these products represent as well as their tremendous profits is the goose which lays the golden egg. On top of this, the future product brand extensions that can be built from existing successful products offer tremendous profits for a smart retailer.
I haven’t observed a drop off in the quality of private label supermarket assortments for a very important reason: first there must be an increase in quality, and there hasn’t been one. You must see an “up” before you observe a “down.” I regularly test private label against national brands and have never observed that PLs are equal to or better than national brands. But that’s just me. Put my opinion in the same category as the always-questionable mother-in-law research.
Most PL supermarket products have no national brand equivalent or competitor. Nearly all fresh products fall into this category, including fresh bakery, meat, seafood, and produce–which generate about half the dollar transactions and the majority of profit in most stores. That narrows this discussion mostly to center-aisle, frozen, and refrigerated products, right?
Take a look around. The majority of recent supermarket PL “bully-products” (PLs that push national brands off the shelf) carry either “organic” or “natural” labels. Both concepts cater to illogical, unproven, politically-driven, scare-induced consumer concerns and must be rushed to market before we wise up. The benefits of “organic” and “natural” have never been proven – for either personal consumption or the environment – and retailers are pressing PL manufacturers to provide their goofy products before consumers catch on. That’s the “speed to market” that’s influencing shoppers’ perception of poorer quality, and nothing more. When shoppers finally discover that they’re paying more for flavorless-yet-equally-nutritional products with no redeeming ancillary environmental benefits, there will be a backlash. Then, on to the next hoax.
Speed to shelf has less to do with quality than the ongoing effort to cut costs in the system. As retailers get more powerful and suppliers struggle to keep their business in an environment that, in many cases, discourages investment, quality will suffer.
The number of companies being bought out or going out of business is testimony to the squeeze that exists in the private brand segment. A true commitment to quality means that both the retailer and supplier profit from an agreement.
As to the current quality of of private label, one sees what one wants to see and one evaluates as one needs to evaluate.
As private label continue to successfully penetrate the hearts and minds of more consumers, it can be expected that its quality would be challenged by those who potentially are most affected. Do a broad spectrum of product cuttings and see what’s what.
I find the results of this study contrary to our own research and another example of self-service research.
Three factors have been driving Private Label growth. First is updated and improved labeling. Second is significantly improved product quality. Third is the introduction of new–not just branded–knock off products.
Our Private Label Buyer Survey indicated the time from concept introduction to product delivery is one of the greatest opportunity improvement areas. So, to say quality is going down in order to speed products to market, when buyers say it is taking too long does not match.
As for testing product quality, all the Master Private Label brokers operate QC operations. Very few retailers operate their own quality control facility. Some outsource testing, but this is in limited areas. The solution is not to buy some software, but to have these brokers who are being paid to do testing actually do the work.
Although I’m sure many have picked up on this from the previous comments, we should probably distinguish between the different retail channels when referring to private label. “Fast fashion” is a world apart from private label trends in food, hence the polar opposite opinions above on quality levels.
I want to echo the points made above by Matthew Rinaldi. The competitive environment, typified by an ever contracting number of national retailers trying to achieve economies by pursuing volume at the expense of margins, can’t help but have had a corrosive impact on PL programs. These are the programs where national retailers have no choice but to try to prop up margins, and offset the ever tightening margins on nationally branded goods.
In this environment it’s certainly no surprise that the focus of PL programs would be on cost, and cost reduction. However, as I learned early in my retail career, if you’re willing to pay $10 for a $10 widget you’ll get a $10 widget, but if you insist on paying only $8 for that $10 widget the manufacturer will certainly find a way to make and ship you an $8 widget for your $8.
I agree with Mr. Livingston–for premier retailers, private label is thriving. Our work with Boots Pharmacy in the UK and other leading US retailers would certainly infer that PL business is strong. It is clear that those organizations that truly nurture PL as a “brand” are more effective. That’s where we see the future…not to mention the value and confidence it affords consumers.
The quality level of store brand products is likely at an all-time high thanks to the ever increasing sophistication of the suppliers of these products.
The focus of retailers on cost of goods, to the point where today the business goes to the lowest bidder, is responsible for bringing inferior low end manufacturers into the market. The reality is that very few retailers possess the technical skills to effectively monitor quality for thousands of items across a multitude of categories. But they all generally focus on cost when forming supplier partnerships. All the monitoring in the world will not turn a lower tier manufacturer into a strategic supply partner.
If retailers focused more on the quality, reputation, product development, and financial strength of potential suppliers in the selection process, quality would be a regular course of business in the culture of the store brand suppliers to those retailers. Continuous monitoring, which is neither effective nor even possible in 100% of items sold (while also being cost prohibitive), would have a far less important role than preventative processes. And the impact on speed-to-market would be a vast improvement since most retailers’ processes are usually ineffective at doing much other than slowing down product development and new item launches.
The emphasis on quality for private label food products has never been higher as retailers have more “brand equity” in their own-brand products. As the retailer community consolidates, they will create brands as large as “national brands” and cannot afford to have consumers lose confidence in their own-brand food products.
I have received more communications from retailers regarding Quality Audits of both random product checks and plant visits in the past 6 months than in recent years so it is apparent that quality is very high on retailer’s minds.
Yes, there is a definite decline in quality of products in a rush to market private label merchandise. Management changes so often that by the time the effect of lower quality catches up with the company, the executives/managers who did not pay attention to quality have moved somewhere else either within or outside of the company, so there is no one to hold accountable. Then, the company starts tightening up on quality and then management changes and again quality is sacrificed and the cycle goes on and on!
One thing we Americans can not do is stick with something for a long time, which our Asian competitors are able to do very well!
I’m going to disagree and say I have not seen a drop off in quality. In fact, it’s been improving.
So just who specifically are the retailers that are not employing the best practices? Locally where I live, Roundy’s is now featuring their CEO who touts the quality of their private label: http://www.meetchairmanbob.com/
I can’t tell you what some of the best practices are in insuring quality but I can sure bet some supermarket executives are having some concerns after reading this. The most successful supermarket operators take the quality of their private label very seriously–in some cases it is the key to their success.
Retail consolidation has left only a handful of national players in the mass and mid-tier arenas. Product differentiation has become a key strategy as these competitors try to establish their own brand identities. In addition, private brands become a margin play if these competitors don’t have to worry about each others’ prices on national labels.
But this is a double-edged sword even if you discount the “speed to market issue.” Secondary quality of private brands can undermine the store brand if there are chronic issues with sizing, fabric wearability and so on. There is still a role for national brands to play in terms of the halo effect on the rest of these stores’ assortments.
Sourcing for private-label fashion often has a different rhythm than food sourcing. My impression is that food sourcing is much better planned, with decision-makers respecting the suppliers’ timing requests. Private-label fashion decisions are often held up by executives who don’t delegate, so the bottlenecked decisions are often very late. Well-run factories plan their production schedule in advance. If retailers disrespect the production schedule, they’ll pay higher prices or get late shipments or suffer quality problems or all three. As it says on some restaurant menus: Good Food Takes Time To Prepare.
Having worked for two retailers with opposing Private Label strategies over the last five years, I can attest that their views are diametrically opposed. With one, there are plant visits which includes inspections but also a sharing of ideas for product improvement based upon on plant visits and information sharing of their market basket data as well as solving logistic issues.
The other has a yearly review and a bidding process to lower the cost of goods with little or no plant visits. They have upscale labels and rely on reduced prices to gain market share.
Also, I believe that the growth of private label is based less on quality and more on the economy, and the fact that other retailers are getting into the PL arena, i.e. Aldi’s and Dollar General.
Per our recent work within the Drug Channel, it is notable that the top three retailers feature upwards to 2,500 PL brands that now represent almost 20% of total front-end sales. Naturally, in order to further differentiate themselves from competition, each continues to drive PL sales through aggressive pricing/merchandising strategies.
The decision to purchase PL brands within this channel are reinforced as shoppers continue to have a more positive experience with the PL brands they buy. The categories most threatened by the growth of PL are those where the consumer benefits are perceived to be easily replicated and the emotional attachment to brands are relatively low. These represent low involvement categories where purchase decisions require limited cognition.
The best defense any National brand can mount in the face of a PL threat can be summed up in two words: collaboration and innovation.