PL Buyer: A Growing Threat

Private label products have dominated market share in other countries, especially in Western Europe, led by Germany and The UK by dollar volume. I have seen reports of P/L accounting for 20% of global retail sales. It is only a matter of time until the US will see more significant penetration. Sure, the current economic crisis is helping drive up the private label brand share, however, shoppers will always appreciate a good value. Just look at Safeway's "O" brand of Organics.

National brand manufacturers are dipping into this area, but only on a limited basis in the US. Corporate pride needs to be set aside, and new business models can be driven with a focus on licensing P/L to the right retailers for the right categories.

Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM

Private label will continue to be a major priority for grocers, and with good reason--when you compare the retailers' margins in the U.S. to those in Europe (where private label is much more dominant), you can see why. Kroger, which has been on fire in recent years, is clearly onto this, since it recently announced that private label accounted for 27% of grocery revenue and 35% of grocery unit sales in 2008.

After much hard work by retailers across the board, private label is starting to shed the "white label" stigma (Safeway's new Eating Right, Topco's Full Circle, and Stop & Shop's Simply Enjoy come to mind). No matter how you slice it, this is worrying for the brands. The question is, are we witnessing the beginning of a lasting shift of profits away from brands and towards retailers, or will competition among the retailers force prices down across the board?

Ben Sprecher, Founder and VP, Marketing, Incentive Targeting, Inc.

New private label consumers will emerge in economic times like the present. A few additional points I learned from past economic downsides where private label is concerned:

1. Only certain percentage will continue to buy PL once the economy improves. Price alone will not play for keeps.

2. Packaging, design, the right graphics, etc. are all "huge" determinants that play for keeps.

3. It's important not to understate or overstate the perception of the product.

4. Since private label is such a broad business where you have ranges in quality from excellent to poor, it's important that retail brands be treated as real brands by the retailer, the manufacturer, and the marketer.

5. Premium private label actually thrives in these types of times. Premium can play for keeps more easily than commodity private label.

A lot more has been learned. I'd be happy to share with you additional thoughts if you want to get in touch.

David Biernbaum, Senior Marketing and Business Development Consultant, David Biernbaum Associates

The sky is virtually the limit for private label SKUs in supermarkets. Living in the Northeast, I was surprised by the lower concentration of PL, especially with chains such as Great A&P rolling out hundreds of new SKUs in the past month, with hundreds more to come throughout the remainder of 2009.

Private Label just makes sense in this economic climate. The quality and selection are definitely there, and so is the price. I find no difference in PL quality, and in some products, the PL is superior to the national brand. Buying private label products is definitely the "in thing" to do.

'weo'

Planning for customer retention in Store Brands sales should be a major priority for grocery, drug and mass retailers. The current economic situation, history tells us, will not last forever and savvy retailers should have a strategy to retain the customers they have converted and execute for more trial by consumers now. The profit possibilities are great for those who do a good job of this.

On the National Brand side this is a real threat as more and more retailers look at carrying fewer National and Regional brands as Store Brands gain share. Many categories at big retailers are already moving in this direction. Quality, service and consumer awareness have never been more important to the Brands!

J. Peter Deeb, Partner, Deeb MacDonald & Associates, L.L.C.

As a consumer, I've found, especially in FMCG, that grocery chains are making a profoundly new and different move into the PL space. They're bringing quality to the forefront...where as in earlier iterations, there was a distinct feeling of having to trade down when you bought anything PL. As a person who is loyal to Jewel as my grocery chain (full disclosure: I'm neither employed by Jewel, nor Albertsons, I just happen to be intensely loyal to the Skokie, IL Jewel), I've been able to replace buying relatively more expensive national brands with their PL "Wild Harvest" line. There's no noticeable difference in quality, and they've aggressively "value priced" the brand so it's competitive with national retail brands regular offerings (so you feel as if you're able to "trade up" to a quality organic alternative for the same price as you'd pay for a national brand's regular offering.

Matthew Tarpy, Manager, Acquity Group

I believe that, rather than staying stodgy and safe, private label will undergo more frequent and significant refreshing and upgrading. National brands have become less risk-averse in their marketing including logo and packaging changes (Pepsi is a great example here), and private labels must upgrade in order to sit alongside them. Retailer-to-retailer market share grabs will also drive more frequent and significant private label upgrades (I still believe that Target's renewed focus on food helped drive Walmart's upcoming overhaul of its Great Value brand).

In terms of categories, consumer electronics is ripe for private-label expansion. Best Buy's intention to expand its private label offerings while simultaneously making its store more experiential and differentiated speaks to the opportunity and portends of the bar being raised.

Finally, I see the world of apparel undergoing major brand shifts as self-branded missy stores, such as Talbots and Chico's struggle and as celebrity branding hits its peak. Iconix and other brand brokers/pure marketing players will have plenty of brands from which to selectively feed and major retailers will continue to make direct deals. The line between "proprietary" and "private" will blur further and national and designer brands will have to more clearly articulate their value proposition in order to play.

Carol Spieckerman, President, newmarketbuilders

The only thing about the growth of PL, or more specifically, the commentary around the growth of PL, that continues to puzzle me is the way everyone keeps saying it is "right for the current economic environment." Isn't a high quality, lower priced alternative right for EVERY economy?

Sure, some people who wouldn't have given PL a look are doing so because we are all cost conscious in the recession. But the main thing hard times do is make people demand satisfaction from every hard-earned dollar spent. If retailers had not been in the process of stepping up on both product quality AND branding with PL over the past few years, these newcomers to PL would have rejected their experience out of hand and simply paid more or bought less of their favorite national brand outright. They are not 'sacrificing' to use PL products--they are finding that PL products meet their needs at a lower cost.

In this regard I do think we will see a departure from previous economically driven upticks in PL penetration and share--people will not go back to national brands when times get better because they will have no reason to.

Let's give retailers their due. The recession may have created a 'perfect storm' for PL--but only in concert with their own efforts to lift their private brand game.

Ben Ball, Senior Vice President, Dechert-Hampe

In many ways, PL simply further represents the fragmentation of national mass media and the migration of brand and other marketing into the store. Obviously, retailers can be potent competitors for brands. But other retailers are also potent competitors for retailers, so the business relationship issue gets very complicated, very fast.

But what is driving a good deal of the development today began 100 years ago when retailers moved to self-service, which is another way of saying "self-selling," and retailers got out of the "selling" business, and became mercantile warehousemen and order takers. The selling, what might be called "personal selling" moved to the mass media, with P&G and soap operas in the van.

Now that the media world has been shocked and revolutionized to its foundations, retailing is being impacted. The old white label generics are almost totally irrelevant to this discussion, coming from a mindless "no-brand" (if I might say, "communistic,") mindset.

Branding has been around for thousands of years. Personal selling has been around for thousands of years. Retailing is at the cutting edge of social evolution, always has been and always will be. All of the fundamentals have been and will continue to be at play. PEOPLE who know the fundamentals and play them will prosper. People with a narrow and limited view may find the game moving beyond them. Better learn quick, or cash in your chips now, and watch from the sidelines.

Herb Sorensen, Ph.D., Scientific Advisor TNS Global Retail & Shopper, Adjunct Senior Fellow, Ehrenberg-Bass Institute

Private Label growth has been going on for years. It has been fueled by improved quality, modern-day labeling and retailers taking control. When retailers see what Trader Joe's has accomplished they realized there were not the old limitation for Private Label.

Additionally, Private Label has been proven to be a great method for competing with Wal-Mart. The current economic recession has advanced Private Label growth by a few years. If this economy rebounds quickly, there may be drop off in Private Label sales, or more likely the growth rate will slow for a few years. If the economy takes years to recover, Private Label will continue to grow, assuming retailers work hard to advance their offering.

W. Frank Dell II, CMC, President, Dellmart & Company

Private label expansion will be a threat for national brands for years to come given consumer cultural shift to a "good enough" mentality, augmented further by the discovery that many private brands are really more premium or at least on par with nationals. Even 7-Eleven recently launched a line of high velocity sweet and salty snacks, doing well since a March intro!

Anne Howe, Founder, Anne Howe Associates

With economic downturns in the past, PL has spiked up. In some categories it has held but, in most, the shoppers have returned to branded products. Again, with the current economic situation the retailers are seeing another PL opportunity. In the past PL was all about price and margin. While they boasted par quality, the reality was different.

The success or failure of this current window is entirely up to the retailers and it doesn't revolve around cutting SKUs of branded products.

The first thing retailers should do is wipe out "private label" references and turn them into "private brands". Their private brands should reflect the quality the retailer wants to communicate in the same way they communicate with the logo on the front of the store. The retailers should see themselves in quality competition with the brands and not price competition. Price will take care of itself. Focus on the quality shopper, not the price shopper. Develop and market the products as if they were brands.

It is no coincidence that Publix, HEB and Wegmans were noted as doing especially well. These retailers are all about quality.

The test is very simple. Encourage the shopper to buy the private branded product and if the shopper doesn't feel it is equal to or better than the branded product, give the shopper the branded product for free. Doesn't that kind of sounds like a typical branded product promotion? That's the point. If the retailer is not willing to do that, the product probably isn’t good enough.

Gene Detroyer, Entrepreneur, Advisor, Consultant, Professor, Independent

There is a certain bogusity to this report, something like bovine scat. Are consumers clamoring for store brands, or are stores (literally) shoving them down their throats? More Choice is becoming No Choice. The report's picking around the edges regarding "cream cheese/spread and refrigerated entries" data doesn't tell the whole story. It just means that retailers haven’t gotten that far yet in the A&P-ing of their stores circa 1950. As we all know, retailing is cyclical. So let's not pander. Retailers are systematically shoving national brands off their shelves in favor of their own brands regardless of any consumer input.

The PL tipping point is when manufacturer promotional funds are offset by the extra profit from PL. That hasn't happened yet store-wide. But in some categories it has, and that’s when supermarkets are pursuing their business imperative of profitability. Who can blame them? It's a short-term tactic (not a strategy) that closely fits their business model.

Here's the battlefield: The supermarkets control the shelves, and CPG brands control the advertising media. PL took a backseat in the 50s when brands began TV advertising. Today, with the proliferation of TV channels and the serious decline of print media, shelf-control (not to be confused with self-control) rules. Again, it’s a cycle.

This understanding is an important filter to the ponderous statements about "private label expansion," store brand dominance," and "sky is the limit." A balance will be achieved, just as it always has, and Aldi and Dollar Stores will be glutted with close-dated, store brand, overstocks. The tide will turn, and turn again.

M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

If private label was really taking market share, wouldn't companies like Kellogg, Hershey, Heinz, Kraft, Colgate-Palmolive, Procter & Gamble, Campbell, Nestle, Danone, Bayer, Altria, and Johnson & Johnson all be in trouble? Yet none of these folks seem to be suffering a humiliating defeat at the hands of allegedly fast growing private label. Yeah, the economy's down. But I don't see these folks going broke. They're doing just fine.

Mark Lilien, Consultant, Retail Technology Group