Private Label Buyer: New Value Brands - Are They a Diversion?

Deciding upon one, two, or three tiers should not be made in the abstract. It is still about the category and consumer wants and needs. Consider the difference in the number of SKUs in hair care products vs. condiments (never confuse them please).

With two brands positioned as more or less quality and associated pricing, it is easy for shoppers to differentiate. As the number of tiers increases the distinctions will easily get muddied. So the question is what will make a relevant difference to consumers? And the next question is how best to convey that difference? It won't matter if retailers offer the array of brands and products that consumers prefer if the positioning (not to mention the products themselves) are overlooked.

This is a precision business. I am always surprised to read about those marketers who want to achieve success by painting with broad strokes.

Joan Treistman, President, The Treistman Group LLC

The lessons from Europe should first be considered in the North American context. In the US, retailers are not consolidated to the extent they are in Europe, offering shoppers a much broader choice of locations and selections, particularly in centers store departments. So it does not necessarily translate that US shoppers are "bored" with PL offerings here. The challenge here is developing recognizable differentiation with PL to develop shopper loyalty.

In many larger stores, "findability" is still an issue, and many organizations are working to simplify. Before introducing more PL, careful analyses of offerings to identify "white spaces" in category or department should guide the decision.

Anne Bieler, Sr. Associate, Packaging and Technology Integrated Solutions

Over the last 6 months I have been working very closely with Private label initiatives at retail. Some are using the three tier approach to attract customers on price/value others are focused on expanding Private Label (PL) reach into more categories and keeping a two tier model. With either approach a key component that all of the retailers are working on is how to best promote their PL to shoppers.

If you can create brand loyalty with your PL, that consumer only has one choice on where to buy that brand. Trader Joe's is a master at building this brand loyalty around their PL. If you want Trader Joe's organic bread, you only have one option on where to purchase it.

In a recent IRI report called Times & Trends July 2009 IRI they shared a graph that ranked the important factors in product selection for consumers. 92% believed overall quality was the main factor and close behind at 87% was price of item. Both of these data points create opportunity for PL. The real key is developing programs at retail that build PL trial so it is a brand the consumer can start to trust (this was the third factor in the IRI Product selection ranking at 83%). This information leads me to believe a two tier approach with strong merchandising programs supporting the PL to build trial is the best approach. I am seeing retailers use weekly circulars, in-store support and even programs that tie together PL brands with National Brands to help promote and build trial.

I would suggest retailers focus on the quality of their PL brands and the expansion of PL across more categories before cannibalizing their PL initiatives with three tiers of pricing/quality. I would also suggest they find ways to quickly create trial for their PL brands so they can build loyal users and a beachhead against their competition. As stated before, if a customer loves Meijer potato chips, they can only purchase them at Meijer.

John Boccuzzi, Jr., SVP National Retail Sales, Affinion Group

I remember in the 1970s when Jewel Foods in Chicago had three quality tiers of PL, none of which had the "Jewel" name. (They were "Cherry Valley," "Bluebrook" and "Mary Dunbar," the highest level. Interesting, huh?) Today, grocers have the opportunity to license their PL to other companies ("President's Choice," Safeway's "O," etc.), so the shopper eventually may NOT have to go to Trader Joe's to get TJ's PL products.

We should look to the best practices in other segments of retail, like apparel, for instance. PL is treated very differently in specialty stores.

Ralph Jacobson, Global Consumer Products Industry Marketing Executive, IBM

In today's hyper-competitive climate, supermarket retailers must do whatever is required to selectively grow Private Brands and Retailer Brands. Recent Willard Bishop analysis shows Private Brands have a higher margin any way you figure it. And CPGs are focusing on top tier retailers today. From one perspective, Wal-Mart's activities in this area has settled the issue. Top tier CPGs will continue to grow--their profits per dollar of sales are generally over five times as high as the better supermarket chains.

Sandy Miller, President, Miller Zell

Allow me to expand on Ralph Jacobson's comments about Jewel's PL program in the '70s, hoping to shine a light on today's overall PL development. Jewel encountered a problem during that recessionary period, which was the runaway success of their (supposed) lower-quality PL brands. I write "supposed" to describe the quality because Jewel's suppliers literally ran out of lower-grade ingredients and began substituting higher grades all the way up to "fancy" in the lower-quality labels. Jewel eventually had to pay more for these products.

Today the quality of PL brands still depends on the quality of their ingredients. And of course, lower-quality ingredients cost less--helping, along with the absence of promotional costs, to enable lower retail prices. What happens if the lower-quality PL brands are so successful that they again dry up the supply of less-expensive ingredients? It will be 70s Jewel all over again.

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

As pointed out by Joan Treistman in the comment above, customers need to be in focus while designing a private label strategy. As more and more customers are willing to buy less expensive grocery brands and turn towards private labels to deal with the recession, retailers need to deliver value through these brands to keep customers coming back to the store.

While deciding on a private label strategy, retailers need to analyze each category and understand the need in each category for tiers of private label. It does not make sense to introduce more private label tiers in categories which are already flooded with duplicate and "me too" products.

Also, not all stores are ready for all tiers of private label products, in all categories. A retailer, after the success of its value ready meals, introduced a premium private label in stores with affluent customers and totally failed, since the retailer missed out on the trend (at that time)--affluent people preferred fresh food to ready meals.

Retailers need to understand their customers first and attempt to simplify their buying decisions by offering value for their money, be it through private label, pushing vendors for more discounts, introducing cheaper lines, or any other means.

Shilpa Rao, Retail Consultant, Tata Consultancy Services