[Image of: RetailWire Logo and Tagline (for print)]

BUSINESS TIPS

ChannelAdvisor:
Online Selling Strategies
Offerpop:
Social Marketing Campaigns
RR Donnelley:
In-Store Marketing
LoyaltyOne:
Enriching Customer Relationships
 
[10 comments]

PLBuyer: Nonfood Options Expanding in Grocery Private Label

October 5, 2012

Through a special arrangement, what follows is a summary from a current article from PLBuyer, presented here for discussion.

As grocers look to expand their categories and tiers in nonfood private label products, they will seek their customers' help to figure out which way to move forward.

In a recent webinar, Planet Retail senior retail analyst Isabel Cavill said that nonfood private label options has provided differentiation for hypermarkets — grocers who were expanding their stores beyond the realm of food items — but that there are rules for developing nonfood programs that can be different than private label food ranges.

"Not all tiering categories can be applied to all ranges," Ms. Cavill said, adding that some areas such as health and beauty would have difficulty selling value or economy tiers, while others such as apparel might not lend themselves to premium or superpremium tiers. "Retailers are testing new products to get new shoppers to their stores. But retailers increasingly will follow the consumer. You will see more consumer involvement in the development process."

One of the reasons for the move for many grocers, particularly in Europe, to move to hypermarkets is because of technology, she said. As items are more readily available through online platforms, accessible by in-store kiosks, big-box retailers find themselves with more space in store and less product to fill it with.

"Large format stores are being forced to find solutions for extra space," Ms. Cavill said in the presentation. "Private label has the opportunity to play a more central role in nonfood."

Rather than seeing big box stores looking to close and reopen in smaller formats, as is being tested in some urban U.S. areas by companies such as Target and Walmart, Ms. Cavill said stores might get more creative with the new space available.

"I think it's a little of both. Retailers do still have big stores, and they are a great opportunity to buy products and expand merchandising opportunities," Ms. Cavill said. "At the same time, if I'm buying groceries I'm not going to get to the kiosk for an impulse purchase. But certainly there's a lot of nonfood products that can be part of this."

Trace One SVP Nick Martin said that margin was the key driver in nonfood private label expansion, and that the business benefits of nonfood could not be ignored. He cited recent statistics showing the continuing growth of private label penetration in the market to say the balance had shifted to private label over national brands for the first time in history.

Discussion Questions:

How does the approach to food private label differ from nonfood private label? What different challenges as well as opportunities does nonfood private label present for grocers?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How would you quantify nonfood private label as a point of differentiation for grocers?

Comments:

Um ... let's see.

The answer for stores that are too big to operate profitably is to put more stuff in them ... Um ....

Private label is important ... Um ....

Stores should stock what consumers want and even, (shudder,) possibly ask them what that might be... Um ... how about building smaller, more focused stores?

[Image of: View Braintrust Panelist button]
Ryan Mathews, Founder, ceo, Black Monk Consulting

We have extra space...we should fill it with private label....

That conclusion does not follow. Differentiation of consumer experience is important for retailers. Offering more private label products is only one solution and not necessarily the solution consumers want to see. Differentiation for the sake of differentiation will not help. The differentiation has to be something consumers perceive as valuable.

[Image of: View Braintrust Panelist button]
Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

As private label grows, margins obviously become more important than slotting fees, promotional allowances and other supply chain funding. This, in turn, forces the retailer to look to the customer, when their traditional focus has been on the supply chain.

It seems to make perfect sense to move private label in to bigger ticket, maybe even higher end merchandise. EXCEPT, I doubt any great success across the industry in this way. Just because you have the real estate and know how to manage the supply chain doesn't mean you know diddly squat about shoppers.

Having excess retail space will not transform a retailer into a brand company. Admittedly, not all brands are on par with a brand like Apple, but still the principle holds, "retailers do not think like brands." They are a very long way from the "think different" of Steve Jobs renown.

[Image of: View Braintrust Panelist button]
Herb Sorensen, Ph.D., Scientific Advisor TNS Global Retail & Shopper, Adjunct Senior Fellow, Ehrenberg-Bass Institute

Many nonfood categories and items have been lost to mass and big box stores. And no amount of wishful thinking or tons of private label items is going to reverse that loss.

[Image of: View Braintrust Panelist button]
Brian Numainville, Principal, The Retail Feedback Group

There seems to be a mixing of two completely separate questions here. One is whether nonfood Private Label makes sense for grocers in at least some categories. Of course it does. Just look at the success of Private Label in OTC drugs as an example. (Hint to retailers -- pick similar categories that have very tangible points of comparison. The reason OTC Private Label works so well is that every consumer now understands that 1% Chlotrimazole in an antifungal is 1% Chlotrimazole and regulated by FDA to be so.)

The second question is what to do with too much space in stores. Perhaps looking to stores that have intentionally built "too much" space would help. Stores like Costco fill that "extra" space with food courts, custom apparel or off the rack "store within a store" arrangements, mobile carrier kiosks like Verizon, and other "treasure hunt" items that add variety to the shopping experience. That makes a heck of a lot more sense than adding Private Label duplication to what you already have on the floor.

[Image of: View Braintrust Panelist button]
Ben Ball, Senior Vice President, Dechert-Hampe

Private label runs a similar gauntlet for both food and non-food items. They have to travel through the attention and awareness phase, and activate a purchase in the trial phase.

Food products often are a more frequently purchased item, at a lower ticket price than many non-food items. Still, the private label track record encourages consumers to step to the trial phase.

The consumer is sharp enough to recognize that they can and do receive a price advantage. They can then make the decision as to whether they are receiving the value advantage for the clothing, paper products, tools, etc. Costco is making it work with numerous Kirkland products, Nordstrom is selling a good number of textile items under PB, Caslon, Zella, etc. Kroger has 20+ manufacturing plants -- and they don't all manufacture food items.

Grocers can take lessons on private label from both inside and outside the grocery category.

[Image of: View Braintrust Panelist button]
Roger Saunders, Managing Director, Prosper Business Development

It's common to see a private label item with messaging on the shelf or label telling shoppers to compare it with a given national brand. If retailers want their private label to soar, maybe they should drop the name brand and offer a message on the shelf or label to let shoppers know their store brand item has replaced it. A nearly 100 percent store brand strategy certainly hasn't hurt either Trader Joe's or Aldi.

'retailveteran'

Non-food Private Label is different as product performance is viewed, not tasted. The concept of good, better and best product grades do not make sense for all categories. Best or super-premium grade aluminum foil is unlikely to carry much weight with consumers. Good grade first aid products are also unlikely to be a big seller. The retailer must understand the category and select the right quality.

[Image of: View Braintrust Panelist button]
W. Frank Dell II, CMC, President, Dellmart & Company

There are two realities that grocers need to deal with:

1) The stores already exist. To the points of others on this list, it doesn't matter if they "should have" smaller format stores. There is a high bar on changing real estate. There is a low bar on testing other stuff to sell in the real estate.

2) From a consumer standpoint, the division between food stores and nonfood stores is smaller than ever. Obviously Walmart, Costco, and the like have blurred it in large format. But the dollar stores, drug stores, and off-price retailers like Winco and Grocery Outlet have blurred it with smaller formats too.

So I say: go ahead and test pushing nonfood private label. You need to do something. This thing works with the trends while your traditional business cuts against the trends. Why not aggressively test?

[Image of: View Braintrust Panelist button]
Jonathan Marek, Senior Vice President, Applied Predictive Technologies

Nonfood is a different approach. Clearly, consumer trust is very important in many personal care categories. Testing with shoppers is key to find the right positioning for right value proposition.

[Image of: View Braintrust Panelist button]
Anne Bieler, Sr. Associate, Packaging and Technology Integrated Solutions

Search RetailWire
Follow Us...
[Image of:  Twitter Icon] [Image of:  Facebook Icon] [Image of:  LinkedIn Icon] [Image of:  RSS Icon]

RetailWire's
Getting Started video!

View this quick tutorial and learn all the essentials...

RetailWire Newsletters