Are store brands a ‘fundamental defining piece’ of the retail experience?

Discussion
Photo: Boxed
Oct 12, 2017
Glenn Taylor

Through a special arrangement, presented here for discussion is a summary of a current article from the Retail TouchPointswebsite.

Boxed, the online wholesaler and retailer of groceries, household products and health supplies, believes that private brands, when done well, are not just an add-on or “me too” value option anymore or just a way to drive margin expansion. According to Jeff Gamsey, VP of private label at Boxed, private brands can become a “fundamental defining piece” of the entire retail experience.

“They serve a lot of purposes,” said Mr. Gamsey in an interview with Retail TouchPoints. “They can create leverage, to be used to hold brands accountable to fill merchandise assortment gaps. They can even spark innovation that challenges existing industry standards, deliver higher-quality products and healthier, cleaner ingredient decks.”

An established brand like Costco’s Kirkland Signature can provide leverage over vendors “and helps keep them honest.” 

For customers, a strong private brand creates value and “becomes a reason why they shop at your stores instead of somewhere else.” 

In developing its Prince & Spring brand, Boxed sought to create an “emotional connection” with customers with products they would “be proud to display in their homes.” The effort was as much about package design as product quality. 

“We really stepped on the gas pedal to infuse it with as much personality as we could,” said Mr. Gamsey. “A lot of the products Boxed sells are everyday essentials, but we try to use design to elevate them and make them more engaging.”

Boxed’s embrace of private label as a primary brand comes as some of the country’s biggest retailers, including Amazon and Target as well as Walmart and its sister site, Jet.com, are aggressively upping their private label games. 

Mr. Gamsey expects private brands will continue to grow with the migration of commerce from brick-and-mortar to online and with Millennials showing they’re highly open to trying new brands. He adds, “Obviously, Millennials like to shop on their computer and phone, and mobile-centric companies with a great private offering will continue to reap the benefits.”

DISCUSSION QUESTIONS: How “fundamental” are private brands to defining retailers today? Should retailers aggressively seek to elevate the reputation of their private brands? How will the shifts to online shopping and greater spending power by Millennials influence private label development and growth?

Braintrust
"Having value-priced, high-quality products that are exclusive to your store will help retailers keep the Millennial shopper’s interest."
"We are living through the death of the great CPG brands due to Millennials buying generics."
"Aggressive promotion? No. Private label brands should be elevated by quality, not promotion."

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16 Comments on "Are store brands a ‘fundamental defining piece’ of the retail experience?"

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Anne Howe
BrainTrust

Many retailers have private brands that exist but that don’t offer a real point of differentiation.

One of the best examples of a private brand with a category-wide claim is the Earth Fare brand, which re-launched about six months ago with a non-GMO claim backed by a commitment from the chain’s CEO. Every product from the private brand meets a standard that many shoppers want to live by. That assurance makes it easy to understand what you’re NOT getting in the product, which ultimately drive the why behind the buy. Retailers should indeed pay attention and take advantage of distinct opportunities like this.

Dr. Stephen Needel
BrainTrust

I’m not sure “fundamental” is the right term — but they can certainly contribute to the perceptions of a retailer’s offering. We go to Costco rather than Sam’s or BJ’s because of the Kirkland brand. Should you elevate your PL brand? Yes, if that fits with your mission and the financials associated with it. Publix works hard — and usually succeeds — at delivering a quality product. Not all chains do this. And while yes, younger people may be more willing to try new products, as a gross generalization, having to buy large sizes of an unknown product on Boxed.com may not be as cool as they want it to be.

Mark Ryski
BrainTrust

This a powerful strategy for the retailers who have the capabilities to execute it well. Retailers should aggressively pursue private brands for all the reasons cited by Mr. Gamsey and to help differentiate. A well-executed and truly meaningful private brand strategy can provide a significant competitive advantage for any retailer.

Bob Phibbs
BrainTrust

We are living through the death of the great CPG brands due to Millennials buying generics. Creating your own label is fine but let’s not assume what Johnson & Johnson took decades to build can be replicated easily — it’s still about “being cheaper than the other guy” not how it looks on your dresser.

Meaghan Brophy
BrainTrust

If done well, private brands can really transform a shopping experience and be the deciding factor for shoppers choosing between one retailer and another. Trader Joe’s is an excellent example of private label done well. Shoppers trust their brand and they are known for having innovative products. Costco’s Kirkland brand is another differentiator. I personally have a Costco membership over BJ’s because of the Kirkland brand. As shoppers have more and more options to choose from, having value-priced, high-quality products that are exclusive to your store will help retailers keep the Millennial shopper’s interest.

Max Goldberg
BrainTrust

Private label should be part of defining most retailers — and this could be good news for many retailers. But building a successful private label program requires more than just copying national brands. It takes a skillful marketing program and lots of creativity to make a brand successful. That effort may not be worth the cost to some retailers, but those who deploy it successfully will see higher sales and better margins.

Ron Margulis
BrainTrust

With all the positives store brands deliver to retailers, there are also several potential negatives. First and foremost of these is the impact on the retailer’s overall brand reputation if (when, really) there is a product recall or related safety issue. With store brands, the hit in these cases is totally on the retailer — there is no national brand to push it off on. There is also an innovation challenge. Ask yourself, how many store brands are anything other than imitations of national brands? Private label marketers may not see this as their role in retail merchandising, but it has been widely reported that Millennials want new experiences and copies aren’t new.

Other potential issues facing private label include merchandising (impact on trade dollars from national brands) and demand forecasting (the worst thing to happen to a store brand is to be out-of-stock).

Richard J. George, Ph.D.
BrainTrust

Own-label products are the key to positive differentiation today. Retailers, whether online or brick-and-mortar, need to think like a brand and act like a retailer. Not too long ago retailers viewed private or own-label as an opportunity to make margin by footballing the national brands. Fortunately, that perspective has changed. Recent data shared by Acosta shows that over half (53 percent) of shoppers will choose which store to shop for specific products based on how much they like their store brand. This number is up from 34 percent five years ago.

Regarding Millennials, private label represents a real potential sweet spot. This segment of the market doesn’t necessarily buy the brands of their parents, particularly when it comes to consumer packaged goods.

Adrian Weidmann
BrainTrust

Private labels were originally introduced to maximize margins by effectively eliminating the third-party brand vendor. Private label brands are an effective means of offering products and services that provide the retailer more profits. The promotion of these products can be challenging for the retailer because these products compete directly with brand vendors. The retailer extracts a collection of various funds from the vendors before the product is ever placed on the shelf and sold. These co-op, MDF, markdown dollars, return inventory, shelf placement tolls are meant to be used for the promotion of the vendor’s products but are often allocated to a communal marketing budget. These dollars are now being used to promote the retailer’s private label further adding to the adversarial tension between retailers and their vendor partners. Aggressively promoting your private labels may put you at (further) odds with your funding vendors.

Peter Luff
Guest

There has never been a better time to develop private brands. Not only are the Millennials open to new brands, the manufacturers are aware of this and creating their own new brands breaking the historic link to the old brands and adding credence to new brands being tried. The market is therefore in flux, so strike now with your own private brand to gain your slice of the pie!

Manish Chowdhary
BrainTrust
This is a giant “it depends” question. Is it fundamental for all retailers? No. First, a retailer must already excel at its core mission — typically to deliver a superior value-to-price proposition, with value including the shopping experience and, ideally, an emotional connection to the brand. Without that as a starting point, there’s little point in developing private label brands. REI is a good example of a retail brand whose core customers feel a deep connection to the brand. Should REI launch private label mountain climbing gear? Not clear. The products would have to be superior to, and safer than, current offerings. Does it make sense to offer private label apparel, tents and the like? It sure does. Brand affinity, lower price, low risk. Yes. Is it fundamental to their business? No. Costco is a good example where private label brands are fundamental to the core offering. Kirkland, in my opinion, changed the private label game by delivering products that are as good, or better than, name brands. It fits on every dimension. Cost-conscious shoppers have an even less expensive option. And as stated in the article, Kirkland keeps name brands honest. That said, for most retailers, private label is… Read more »
J. Peter Deeb
BrainTrust

Just look at the most successful retailers in the grocery business to see the fundamental role that store brands play. Costco, Kroger, Wegmans, Trader Joe’s, Publix, etc. All have very well developed programs. Look at any market and you see the share leaders with a very strong program. The next true test of store brands will be the penetration levels that they achieve in both online and store pickup shoppers. I am sure Peapod and other pickup and delivery systems have those numbers and as more Millennials use those options store brand penetration will increase.

Neil Saunders
BrainTrust

Private brands used to be the “cheaper” option for consumers unwilling or unable to pay full price for national brands. This can still be the case, but today private brands play a much more complex and holistic role in retail.

In one sense private brands allow retailers to differentiate by providing something that is not available elsewhere and cannot be easily subjected to price comparison. This has become increasingly important.

Good private brands can also be innovators in quality, design, taste or function; and this is an area where retailers like Target are getting better.

Bottom line is that private brands give retailers more control.

Jeff Sward
Guest

There aren’t many “moats” available to retailers these days. “Exclusivity” — or “you can only buy it here” — can certainly be a powerful tool. Private or proprietary brands provide that opportunity…IF well done. Mediocre or poorly executed programs will have exactly the opposite effect.

Cynthia Holcomb
BrainTrust

Are we talking “Private Label Programs” masquerading as Private Brands? Or authentic “Private Brands”? The distinction is significant, requiring product knowledge experts, experienced in the subtleties and nuances of combining multitudes of specific product attributes to yield a product worthy of a Private Brand. It requires a vision, hard work and financial commitment to build a Private Brand. Millennials, like anyone else, can sniff out a fraud.

Min-Jee Hwang
BrainTrust

Private labels can cut out the noise of the middleman and boost profit margins, but as many here have pointed out, having an appealing point of differentiation is key to success. If a private label brand is cheaper than the well established brand name, then that will attract some shoppers. However, if they offer better ingredients or higher quality, these factors can sway more shoppers. Private labels certainly have their work cut out for them in earning market share, but the potential reward outweighs the risks. Especially when it comes to online retail, millennial shoppers who can’t hold the product in their hands need to know: can I trust it? Will it meet my quality standards? Does it fit with my values? Private label brands that are able to address these questions will win sales.

wpDiscuz
Braintrust
"Having value-priced, high-quality products that are exclusive to your store will help retailers keep the Millennial shopper’s interest."
"We are living through the death of the great CPG brands due to Millennials buying generics."
"Aggressive promotion? No. Private label brands should be elevated by quality, not promotion."

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