FD Buyer: When is ‘The Right Time’ to Expand or Pull Back Private Label in a Category?
Bob Anderson, retired VP/GMM of private label at Walmart, is president of Store Brand Consulting, Rogers, AK.
Through a special arrangement, presented here for discussion is a summary of a current article from Frozen & Dairy Buyer magazine.
One of the toughest things to know is when you need to expand your store brand within a category. It’s just as tough — perhaps even tougher — to know when to pull back.
As a buyer, you need to be a calculated risk-taker and agent for your customer. Don’t buy just what you like or what is selling. You always need to be looking for new items and trends (not fads) in the market and in your life.
I keep a close eye on health trends and issues such as obesity, diabetes, blood pressure and gluten-free. At the same time, ask yourself how can you improve the sales and profits of your stores.
The answers? Well, don’t just wait for the CPG folks to come out with an item. Be proactive. Bounce your thoughts and concerns off your suppliers. If you’re discussing "better-for-you" products, go one step further and ask a medical professional for their thoughts, as well.
I know being first into a category has not been the role of store brands, but I would challenge you to change that. We did just that with the Great Value brand and were first to market with fat-free coffee creamer, lactose-free powder milk and several others, including gluten-free. In established categories such as yogurt, look at the sizes, flavors and styles that are doing well and see if there is room for growth.
Some of my best ideas came from traveling and seeing new items and flavors in other countries or even in other ethnic neighborhoods around me. Look at what’s new on restaurant menus or even look back at things you liked to eat as a kid. As with any change, you need to have a plan for both entry and exit.
Now let’s consider items and categories that need to be cut back.
First, by the time a CPG company has told you an item is being discontinued, it has already been dead in your stores for a long time. A trick I liked to do was stop by the local closeout chains once a month and look at their inventories. You may be surprised at some of the items there.
Next, make sure you are competitively priced. If so, get with the supplier and see if this is something they’re seeing as well, or just an issue with your item/category.
Beware of CPG companies that continue to add new items without delisting any. A perfect example of this was baked chips. When they were added, we were told that they were the new trend, but in fact they only cannibalized traditional chips. Remember the axiom: When you add a new item, something else has to go.
Discussion Questions
Discussion Questions: What should guide decisions on whether to expand or pull back private label in a category? What other telltale signs besides those offered in the article serve as an indicator to expand or contract PL in a category?
When there is PL product overlap, then it is time to evaluate what should stay and what should go.
Great A&P recently has been introducing organic frozen pizza items to its offerings through the Food Emporium Trading Co. label. But it already has a very good take and bake pizza line by Via Roma. Should both take valuable store space or should one be discontinued?
Guidelines for PL pull backs should be based on what turnover rate you need to keep a category growing in sales and profitability. As for expansion, go with the prevailing and emerging trends: health, ethnic foods and other contemporary trends.
I’ve observed that Target introduces a lot of trendy new food items. They have put velocity goals against them since many disappear quickly if they don’t click. That indicates that there are always risks in making progress.
Firstly, there is no category that doesn’t need a private label representation. The margin on PL is just too darn juicy to give up any category in the store. Secondly, it really does require constant tracking and management to see what sells and doesn’t on an individual SKU basis. If you are chucking expired food products, then you obviously have an issue with that particular category. If a particular product just sits there, that space can be used to sell something that will move. Organic plan-o-grams are necessary to optimize the flow of product out the store. You should also consider brand dominance and pricing. PL can’t compete with Crest or Colgate but would do very well against Heinz and Kraft. Localization is also a factor to consider. If people don’t eat pork in your neighborhood, stocking up on private label bacon is a waste of time and space.
The mathematical process is straight forward, but the emotional decision is not. Any item declining in sales after being adjusted for seasonality is a candidate for replacement. Any item not increasing in sales equal to or greater than the category’s overall increase is a candidate. Any item that does not achieve its target market share after a reasonable time period is a candidate unless the target was too optimistic.
Parting with an item you spent hours and days creating is just too difficult for some people. New items should be just that — new. They may take sales from branded, but not private label to truly new.
When it comes to private label, Trader Joe’s has arguably done one of the best jobs with SKU assortment. Taking a page from their manual, they listen to their shoppers to determine what’s working and what’s not. We all know shoppers are 4x more likely to shop a retailer to which they feel emotionally connected. Therefore, letting shoppers lead a little bit of the choice editing isn’t such a bad thing.
Not all products and categories are “right” for private label. My experience in private label dictates that private label performs best when there is one dominant national brand for the consumer to compare. In a category where leadership is spread too thin, private label is also spread too thin, and often fails.
Customer choice and preference is the key driver: provide them what they need and want! This is obviously easier said than done.
For businesses with customer level data e.g. loyalty cards, this is possible (though not necessarily easy — for both insight and organizational reasons). For retailers without customer level data, obtaining accurate views of customer choices is very very hard:
Sales views of the data will not provide the customer dimensions that identify who is buying what and why.
Shopper Research will not be granular enough and the claimed behavior it may gather is nearly always very different from actual behavior.
Customer data can also help identify critical phases of product and need-state life-cycles better than just the sales data which allows businesses with it to make better “pull-back” decisions, and remove some of the emotion from the process too. On the innovation side, customer data also provides big benefits through high resolution answers to identifying white spaces, emerging trends, price points, packaging options, distribution etc.
The data does not replace walking stores, talking to customers/staff and looking at other market trends, but it does provides the “science” that compliments the “art” of retail. When you get it right it makes the process far more efficient and far more effective, driving a great result for the customer and the retailer.
We recently completed some research that shows that not all Private Label is good for a retailer. There are categories where developing a Private Label will benefit a retailer in terms of growing the category and even the retailers share of the broader market. However, there are other categories where Private Label development actually works against the retailer due to the category dynamics and brand equity.
The other learning was that more Private Label will only develop more of a value oriented shopper to your store and in turn, develop a shopper base that will switch retailers more often.
When you look at the penetration of market share PL has overseas, the US pales by comparison. Here in the US, Trader Joe’s is one of the best examples of capitalizing on PL and driving a true customer loyalty culture into the market.
As far as discontinuing product, take the emotion out of the decision process and simply have a clip level of movement by store that is in line with the clip level for branded products. For a typical format store, if you’re not moving a case per week per store (with the exception of unique, no-substitute items), then the item should be targeted for elimination. PL or branded.
I really don’t think this is a tough call at all. PL by definition duplicates national brands. All one has to do is monitor national brand trends. If a national brand item is showing significant growth then it is time to strongly consider a PL competitor. This isn’t rocket science folks. The majority of people in retail don’t have a college education. The vast majority of those shopping don’t have a college degree. You aren’t having to satisfy Einstein. It just isn’t that hard. And PL buyer, there are dozens of PL manufacturers who try to supply you with very good information on a daily basis – listen to them!