GHQ Cover Story 11/05: A Bigger Picture

Discussion
Nov 02, 2005
George Anderson

By George Anderson


Retailers are increasingly turning to private label goods to differentiate themselves in the
market. The success of retailers, including Loblaw’s, Trader Joe’s, Aldi, etc., has helped convince others that, if done right, a store’s own private label can be a reason consumers
choose to go there and keep coming back.


It’s not the only reason however.


“We want to give the customers choices,” Kevin Srigley, vice president of marketing for Giant Eagle told Grocery Headquarters. “We’re not trying to be everything to everyone, but we do want to make sure that we’re giving people the right choices – whether they want the national brand, a premium Giant Eagle brand, a mainline Giant Eagle brand, or the Value Time brand. Different customers in different categories have different needs.”


Instead of taking an adversarial approach, retailers and manufacturers are working together to find the right mix of national and store brands to drive total category and store sales and profits.


Mark Baum, executive vice president of the Grocery Manufacturers Association and RetailWire BrainTrust panelist, said, “Retailers are trying to connect with their consumers – understand who they are, what they want, and provide the optimum mix of products by category.”


National brands, according to Mr. Baum and others, have the traditional advantages of larger research and development budgets to create innovative new products, a history of trust developed through consumer use over years, as well advertising and promotional budgets that keep them front and center in the minds of consumers.


Retailers such as Giant Eagle understand the important role that national brands play.


“Virtually every national brand manufacturer is focused on innovation, on driving volume, on driving customer demand to make sure that they maintain the innovation and brand equity that will cause consumers to choose them. So we will continue to have a very strong and collaborative relationship with our key partners as we look to build their business.”


Moderator’s Comment: Have retailers needed to become more like brand managers as private label has grown in importance? Have they? What factors are standing
in the way of achieving the optimum mix of private label and national brands across the store?

George Anderson – Moderator

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13 Comments on "GHQ Cover Story 11/05: A Bigger Picture"


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James Tenser
Guest
15 years 3 months ago
In supermarkets, at least, there is great pressure on national brand manufacturers to continually introduce new, value-added convenience products. The intent is to “create excitement” in the merchandise mix. Store brand products tend to shadow these product development trends, picking off the most popular ones and offering their alternative takes. Consumers make judgments on overall value by comparing quality, cost and brand reputation. But store brand products do not by themselves define a store’s brand – or brand image. Each retailer must manage its total brand strategy at three levels: 1) institutional (what the retailer stands for); 2) national brands carried (brings ascribed reputation); and 3) the private label program (proves the value equation). In conventional supermarkets, coordination among these three levels is seldom well-handled (Giant Eagle and Wegman’s may stand as exceptions to this). I’m disappointed to observe when supermarkets seem to play a game with their store brands by offering an own label that doesn’t link explicitly with the store’s identity. I believe a retailer must stand proudly and unambiguously behind its store… Read more »
Jim Dickson
Guest
Jim Dickson
15 years 3 months ago

PL is a branding and loyalty opportunity for the retailer. It is a way to build equity, trust and loyalty with the consumer. An example of this is Wegmans. Wegmans offers high quality PL at a slight discount to the National Brands. Their PLs have become destination products for many of their consumers. This drives traffic, loyalty and creates strong equity. PL is not just a price point but can be a brand equity builder.

Douglas Gray
Guest
Douglas Gray
15 years 3 months ago

It is my experience that chains treating their private label as branded products create incremental sales versus simply trading consumers from a national brand purchase to a store label purchase. By offering consumers a unique product, flavor, pack or size not available from a national brand, they create greater loyalty to their own brand. Equally important, the consumer must return to their chain to purchase these unique products.

Ben Ball
Guest
15 years 3 months ago
“The essence of positioning is sacrifice”… (I think that was the way Rosser Reeves said it.) The efforts of retailers to build and manage successful brands will be conflicted and confounded until they make a fundamental choice. Are you a “distributor” or are you a “brand marketer”? Look at the examples of private label excellence that George cites: Aldi, Trader Joe’s, Loblaws – all essentially private label brand houses. (I don’t know either Aldi’s or Loblaw’s exact sales mix, but the last time I was in Loblaw’s, 23 out of 24 end aisles were private label — so I’d call that pretty well exclusive.) These retailers have made the choice to be brand marketers. They are not concerned with offering consumers brand choice. They are focused on being a distinctive and exclusive destination for their own brand(s). This is a clear departure from the traditional positioning of supermarkets, which is as distributors offering maximum brand choice in one location. Certainly some retailers do a better job than others of offering a house brand as a… Read more »
Carol Spieckerman
Guest
15 years 3 months ago
Actually, I would reverse the logic to say that retailers have become really good brand managers and, therefore, private label has grown in importance . . . essentially, it has become more of an option for more retailers than ever before (now to include dollar stores). There are two ways for retailers to get at private label – have your current vendors execute it for you or do it yourself. It’s the latter DIY approach that I believe really speaks to a trend. As many vendors fall woefully behind in everything from sales ability and follow-up skills to technology to execution and conflict resolution, direct programs become an enticing and profitable alternative for retailers. Many vendors I work with tell me (and themselves) that the strategy shifts that cost them programs were inevitable and out of their control. Retailers tell us the business was theirs to lose in some cases but that they got tired of battles and slow response. In some cases, retailers have been forced into their brand manager role . . .… Read more »
Mark Lilien
Guest
15 years 3 months ago

Aeropostale is an excellent 2-way example: Macy’s started it, but it didn’t become a robust competitor with good financials until after it was spun off. So what did Macy’s gain and what did it prove?

Don Delzell
Guest
Don Delzell
15 years 3 months ago

Private label programs are an integral element of a balanced and well managed merchandise assortment. The degree to which a retailer incorporates these programs should vary substantially by product category, dependent on a great many variables.

This issue truly does not lend itself to quick and dirty answers. Many private label offerings are equal or better in quality to moderate branded offerings. Many are not. Many categories of merchandise have sufficient demand within a given retailer to support an assortment incorporating private label program(s). Many do not.

Private label merchandise is without doubt an important tool in the toolkit a retailer has in connecting with the customer, and delivering shareholder value. Like any tool, its validity is a function of the training, aptitude, and skills of the user.

Kai Clarke
Guest
15 years 3 months ago

This is rapidly turning into both a profit picture and a branding opportunity. With retail giants like Target and Best Buy now creating their own brands, and advertising them nationally, house brands are now becoming competition for major brand names in these stores. Target’s move to upscale itself combined with their ability to market, merchandise and control the cradle-to-grave logistics is making for a winning combination as retail changes itself once more.

Richard J. George, Ph.D.
Guest
15 years 3 months ago

With the few exceptions previously noted, most retailers still view most private label offerings as primarily “margin” opportunities. For the most part, food retailers do not perceive everything that they do, including private label, as a means to establish and reinforce their brand. Retailers need to think like a brand and act like a retailer.

Effective private label marketing within the context of the holistic retail brand will only happen when retailers look to the front door, the customer, and not the back door, the manufacturer, for direction. Historically, most retailers, with the exceptions previously mentioned, have not done a good job in this area. Delegating category captains to execute category management without regard for the retailer’s strategy reinforces the “margin” position of private label.

Food retailers need to act like “merchant marketers” and take responsibility for branding the store, including the assortments of brands on the shelves. Food retailers can learn from the Gap and the Limited how to effectively brand the store, including store brands.

Karen Kingsley
Guest
Karen Kingsley
15 years 3 months ago

I fundamentally agree with Mark and David. The problem with PL at most of the larger chains is that it is a lower quality product sold at a low price. The successful PL programs offer a quality product at a good price. There is no brand-building whatsoever in the vast majority of PL programs. Consequently, the store-labeled products only serve to diminish the store’s brand image with customers. This puts them in the position of building other people’s brands while trashing their own: long-term, not a good business strategy. It also doesn’t help them to differentiate their brand from competitors.

David Livingston
Guest
15 years 3 months ago

The well run regionals like HEB and Roundy’s have done an excellent job with private label. Consumers consider their private labels as national brands. A chain’s reputation as a retailer goes a long way in establishing a strong private label image. Many of the larger, publicly held chains that have weakening market shares and sales per sq. ft. performances that lag the industry also have a weak private label image.

Mark Lilien
Guest
15 years 3 months ago

True brand management involves setting multi-year business plans and updating them continually. Substantial management time investment as well as financial investments are usually needed. Most retailers haven’t got the patience, won’t invest the money, and won’t hire people with the right experience. Private label thinking is often just, “What can we sell for less and make better margins than the branded items?” Very few retailers use private label as a successful competitive weapon, if success is defined as more than, “We sell exactly the same thing for a few cents less and make a few cents more on it.”

Stephan Kouzomis
Guest
Stephan Kouzomis
15 years 3 months ago

Need a ‘keeper of the House’ for Upscale and Specialty private label products, under one Brand name!

Within the research are needs to understand what categories may need such an effort, for all departments and their segments may not need the upscale PL Brand. As important, the PL structure must include some budget to advertise and exposure to the shoppers. The budget isn’t a price reduction purse, but a marketing box of ways to gain trial, repeat sales; and offer the word of mouth approach to other shoppers! HHmmmmmmm

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