PL Buyer: A Little ‘Co-Opetition,’ Please

Discussion
Dec 10, 2009
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By
Private Label Buyer staff

Through
a special arrangement, what follows is a summary of a current article
from Private Label Buyer,
presented here for discussion.

During
the past couple of years, many retailers have invested serious time and
money in private label product enhancements and innovation. The national
brands, meanwhile, have been losing more and more sales to these store
brand alternatives, thanks in part to a down economy that has consumers
seeking out value.

But the current national brand vs. retailer situation
does not necessarily have to play out as an “us against them” scenario. According
to panelists in a Sept. 29 webinar hosted by Willard Bishop, “co-opetition” —
the act of competing and cooperating at the same time to achieve mutual success
— might be in both parties’ best interests.

Andy Abraham, vice president of
Our Own Brands for Supervalu and a webinar panelist, said he believes many
national brand manufacturers have a good idea of what retailers are trying
to accomplish with their private brand programs today.

“I think the real question is, how well do they accept it?” he explained. “And
to that end, it’s really only to the degree that it doesn’t impact their
current brands or their current way of thinking.”

Whether they accept this
new reality or not, national brand manufacturers must make sure their products
are still relevant to the consumer, Mr. Abraham said, and not redundant on
the shelves, as retailers step up SKU rationalization efforts.

“I’m going to use an analogy,” Mr. Abraham added. “A few years ago, Alex
Rodriguez wanted to play with the Yankees as a short stop. And he had to
rethink, ‘Well do I try to throw out the other shortstop, or do I just play
third base and, therefore, have a different role on the team?'”

A-Rod,
of course, is still playing third base for the Yankees — and the national
brands also need to rethink their game plan so their offerings do not
go head-to-head with retailers’ brands. Differentiation is a key part of
successful co-opetition.

As
a retailer, Abraham sees co-opetition opportunities not just in product differentiation,
but also in actual production.

“There
are a number of folks that have considered themselves a branded or a
branded-only company that have figured out the way they can deliver value
to the retailer is not only through their brand, but also through producing
or creating the flavors and the favorites that we want — to hold their
volume, essentially, and make it a better acquisition cost for us,” he
said. “It’s a lower cost for them, ultimately, [when] they push more
volume through their production facilities.”

Another retailer panelist
who said he would love to do the same is Anthea Jones, senior vice president
of store operations for BI-LO. In addition, he said shared promotions
such as a “buy a national brand item, get this
private brand item for free” sale can help drive private brand trial while
boosting sales of national brand items at the same time.

Discussion
Questions: Should national brands help retailers grow their private
label offerings? Should national brands produce and/or promote
store brands? In
what other ways should national brands get involved in private
label strategies?

Please practice The RetailWire Golden Rule when submitting your comments.

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14 Comments on "PL Buyer: A Little ‘Co-Opetition,’ Please"


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Dr. Stephen Needel
Guest
11 years 4 months ago

National brands have no business getting involved with private label strategies. However, manufacturers of national brands have a vested interest in helping stores to grow their private label business. The key is to have your national brand sufficiently differentiated from the store brand. When you do that, you are not competing with yourself.

And I can’t imagine why a national brand would want to be promoted with a store brand unless the quality difference was so large that the national brand would expect a migration opposite the usual direction.

Doron Levy
Guest
Doron Levy
11 years 4 months ago

If you look at how much investment retailers are putting into PL, it makes sense for national brand vendors to get in on the action. Name brands could easily use their resources to help retailers grow and manage their house brand program. For vendors it makes sense to get involved because they could control (to a certain degree) package design and shelf layout with the unified goal of helping the merchant sell more of both products. Can a partnership like this exist? I’m not sure but it’s worth a try.

J. Peter Deeb
Guest
11 years 4 months ago

This is a question that must be answered individually by branded companies. Those with strong shares and category management leadership may opt to drive toward a two brand strategy, one being the store brand, and help in the SKU rationalization. Those with manufacturing capacity should look toward a supply partnership with selected retailers that might give them a competitive advantage and a new profit source, even if they have never been a PL producer. The most difficult position going forward may well be the 3rd brand with no point of consumer difference and limited production capabilities. The real battleground could be the categories, like cereal, where several large brands have traditionally fought store brand and brand alike to hold share and volume.

Regardless of their competitive position, branded companies should accept the new reality in store brands and look to grow categories with consumers that ultimately will drive overall volume.

Max Goldberg
Guest
11 years 4 months ago

The balance of power has clearly shifted to retailers. That does not mean that national brands need to help retailers build their private label offerings. Brands spend millions of dollars studying the marketplace and then creating, manufacturing and selling their products to consumers. Many are public companies with responsibility to drive shareholder value. Why should they help competition that would hurt their company?

Gene Hoffman
Guest
Gene Hoffman
11 years 4 months ago

In this era of product transition, CPG manufacturers should remember that there is a limit to how much product consumers will buy. Two things happen when national brands agree to offer a private label item with a sale of one of its items: 1) there are two comparable products at different prices for consumers to compare–and 2) if there is not a perceptible superiority in the national brand, the lower cost PL gets a boost at a time when the trend is going in its favor.

PLs are capturing the hearts, pallets and pocketbooks of the growing army of value-minded consumers. That indicates that the big challenge for national brands is to create a brand new perception of differentiation.

Ben Ball
Guest
11 years 4 months ago
For about ten years now we have been writing that the “New Face of Competition” in CPG will involve four key roles;1) Outlet Franchise Owners – retailers essentially2) Brand Franchise Owners – ANYONE who “owns” any brand3) Converters – raw materials to finished goods4) Third Party Facilitators – anyone who tries to make money by being more efficient than the others at the “seams” such as brokers and freight consolidators In this new (now current) world, retailers will realize that they too own brands, and that there is no reason they have to be second tier knock-offs. Others will build unique brands on the basis of formulation and marketing, but choose not to manufacture (Amerifit is a great example). And many “national brand manufacturers” who have not truly invested in innovation and consumer franchise building will find that all their ownership of plant and equipment guarantees them is the right to bid as a converter. And heaven help them if they are not the most efficient converter in the market. I predict that consultants will… Read more »
Carol Spieckerman
Guest
11 years 4 months ago
I conducted a webinar on this very subject yesterday in conjunction with LIMA (the International Licensing Merchandisers Association). Private label is too often talked about as a “thing,” as something that exists apart from other retail dynamics. I encourage suppliers, licensees and licensors to look at the big picture and how private label is blurring into other branding models as well as how it helps retailers achieve a growing list of goals which go far beyond price. 1. Margin – Important all along and always a factor in private label, however, more important than ever as retailers slow down store growth and rely on comp store sales.2. Total brand anchor – These days, retailers see everything from store environment (displays, signage, adjacencies, in-store network content), Internet and social media presence (active and passive) and the partners they do business with as a reflection of their total brand. Private label is the ultimate representation of the brand because, as Andrea Thomas, Walmart’s SVP of private brands said (see my blog coverage of her presentation in Bentonville),… Read more »
Kevin Mahon
Guest
Kevin Mahon
11 years 4 months ago

As a manufacturer, I have experienced SKU reduction in 2008 and 2009. Retailers have increased their Private Label number of items, share of shelf, and number of promotions. Not surprisingly, Private Label share has grown and we have seen category deflation as shoppers trade down to lower price points. The Private Brands have not created a bigger pie; they have merely reduced category dollars. In my experience, retailers mandated the Private Label expansion and were not interested in working with suppliers to drive total category growth.

Julie Parrish
Guest
Julie Parrish
11 years 4 months ago
From the consumer side of the table in this proposition, I think it’s a bad bet for brands to hitch their wagons to private labels. First, I think there’s confusion in the mind of the consumer right now about PL vs. brands. There’s a huge media push that private labels are: a better deal, of the same quality, and cook/process the same as a branded item. So if a co-promotion comes about–buy Brand X turkey, get private label brand mashed potato flakes free, there’s a message that Brand X is endorsing the private label product. Consumers don’t get the machinations of how those promotions actually happen behind the scenes. The value of Brand B mashed potato flakes is actually diminished in the mind of the consumer by those promotions. Certainly, that’s not to say that all private label items are of lesser quality than the brands. In fact, I have several favorites where the branded equivalent is beat out all together by a private label alternative. But, I do believe that the larger slotting for… Read more »
Anne Bieler
Guest
Anne Bieler
11 years 4 months ago

There is big space for retailers and brands to collaborate where both can win. A number of brand companies are creating retailer-specific programs like convenience food departments–outside category–that reflect shopper marketing and consumer focus. But, there is a huge difference between working cooperatively versus creating long-term alliances–selling to and competing with your client is tricky. There are many profitable ways to work together, but retail will always be dynamic and in this scenario, there are too many moving parts to manage on a large scale.

Michael L. Howatt
Guest
Michael L. Howatt
11 years 4 months ago

The use of the word “collaborate” made me chuckle. The point of PL and the reason so many retailers are putting valuable resources into PL is to “stick it” to the CPG companies. For years, retailers were pushed around by them and now they are striking back. Yes the us vs. them mentality is alive and well and this sure proves it. I sincerely doubt that if CPG manufacturers tried to work with the retailers on their PL initiatives they would….

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
11 years 4 months ago

A strategy of working with a retailer to promote non-competitive PL brands is a real opportunity for National Brands. As long as the National Brand can benefit from the relationship (win-win). For example, the retailer offering merchandising space to promote both the NB and non-competing PL brand is an option.

Private label had a huge bump in 2008-2009. That trend will continue, but will certainly slow down as the economy improves. A strategy that co-promotes NB with non-competitive PL seems to be a better approach than moving down the road of manufacturing PL products that will certainly compete with your NBs. NBs need to focus on innovation and creative ways of collaborating with retailers.

There are several very good books out on this topic. I would suggest this be the first one you read.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
11 years 4 months ago
The strained theory of cooperation between manufacturers and retailers has been touted–and repeatedly proven both naive and impossible–for decades. “Co-opetition” is just the latest retread of this idea. While it’s fashionable to rhapsodize about it (“why can’t we all just get along?”), collaboration of this type is a pipe dream. Those who observe that “power has shifted to the retailers” haven’t been paying attention since the 80s. PL’s growth is not due to consumer demand. It’s due to retailers unilaterally pushing national brands off their shelves in order to display store brands. A&P did this in the mid-1900s, and suffered the consequences when national brands established dominance through use of a new technology–television. Of course, brand promotion cost more than simply stocking shelves with PL, so they were more expensive for consumers to buy. But brand share grew anyway, through good times and bad. Today, hardly a week goes by in which we do not discuss in RetailWire the potential marketing impact of new consumer communication technologies like social networking. Brands must take a lesson… Read more »
William Passodelis
Guest
11 years 4 months ago
I do not know…. If I were a national brand, I would be wary. I guess it comes down to “is some sale better than no sale?” i.e., I can sell MY product or I can sell a product; I help grocery retailer X with this and I still make Y amount–not as good as MY own product but I’ll take it. I do not know if that is such a good strategy but I am certain that a lot of companies might be interested. Let’s face it; most private labels are really getting good and very close to the primary, more expensive competition. As a national getting involved, you are creating another channel to compete against the other one or two nationals in any given category but you also are directly competing with yourself–and you just cant simply change the package, you have to protect YOUR offering and differentiate your more expensive offer from the slightly less expensive PL that you are helping grocer X with. This crosses into brand and brand value and… Read more »
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