Photo: Trader Joe’s
Private label foods need work
Through a special arrangement, presented here for discussion is an excerpt of a current article from Frozen & Refrigerated Buyer magazine.
Outside of chains like Trader Joe’s, most retailers remain fairly risk-averse with their private label food offerings. Most are more comfortable following — albeit faster than in the past — than leading, contends Bob Shaw, president of Concentric Marketing.
In addition, too many simply accept “private label just doesn’t do well” in certain categories instead of working to figure out why and how to fix it. Mr. Shaw’s advice: “Break the rules; don’t demure to them.”
For those still hesitant to lead, Mr. Shaw suggests partnering with emerging companies to incubate “captive brands” that offer a period of exclusivity. “Products like that can be a win-win for both sides,” says Mr. Shaw.
Improvements can also be made in how own brand products are marketed. “I think retailers view private label as more profit- versus growth-driver, so you don’t see marketing around specific store brand products.”
As a result, they’re missing opportunities to cultivate “signature items” that can have an outsized impact on store sales. For example, a new study from market intelligence firm Numerator found customers who buy Costco’s Kirkland Signature rotisserie chicken and Trader Joe’s much-ballyhooed cauliflower gnocchi shop more frequently and spend more at each retailer. An example of a grocer leveraging an internal hit is Publix, which just introduced a full line of merchandise around its famous Pub Subs.
Mr. Shaw adds that there are also opportunities to better market private label products to individual shoppers using transactional data to nudge them toward items likely to be a good fit (via apps or e-mail).
Another area that could still use a little work is pricing, says Jim Hertel, SVP at
Inmar Analytics. “We still see too many retailers that don’t take a disciplined, thoughtful approach to pricing private label relative to national brand products, across value tiers and across sizes within tiers,” he reports, citing problems in categories throughout the supermarket. As a result, the strategic impact of private label can be lessened with millions of dollars left on the table. “Getting pricing right can lead to rapid improvement in profitability and more intensive shopping of the entire store,” he says.
Discussion Questions
DISCUSSION QUESTIONS: Where do you see the biggest opportunities for grocers to elevate their food private-label offerings? Does product innovation, quality, marketing, pricing or some other aspect stand out as the biggest shortcoming?
Poll
BrainTrust
Richard J. George, Ph.D.
Professor of Food Marketing, Haub School of Business, Saint Joseph's University
Ron Margulis
Managing Director, RAM Communications
This largely depends upon the retailer. Wegmans’ private label foods are excellent; Publix and Costco also have very strong offers. Target is revamping its grocery offer and having had quite a few products from Good & Gather I have been impressed.
Among some of the mainstream mid-tier grocers the offer is far more hit and miss. Kroger is great at some things like confectionery but is poor on readymade foods. Safeway, Alberstons, Hannaford, Shaw’s and the like are pretty poor all around.
I long for a retailer that makes readymade meals of the quality of Marks & Spencer, and for a retailer that puts as much effort into its private label food development as Waitrose. In fact, U.S. grocers could learn a lot from their U.K. counterparts which are great at private label.
Retailers are only just now waking up to the value of making private label stand out. A key shift for retailers is to think of these as “owned brands” versus private label; a subtle shift to be sure, but everything communicates. Brands offer value and can drive a unique value proposition for consumers whereas private label connotes keeping up with the competition. Elevating owned brands can be done by taking a stand and driving innovation. By offering something different with owned brands vs. private label, retailers win on more than just price.
The biggest shortcoming is a failure to commit to a real potentially positive differentiator. Every food retailer carries the leading national brands. The question becomes, what will make a customer drive past one food retailer to visit another? Clearly a well-defined private label offering, appropriately priced and properly merchandised is one big reason to do so. When it comes to private label, food retailers need to think like a brand and act like a retailer. Private label can be a key component of the retailer’s branding strategy.
The busiest booths at last week’s Private Label show in Chicago featured fresh products and it wasn’t just because they were sampling their wares. National brands have been moving rapidly into the perimeter and store brands are following closely behind. The key, as covertly suggested in the article, is for retailers to take a risk and try to leapfrog the national brands with new creations that will engage shoppers and have them spend more of their wallet. Trader Joe’s tries and fast fails with a lot of fresh items. Other retailers need to follow suit.
For many mainstream retailers, private label retains the stigma from the generics craze 30 years ago. Since then, store brands have been viewed internally as cheap imitations of the real thing, and little to no effort has been put into developing a solid store brand offering. From a consumer perspective, that generic stigma doesn’t exist. Private label is an opportunity to differentiate and provide unique products that aren’t available elsewhere, but retailers are late making the investment.
Those retailers that are not focusing on private label are missing a great opportunity to make their stores more profitable but, more importantly, providing reasons why the customer looks to make their store a destination. It may only be for the chicken at Costco or the Gnocchi at Trader Joe’s, but it may also be THE reason to shop there as opposed to a retailer that is not a player in private label. There’s a reason why Costco sells their chickens for $4.99.
First, a retailer must make sure the quality of their private label product is equal to or above the quality of the national brands in the category. It is important to sample the product allowing the shopper to feel good about the trial purchase. Second, the retailer needs to have attractive packaging and branding. No need to call the private label retailer X brand. Have an innovative name for the private label with eye catching packaging. Third, be innovative with flavors and ethnic foods. Provide the consumer with unique flavors and ingredients that they can’t get in a national brand. Finally, find the right price points. This may take some trial and error and analytics, but you must get the retail price right so shoppers can equate quality with the value of the product.
More grocers could spice up their competitive strategy with tantalizing private label innovations.
Instead of adopting a cautious follower strategy (wait to see which national brand items sell best, then imitate them), grocers can adopt a far bolder approach. Private label innovations differentiate retailers with exclusive products that delight consumers with quality, variety and sensory appeal.
For example:
These companies prove that agility and taking risks with private labels can pay off for retailers.
I question the first line in the article, “…chains like Trader Joe’s.” Umm, there are NO chains like Trader Joe’s. They have proven that PL can work in ANY category. Period.
Other retailers just find excuses. That’s why Trader Joe’s is so compelling for shoppers.
Trader Joe’s is an unfair comparison for supermarkets–it is almost exclusively a house brand retailer. They are not. Supermarkets have largely built house brands as off-price equivalents to name brands and to a large degree, have wiped out any cachet their brands might have. To create new opportunities, it will likely take creating new store brands in addition to the lower priced existing ones, but at national brand pricing and with similar marketing strategies.
I view the “same-as-but-cheaper” approach to private label packaged foods as pretty much a bankrupt strategy. OK for items like flashlight batteries, perhaps, but who really needs another no-name frozen pizza?
The store brands most praised in this discussion are strongly associated with the stores themselves, and they in turn, stand for something, positioning-wise.
When an own-label product successfully exemplifies, “this is how we take good care of our customers,” it’s on the right track. Even better when shoppers want to come to your stores because of those store-branded products they can’t find elsewhere.
It’s rare that retailers can be first to market with a wholly new product concept, but they can jump on emerging trends with superior execution and value.
Private labels are the perfect opportunity to delight the customer and create loyalty based on true love of product, not miles or points or some kind of discount. It’s the opposite of race-to-the-bottom. It’s race-to-be-BETTER — better in pricing AND better in quality. Yes, the retailer can go down in both quality and price, and many have. Costco showed us the way with Kirkland.
Several opportunities work for grocers to private label. First and foremost, they must have a package that is compelling to the consumer. That includes the look of the package, the promise of the “difference” (which is more than price) and more. I asked a number of people about private-labeled foods and several of them referred to them as “generics.” Furthermore, their packaging looked like a generic. One big opportunity that a grocer has with their private label is to localize the packaging. Customers love the local or regional feel to what they buy.
Growth in private label growth is outpacing national brands in many categories and among many shopper groups. A majority of consumers state their financial health is good, but fears of a recession are eroding their confidence. More than 99% of consumers buy private label today and millennials increased their spending by 10% in 2019 over 2018.
That said, this shopper group is moving into higher income brackets, so retailers will need to adjust the value, quality and innovation of their offerings to keep these shoppers loyal. In addition, there is room for improvement in the packaging of private label products, and addressing this will create new opportunities for growth.
More details are available in IRI’s new Q3 Consumer Connect report, released in early November.